Guo v HD International Pty Ltd

[2024] NSWSC 1283

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Guo v HD International Pty Ltd [2024] NSWSC 1283

Hearing dates:

4 September 2024

Date of orders:

14 October 2024

Decision date:

14 October 2024

Jurisdiction:

Equity - Expedition List

Before:

Rees J

Decision:

Orders made for replacement of trustee and vesting.

Catchwords:

EQUITY – trusts and trustees – beneficiary seeks order for removal of deadlocked corporate trustee – where trustee has ignored repeated requests for information and access to trust documents – where there is a risk of trustee not prosecuting causes of action worth $26.9 million on beneficiary’s behalf before becoming statute-barred – replacement of a trustee, principles at [57]–[60].

TRUSTS – vesting orders where new trustee is appointed – Trustee Act 1925 (NSW) s 71(1) – principles at [68]-[71].

Legislation Cited:

Trustee Act 1925 (NSW), ss 70, 71, 78

Cases Cited:

Aspinallv Aqua Sports Pty Ltd (2018) 57 Fam LR 594; [2018] NSWSC 706

Bloomingdale Holdings Pty Ltd v 87 Stevedore Street Pty Ltd(in its own capacity and as trustee of the Stevedore Street Development Unit Trust) (2010) 6 ASTLR 271

Cordes as Trustee for George v Dr Peter Ironside Pty Ltd [2010] 2 Qd R 235; [2009] QCA 302

Cowan v Scargill [1984] 2 All ER 750

Crowle Foundationv NSW Trustee & Guardian [2010] NSWSC 647

Deputy Commissioner of Taxation v Huang (No 4) [2022] FCA 618

Deputy Commissioner of Taxation v Huang [2019] FCA 1537

DulhuntyvDulthunty [2010] NSWSC 1465

Gleeson v J Wippell & Co [1977] 1 WLR 510

Hancock v Rinehart (2015) 106 ACSR 207

Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41

Miller v Cameron (1936) 54 CLR 572

ReBeechworthLandEstatesPtyLtd(inliq)andGriffıth Estates Pty Ltd (in liq) [2018] NSWSC 1703

Sir Moses Montefiore Jewish Home v Perpetual Company Ltd & Anor [2012] NSWSC 210

United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157

Texts Cited:

JD Heydon & MJ Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016, Lexis Nexis)

Category:

Principal judgment

Parties:

Wencheng Guo (First Plaintiff)
Huidong Guo (Second Plaintiff)
HD International Pty Ltd (Defendant)
Changran Huang (First Interested Party)
Jiquan Huang (Second Interested Party)

Representation:

Counsel:
DJ Delany (Plaintiffs)
N Li (First Interested party)
F Corsaro SC / J Doyle (Second Interested Party)

Solicitors:
Arnold Bloch Leibler (Plaintiffs)
Unsworth Legal (First Interested Party)
Connor & Co Lawyers (Second Interested Party)

File Number(s):

2024/296187

JUDGMENT

1. HER HONOUR: This is an application under ss 70 and 71 of the Trustee Act 1925 (NSW) to replace a trustee and vest trust property in the new trustee, in advance of a trial in the Commercial List on 4 November 2024.

2. The trust is the Guo Family Trust. The plaintiffs, Wencheng (Jeff) Guo and his son Huidong (William) Guo, are beneficiaries of the Guo Family Trust. Mr Guo Snr is the only named beneficiary whilst Mr Guo Jnr, as his child, is a discretionary object of the trust.

3. The trustee is the defendant, HD International Pty Ltd, for which there was no appearance. Mr Guo Jnr is a director of the trustee and owns 30% of the shares in HD International. The other director and 70% shareholder is Jiquan (Jimmy) Huang, who was given leave to appear as an interested party. So too was his father, Changran Huang.

4. The proposed new trustee is Willow G Holding Pty Ltd. The directors of this company are Mr Guo Snr’s accountant in Sydney (Wang (Kelvin) Le) and Zhongming He (who holds a Masters of Commerce degree and has experience in financial administration). Mr He is also married to Mr Guo Snr’s accountant in Brisbane.

5. The plaintiffs relied on affidavits by each of them, together with affidavits by translators and solicitor Stephen Lloyd. The plaintiffs and the interested parties tendered various documents, including a substantial number of WeChat messages and Mr Huang Snr’s witness statement in the Commercial List proceedings. There was no cross-examination. Also in evidence is the pleadings in the Commercial List proceedings, which indicate that a number of facts set out below are not in dispute.

Investments and loans

6. Mr Guo Snr and Mr Huang Snr come from the same town in China and were friends. Mr Huang Snr paid for Mr Guo Snr and his wife to visit Sydney in August 2012. Mr Huang Snr told Mr Guo Snr that there were lots of business opportunities here.

7. In September 2012, Mr Huang Snr established Yuhu Group (Australia) Pty Ltd, which later changed its name to Yufeng Investment Group (Australia) Pty Ltd (Yufeng). Mr Huang Snr was a director of Yufeng and held 70 of the company’s 100 shares.

8. In February 2013, Mr Guo Snr visited Sydney again at Mr Huang Snr’s invitation. In the Commercial List proceedings, Mr Guo Snr contends that he was encouraged to invest $20 million in the purchase and redevelopment of a shopping centre in Eastwood, in return for which Mr Guo Snr would receive a 60% interest (the Investment Agreement). Yufeng would buy the property. Mr Guo Snr would have a 60% interest in Yufeng, of which 30% would be held by Mr Guo Snr’s wife and 30% would be held by Mr Huang Snr on trust. Mr Guo Snr said that he and Mr Huang Snr formed a joint venture. Mr Huang Snr denies the Investment Agreement and the joint venture.

9. In April 2013, Mr Guo Snr’s wife became a director of Yufeng. In the Commercial List proceedings, Mr Guo Snr contends that, in May 2013, he transferred $20 million to Yufeng.

10. In May 2013, Mr Huang Snr established Roseburg Investment Pty Ltd. Mr Huang Snr’s wife and son became directors and equal shareholders of Roseburg. Mr Huang Snr transferred his 70 shares in Yufeng to Roseburg. Mr Guo Snr says 30 of these shares were, in fact, held by Mr Huang Snr on trust for Mr Guo Snr. Mr Huang Snr denies this.

11. In May 2013, Mr Huang Snr established Yuhu Property (Australia) Pty Ltd, which later changed its name to 152 Rowy Pty Ltd (152 Rowy). The company took its new name from the address of the Eastwood shopping centre that the company acquired later that year. Mr Huang Snr was a director of 152 Rowy. Yufeng owned 95% of the shares of 152 Rowy. Mr Guo Snr said he was not aware that the shopping centre was purchased by 152 Rowy rather than by Yufeng.

12. In October 2013, Mr Guo Snr says that he lent $16.8 million to Mr Huang Snr, to be guaranteed by Yufeng and repaid when Mr Huang was able or, at the latest, when the Eastwood shopping centre was sold.

13. In July 2014, Mr Guo’s wife acquired 30 shares in Yufeng. In the Commercial List proceedings, Mr Huang Snr contends that he only transferred to 30 shares to Mr Guo Snr’s wife because Mr Guo Snr asked him to assist with an application for permanent residence; Mr Huang Snr says that he remained the beneficial owner of these shares.

The trust

14. In September 2014, the Guo Family Trust was established. The beneficiaries were Mr Guo Snr, his wife and family. The trustee was Tongxin International Pty Ltd. The directors of Tongxin and the appointors of the trust were Mr Guo Snr’s wife and son. The shares in Tongxin were held 70% by Mr Guo Snr’s wife and 30% by his son.

15. In October 2014, Mr Guo Snr’s wife transferred her 30 shares in Yufeng to Tongxin, which then held the investment on behalf of the Guo Family Trust. (Mr Huang Snr contends that he remained the beneficial owner of these shares.)

16. In June 2015, Mr Guo Snr and his wife divorced. In October 2015, Mr Guo Snr moved from China to live in Australia. Mr Guo Snr spoke to Mr Huang Snr about the divorce. Mr Huang Snr suggested that it was time to change the trustee to protect the assets of the trust. Mr Huang Snr offered to take the place of Mr Guo Snr’s wife as a director of the new trustee. Mr Huang Snr also offered to hold a majority of the shares in the new trustee company on Mr Guo Snr’s behalf and said he would write a letter confirming this. Mr Guo Snr agreed.

17. In March 2016, Mr Guo Snr’s wife ceased to be a director of Tongxin and Yufeng and resigned as appointor of the Guo Family Trust.

18. In April 2016, HD International replaced Tongxin as trustee of the Guo Family Trust. The directors of HD International were Mr Guo Jnr and Mr Huang Snr. HD International’s shares were held 30% by Mr Guo Jnr and 70% by Mr Huang Snr. The trust deed was amended to remove Mr Guo Snr’s wife as a beneficiary of the Guo Family Trust. HD International also replaced Tongxin as a 30% shareholder in Yufeng. WeChat messages indicate that Mr Guo Jnr met with Roy Huang, Deputy Managing Director of “Yuhu Group”, to sign the necessary paperwork in relation to the change of shareholder.

19. In May 2016, Roy Huang contacted Mr Guo Jnr again to sign “more documents”. Mr Huang Snr’s assistant, Meijuan (Anna) Wu, progressed these arrangements, asking Mr Guo Jnr to sign a letter as a director of HD International, authorising Ms Wu to access and manage the company’s information with the Australian Securities & Investments Commission (ASIC). The letter of authorisation noted that any transfer of shares or appointment of directors must be approved by Mr Huang Snr. Mr Guo Jnr signed the letter of authorisation in June 2016.

20. In late June 2016 and early July 2016, Roy Huang liaised with Mr Guo Jnr to sign further documents in relation to the end of financial year. One of these documents was an amendment to the trust deed for the Guo Family Trust, adding Mr Huang Snr as a further appointor of the trust.

21. Mr Guo Snr did not, however, receive a letter from Mr Huang Snr confirming that he held his shares in HD International for Mr Guo Snr.

22. At about this time, Mr Huang Snr became the subject of an audit by the Australian Taxation Office. In November 2018, Mr Huang Snr ceased to be a director of HD International, Yufeng and 152 Rowy. Mr Huang Jnr was appointed in his stead. In December 2018, Mr Huang Snr left Australia for China; his Australian visa was cancelled.

23. In February 2019, Mr Guo Jnr lodged a Form 484 Change to company details with ASIC, advising that Mr Huang Snr’s shares in HD International had been transferred to Mr Huang Jnr. Since then, the directors of HD International have been Mr Guo Jnr and Mr Huang Jnr. The shareholders of HD International have been Mr Huang Jnr (as to 70%) and Mr Guo Jnr (as to 30%). The appointors of the Guo Family Trust have remained Mr Guo Jnr and Mr Huang Snr.

24. In September 2019, the Federal Court of Australia made a freezing order against Mr Huang Snr on the application of the Deputy Commissioner of Taxation: Deputy Commissioner of Taxation v Huang [2019] FCA 1537. Mr Huang Snr and his wife were prohibited from removing assets from Australia up to $140 million, other than to make payment to the Commissioner of Taxation.

25. In July 2021, 152 Rowy sold the Eastwood shopping centre for some $155 million. Mr Guo Snr said this occurred without his knowledge or consent.

Efforts to regularise the trust

26. In November 2021, according to WeChat messages between Mr Huang Snr and Roy Huang, searches were being made for documents in relation to the Guo Family Trust, apparently at the request of Mr Guo Snr. Roy Huang reminded Mr Huang Snr, “We helped remove [Mr Guo Snr’s wife] in 2016”. It would appear from the WeChat messages that the Guo family could not find the original trust deed; Roy Huang was reluctant to part with the original documents in respect of the replacement of the trustee in 2016, “I don’t know what his purpose is … once he takes them away, they are gone”.

27. In March and April 2022, Mr Guo Snr and Mr Huang Snr sent various WeChat messages and left voice messages for each other, which have been translated. On 28 March 2022, Mr Huang Snr sent Mr Guo Snr a WeChat message, “Should I put down your son or daughter's name as the administrator of your family trust?” According to a subsequent WeChat message from Mr Guo Snr, Mr Huang Snr had agreed to transfer his son’s shares in HD International to Mr Guo Snr’s daughter.

28. In the Commercial List proceedings, Mr Guo Snr contends that he was told by Mr Huang Snr on 25 March 2022 that the profit available for distribution from the Eastwood shopping centre was some $63 million; Mr Huang Snr proposed to transfer 30% of the profit to Mr Guo Snr via the Guo Family Trust. Mr Guo Snr was unhappy about this as he was entitled to 60%. On 4 April 2022, Mr Guo Snr sent a long WeChat message to Mr Huang Snr, complaining that the terms of his investment in the Eastwood shopping centre had not been honoured. Nor had Mr Huang Snr provided documents or information in respect of the development. Nor had Mr Guo Snr got his money back.

29. In respect of the Guo Family Trust, Mr Guo Snr also complained in the WeChat message that the trustee had been changed in 2016 on Mr Huang Snr’s suggestion, “to protect the assets of the Guo Family Trust and hold my shares on my behalf. You also promised to issue an entrusted holding agreement, but I have not received it yet.” Mr Guo Snr asked when the transfer of shares in HD Investments to his daughter would be completed. There is no evidence of a response.

30. In July 2022, the plaintiffs’ solicitor wrote to the trustee and Mr Huang Jnr, requesting copies of the constitution of HD International and financial records. (Mr Guo Jnr also sent the letter to Mr Huang Jnr via WeChat). Where Mr Huang Snr was said to have agreed to hold 70 shares in HD International on behalf of Mr Guo Snr, the shares were said to continue to be held by Mr Huang Jnr on trust for Mr Guo Snr. Where Mr Huang Snr had agreed to transfer the shares to Mr Guo Snr’s daughter, a share transfer form was supplied for completion and return. Where Yufeng had apparently sold the Eastwood shopping centre in 2021 for $155 million, but no distributions had been made to shareholders, information was sought in respect of the HD International’s shareholding in Yufeng. Demand was also made for repayment of the $16.8 million loan. There was no response.

31. In August 2022, the plaintiffs’ solicitor sent a follow up letter, emphasising the plaintiffs’ entitlement to the material sought, where Mr Guo Snr was the sole named beneficiary of the Guo Family Trust and Mr Guo Jnr was a director of HD International. Concern was expressed as to the due administration of the trust and Mr Huang Jnr’s compliance with his obligations as a director. Mr Guo Jnr sent the letter to Mr Huang Jnr via WeChat and also asked to meet. There was no response to either communique.

32. In the Commercial List proceedings, Mr Guo Snr contends that no profit distribution has been made in respect of the Eastwood shopping centre. While Mr Huang Snr had paid interest on the $16.8 million loan until demand was made for repayment, he then stopped paying interest and has not repaid the loan either.

Commercial List proceedings

33. In November 2022, Mr Guo Snr commenced proceedings in the Commercial List against Yufeng, Roseburg, Mr Huang Snr and 152 Rowy, seeking:

1. a declaration that Roseburg holds 30 Yufeng shares on trust for Mr Guo Snr;

2. damages from Yufeng and Mr Huang Snr under the Investment Agreement;

3. an account and equitable compensation from Mr Huang Snr and 152 Rowy in respect of the joint venture, where 60% of the income and profits on sale of the Eastwood shopping centre are said to be held by 152 Rowy on constructive trust for Mr Guo Snr; and

4. damages from Yufeng and Mr Huang Snr under the Loan Agreement and Guarantee.

34. Whilst Roseburg has filed a submitting appearance in the Commercial List proceedings, Yufeng, 152 Rowy and Mr Huang Snr are defending the proceedings. In particular, these defendants contend:

1. Mr Guo Snr’s wife made a $10.1 million shareholder loan to Yufeng in May 2013, which was transferred to Tongxin before completion of the accounts for 2014 or 2015 financial years;

2. it was an implied term of the shareholder loan that it was repayable on demand, but the proper plaintiff to recover the loan was the trustee of the Guo Family Trust and Mr Guo Snr lacks standing to bring any such claim;

3. the limitation period in respect of any claim to recover the shareholder loan has expired by reason of ss 14(1)(a) and 63 of the Limitation Act 1969 (NSW).

35. Yufeng, 152 Rowy and Mr Huang Snr make similar contentions in respect of the $16.8 million loan. This was said to be a loan to Yufeng, which was or became a further loan from the trustee of the Guo Family Trust. The trustee was the proper plaintiff. The limitation period in respect of the loan has now expired.

Requests for information

36. On 30 June 2023, the plaintiffs’ solicitor wrote to Mr Huang Snr’s solicitors in the Commercial List proceedings, noting that they had not a response to their request for documents and financial information from Mr Huang Jnr or HD Investment and sought information and documents from Mr Huang Snr. On 4 July 2023, the plaintiffs’ solicitor sent a further letter to HD International and Mr Huang Jnr, again requesting documents and information in respect of the Guo Family Trust.

37. On 24 July 2023, Mr Huang Jnr’s solicitor replied that more time was needed to obtain instructions. On 27 July 2023 and 2 August 2023, the plaintiffs’ solicitors sent follow up emails. On 3 August 2023, Mr Huang Jnr’s solicitor replied that they needed another week.

38. On 15 August 2023, Mr Huang Snr’s solicitors replied, confirming that he remained an appointor of the Guo Family Trust. No further reply was forthcoming to the requests for information and documents. On 24 August 2023, Mr Huang Jnr’s solicitor advised that they did not have instructions to act for HD International or Mr Huang Jnr in respect of the plaintiffs’ letters requesting documents and information.

Request to resign

39. On 6 October 2023, Mr Guo Snr’s solicitors wrote to HD International and its directors, Mr Guo Jnr and Mr Huang Jnr, requesting the trustee to resign. It was said that the trustee had not responded to requests for information and documents for over a year. The trustee did not appear to be performing its duties. Mr Guo Snr wished to ensure the due and proper administration of the Guo Family Trust and was unable to do so absent information from the trustee. Further, Mr Huang Jnr was said to have a conflict of interest, given that his father was a defendant in the Commercial List proceedings.

40. Mr Guo Snr’s solicitors added that the defences relied upon by Yufeng, 152 Rowy and Mr Huang Snr in the Commercial List proceedings highlighted the difficulties posed by the current trustee. Mr Guo Snr was unable to access any financial statements for HD International, which might shed light on the suggestion that his investments and loans had somehow become loans by the trustee. If these defences were correct, then HD International was the proper plaintiff to investigate and bring proceedings against Yufeng for some $26.8 million in investments and loans. Further, it would appear that Mr Huang Jnr and Mr Guo Jnr were in breach of their duties as directors of HD International, having failed to cause the trustee to take the necessary steps to protect trust property and recover the loans before the expiry of any limitation period. Confirmation was sought that HD International would investigate and prosecute its claims against its directors accordingly. In the absence of a response, proceedings would be brought to remove the trustee. There was no response.

41. On 8 November 2023, the plaintiffs’ solicitors wrote to Mr Huang Snr’s solicitors, requesting his resignation as an appointor of the Guo Family Trust. A notice of resignation was attached for completion and return. A further request was made for trust documents and information. There was no response.

42. Mr Guo Jnr also communicated with Mr Huang Jnr by WeChat, asking to meet. On 17 November 2023, Mr Huang Jnr finally responded, “I am not in Australia and cannot met with you in person. … Your father owed too much money externally and was executed. … I will not rashly change any structure unless your father resolves the debt issue between him and my father.” On 21 November 2023, the plaintiffs’ solicitors followed up their letter to Mr Huang Snr’s solicitors, who replied that Mr Huang Snr did not intend to resign as an appointor of the Guo Family Trust.

39. On 3 May 2024, the Commercial List proceedings were listed before Hammerschlag CJ in Eq for the hearing of various motions, including proposed amendments to the Commercial List Responses. Mr Huang Snr’s senior counsel explained the defence that any investment or loan could only be recovered by HD International as trustee, not by Mr Guo Snr. The transcript records:

HIS HONOUR: If he turned around now, and the family trust distributed to him, all of that would go.

NG: Assuming the family trust had the money, yes.

HIS HONOUR: Even so, even if it doesn’t have the money, it’s the plaintiff’s, right? It should be the proper plaintiff.

NG: Yes.

HIS HONOUR: If that claim was distributed by the trustee, then all of this would go.

NG: Yes. At least that aspect would go …

44. His Honour also listed the Commercial List proceedings for trial on 4 November 2024.

45. On 12 August 2024, the plaintiffs commenced these proceedings. On 13 August 2024, the plaintiffs filed a motion seeking expedition. On 16 August 2024, I granted expedition and listed the matter for hearing on 4 September 2024.

46. The plaintiffs said neither had received any documents or information in respect of the Guo Family Trust or HD International, despite request. Mr Guo Jnr said the last time he saw Mr Huang in person was in 2017 or 2018. Mr Huang Jnr has recently changed the registered office of HD International by lodging a Form 484 with ASIC. But Mr Guo Jnr did not hear from Mr Huang Jnr about this, nor authorise lodgement of the form.

47. The day before the hearing, Mr Huang Jnr offered to provide some documents in respect of the trust and I made orders to that effect at the conclusion of the hearing.

Submissions

48. The plaintiffs submitted that the trustee should be replaced for, essentially, two reasons. First, in the Commercial List proceedings, Mr Huang Snr and the companies which he controls, Yufeng and 152 Rowy, allege that the trustee of the Guo Family Trust has standing to recover loans amounting to $26.9 million. HD International is deadlocked and has done nothing to pursue any claims it may have to recover $26.9 million. If HD International, as trustee of the Guo Family Trust, does not agitate any claims to recover that may be available to it, the claims (to the extent they exist) will be lost. Of course, Mr Guo Snr did not accept the defendants’ characterisation of those transactions, nor that any suggested claims held by the trustee were time barred. But if Mr Huang Snr was correct, then the trustee should prosecute those claims with despatch. Second, for more than two years the plaintiffs have sought documents and information about the operation and assets of the Guo Family Trust, without success or even a response.

49. The plaintiffs submitted that, if the trustee of the Guo Family Trust did not agitate any claims to recover that may be available to it, the trustee may be precluded, after the Commercial List Proceedings are heard and determined, by res judicata or issue estoppel from bringing those claims, in circumstances where there is privity between it and the beneficiaries of the Guo Family Trust: Gleeson v J Wippell & Co [1977] 1 WLR 510 at 515; Cordes as Trustee for George v Dr Peter Ironside Pty Ltd [2010] 2 Qd R 235; [2009] QCA 302 at [68]. This issue, of itself, would warrant the replacement of HD International, in circumstances where it does not appear that HD International is capable of doing anything about it. It was in the interests of the beneficiaries of the Guo Family Trust that HD International be replaced.

50. The plaintiffs submitted that HD International was not performing its duties as trustee including to act in the best interests of the beneficiaries impartially: Cowan v Scargill [1984] 2 All ER 750 at 760 per Megarry VC. It had not responded to any of the requests for documents or information about the property of the trust nor taken steps to pursue claims for $26.9 million which may be available to it. Mr Guo Jnr’s request to meet with Mr Huang Jnr had been refused. HD International had taken no steps to respond to the application for its removal and appeared paralysed and at a deadlock. The trustee should be removed: Aspinallv Aqua Sports Pty Ltd (2018) 57 Fam LR 594; [2018] NSWSC 706.

51. The plaintiffs submitted that the issue as to whether the Yufeng shares held by HD International were held on trust for the Guo Family Trust, or for Mr Huang Snr, fell to be determined in the Commercial List proceedings. The plaintiffs did not seek to pre-determine this issue. If HD International’s Yufeng shares are ‘property’ of the Guo Family Trust, they will vest automatically by reason of s 78(1) of the Trustee Act upon the making of the orders sought. If HD International’s Yufeng shares are not, as a matter of fact, ‘property’ of the Guo Family Trust, they will (conversely) not vest automatically. As such, it was not necessary to take the approach adopted by Ward CJ in Eq (as her Honour then was) in Aspinall, making a vesting order under s 71 of the Trustee Act and further consequential orders intended to “preserve arguments as to the trust property and entitlements of the beneficiaries of the trust to be dealt with in the context of the [ongoing] Family Court proceedings (this being at heart a dispute between the warring former de facto spouses and their children) by the specialist court in which such disputes are appropriately to be heard”: at [58].

52. The plaintiffs accepted that, given the present uncertainty as to whether the Yufeng shares were in fact trust property, it would not, practically, be permissible for Willow to call for the shares to be transferred to it under s 78(5)(b) and (7) of the Trustee Act until that contest was resolved in the Commercial List proceedings. Mr Huang Snr would suffer no prejudice if the order was made, unlike the position in Re Beechworth Land Estates Pty Ltd (in liq) and Griffıth Estates Pty Ltd (in liq) [2018] NSWSC 1703 at [24].

53. Mr Huang Snr did not oppose an order vesting an choses of action presently held by HD International in the new trustee to pursue, and professed himself to be agnostic as to the administration of the Guo Family Trust and its assets. However, Mr Huang Snr submitted that the dispute as to HD International’s 30 shares in Yufeng were held on trust for the Guo Family Trust or Mr Huang Snr fell within the Beechworth category of case rather than the Aspinall category of case. There was no dispute in Aspinall v Aqua Sports Pty Ltd (2018) 57 Fam LR 594 as to whether the property to be vested was trust property of the relevant trust, and that the dispute related only to the quantum of any beneficiary’s entitlement to trust assets. It was in that context that order 3 made in Aspinall was sufficient to preserve the issues in dispute in the related Family Court proceedings. Here the dispute was about whether or not the shares in Yufeng are in fact assets of the Guo Family Trust. The Court should not make an order vesting “the property of the Guo Family Trust” where its scope is presently uncertain because of the dispute as to the beneficial ownership of the Yufeng shares and which requires subsequent judicial determination to illuminate the incremental application of such an omnibus order: Re Beechworth Land Estates Pty Ltd (in liq) and Griffıth Estates Pty Ltd (in liq) [2018] NSWSC 1703 at [24].

54. Mr Huang Snr suggested two possible solutions to balance the plaintiffs’ interests in vesting any potential debt claims against Mr Huang Snr in a new trustee against Mr Huang Snr’s interests in not having the question as to the capacity in which the trustee holds its shares in Yufeng predetermined. First, Willow could be appointed as the replacement trustee. All the property of HD International other than the Yufeng shares could be vested in Willow. HD International would continue to hold the Yufeng shares until the issue was determined at trial in the Commercial List proceedings. Alternatively, Willow and NSW Trustee and Guardian could be appointed as additional trustees of the Guo Family Trust, with all the property of HD International other than the Yufeng shares vested in Willow. Clause 13 of the trust deed provides that the trustees may act by majority: cf Dulhunty v Dulthunty [2010] NSWSC 1465 at [35]-[37] (per Slattery J). This left HD International as trustee whilst appointing both Willow and NSW Trustee and Guardian to avoid any deadlock with respect to future suits proposed to be commenced by Willow for recovery of debts said to be owing to the Guo Family Trust.

55. Mr Huang Jnr submitted that cl 8 of the trust deed was clear in bestowing exclusively upon the appointors the function of appointing a replacement or additional trustee. There was a process for the replacement of a trustee described in cl 11 of the trust deed. It was not an action which could be taken by either HD International or its directors. Mr Guo Snr and Mr Huang Snr were the appointors. Any disagreement as to the appointment of a new trustee was a matter to be resolved by them, not by HD International or its directors. It was said to be in the interests of HD International to await the resolution of the Commercial List proceedings before carefully resolving the best course for the Trust.

56. Mr Huang Jnr submitted that the appropriate way forward was to maintain the status quo by appointing an independent professional co-trustee to review and report on the plaintiffs' contentions as to the availability of any cause of action against (or debt owed by) any third party, and the prudence of involving the trust in the litigation. Clause 8 of the trust deed allowed for the appointment of an "additional" trustee. Some names were proffered (but no consent to act as trustee was available at the hearing). Any appointment of a new co-trustee would need to be ratified by the appointors in writing.

Replacement of trustee

57. As Ball J explained in Crowle Foundationv NSW Trustee & Guardian [2010] NSWSC 647 (at [29], [33]), the Court has the power to replace a trustee as part of its inherent power to see that trusts are properly executed. The question is what is in the best interests of the beneficiaries and the administration of the trust, as expounded by Dixon J in Miller v Cameron (1936) 54 CLR 572 at 580–1:

“The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trust and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove the trustee the Court forms the judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary.”

58. The Court also has a statutory power to replace a trustee. Section 70 of the Trustee Act relevantly provides:

(1)   The Court may make an order for the appointment of a new trustee or new trustees either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee.

(2)    The appointment may be made whenever it is expedient to appoint a new trustee or new trustees, and it is inexpedient difficult or impracticable so to do without the assistance of the Court.

…

59. Although the statutory test is expressed in different terms, there is no practical difference: Crowle Foundation at [34]. In Sir Moses Montefiore Jewish Home v Perpetual Company Ltd & Anor [2012] NSWSC 210, Ball J observed at [27]:

“The word ‘expedient’ is a broad one which covers a wide range of circumstances. The principal question must be, however, whether the objects the settlor, or in this case the testator, sought to achieve by the trust are threatened if the power conferred by s 70 is not exercised.”

60. As to who should be appointed as the new trustee, Brereton J in Hancock v Rinehart (2015) 106 ACSR 207 suggested three main considerations, being: the wishes of the person by whom the trust was created; that a trustee should not be appointed with a view to promoting the interests of some of the beneficiaries in opposition either to the wishes of the settlor or the interests of the other beneficiaries; and, that regard should be had as to whether the appointment would promote or impede the execution of the trust: at [120]-[124].

61. The plaintiffs have satisfied the evidentiary requirements set out in rr 55.6 and 55.7 of the Uniform Civil Procedure Rules 2005 (NSW), including as to the fitness and consent of the proposed new trustees.

62. As to whether the trustee should be replaced, the board of directors of HD International is deadlocked. Mr Guo Jnr and Mr Huang Jnr each appear to act in accordance with the dictates of their fathers, who are embroiled in litigation. The fact that Mr Huang Jnr is the majority shareholder of HD International appears to be the legacy of an attempt by Mr Guo Snr, with the assistance of Mr Huang Snr, to protect the assets of the Guo Family Trust from the predations of Mr Guo Snr’s ex-wife.

63. Mr Guo Snr is the only named beneficiary of the Guo Family Trust. He has been trying for years to extract basic documents and any financial information about the trust from the trustee and its directors, as well as from Mr Huang Snr. His requests for information have been studiously ignored.

64. Meanwhile, Mr Huang Snr and his companies are defending Mr Guo’s efforts to recover investments and loans on the basis that he has no standing to recover the monies. Rather, it is said that the proper plaintiff is the trustee. The trustee is deadlocked and cannot be supposed to bring such a claim. Whilst I accept that Mr Guo Snr’s does not embrace Mr Huang Snr’s characterisation of the transactions between them, if Mr Huang Snr is correct then there is a prospect that any judgment against Mr Guo Snr as beneficiary of the trust may bind the trustee too, preventing the trustee from bringing a later claim: Cordes at [68].

65. This is plainly untenable. Indeed, it is ridiculous, where the only named beneficiary of the Guo Family Trust is Mr Guo Snr. As Hammerschlag CJ in Eq rightly observed, the way through this issue is simply to ‘collapse’ the trust. But the trustee is deadlocked and cannot be expected to take that action either.

66. Both interested parties accepted that it was necessary to change the trustee arrangements, given the defences put forward by Mr Huang Snr and his companies in the Commercial List proceedings. Whilst the interested parties suggested other potential trustees, there was no evidence as to the suitability of those suggested persons or their consent to be so appointed.

67. The proposals put forward by Mr Huang Snr for the appointment of two additional trustees is cumbersome and, I expect, unworkable, particularly where there were no consents provided for the additional trustee suggested (NSW Trustee & Guardian). Mr Huang Jnr’s submissions were impractical, ignoring the deadlock between the appointors and directors of the trust and providing no consent by a suggested “professional co-trustee”. It is wholly unlikely that the appointors would agree on the appointment of a new co-trustee in a timely manner or at all. I consider that HD International should simply be replaced by Willow.

Vesting order

68. Trust property may be vested in another person without conveyance, transfer or assignment if a vesting order is made, either under the Trustee Act or the Court’s equitable jurisdiction; such an order may be made where “a conveyance becomes necessary and the person who should convey is not in a position to do so”: JD Heydon & MJ Leeming, Jacobs’ Law of Trusts in Australia (8^th ed, 2016, Lexis Nexis) at [25-03].

69. As to the statutory power to make a vesting order, s 71 of the Trustee Act provides:

(1) The Court may make an order in this Act called a vesting order, which shall have effect as provided in section 78.

(2)   A vesting order may be made in any of the following cases, namely--

(a)   where the Court appoints or has appointed a new trustee,

…

(i)   where a trustee neglects or refuses to … sue for or recovery any property according to the direction of a person absolutely entitled to the same for twenty-eight days next after a request in writing has been made to the trustee by the person so entitled,

…

(4)   Where the order is consequential on the appointment of a new trustee, the property shall be vested in the persons who, on the appointment are the trustees.

…

(6)   Subject to the provisions of subsection (4), the vesting order may vest the property in any such person in any such manner and for any such estate or interest as the Court may direct, or may release or dispose of any contingent right to such person as the Court may direct.

…

(8)   This section shall not prevent the Court from directing a reconveyance or the payment of costs occasioned by any such order if improperly obtained, or from making a further vesting order.

…

70. As to the consequences of a vesting order, s 78(1) of the Trustee Act provides:

(1)   In the case of a vesting order consequential on the appointment of a new trustee, or the retirement of a trustee, the vesting order shall have the same effect as if the persons who before the appointment or retirement were the trustees, if any, had duly executed all proper conveyances of the property for such estate or interest as the Court directs, or if there is no such person, or no such person of full capacity, then as if such person had existed and been of full capacity, and had duly executed all proper conveyances of the property for such estate or interest as the Court directs.

…

(6)   In the case of any security or chose in action the vesting order shall vest in the person named in the order the right to receive the dividends or income thereof, and to sue for or recover the chose in action.

…

71. In Bloomingdale Holdings Pty Ltd v 87 Stevedore Street Pty Ltd(in its own capacity and as trustee of the Stevedore Street Development Unit Trust) (2010) 6 ASTLR 271, Warren CJ explained (at [26]-[28]) that the courts approach vesting applications with practicality, flexibility and expediency in mind, where the court’s jurisdiction to make vesting orders is intended to be applied in circumstances where it is inexpedient, difficult or impractical for other steps to be taken. The courts have taken a pragmatic approach but nonetheless require clear evidence of the factual basis upon which it is asked to make a vesting order; “The court’s attitude to a petition for a vesting order will depend to some extent on the propriety of the case before it, the assiduity with which the evidence… has been assembled, and the need for the relief sought” (at [28]).

72. Here, the Court may make a vesting order as a new trustee is appointed: s 71(1). In addition, the Court can make a vesting order where the trustee has neglected to sue on the choses in action which the defendants in the Commercial List proceedings suggest can only be recovered by the trustee. This is despite the written request of Mr Guo Snr made in October 2023. Any vesting order is consequential on the appointment of a new trustee, such that the property is vested in the new trustee “in any such manner and for any such estate or interest as the Court may direct”: ss 71(4), (6).

73. The only opposition to a vesting order was in respect of the 30 Yufeng shares. Those shares are presently held by HD International, either on behalf of the Guo Family Trust (as Mr Guo Snr would have it) or on trust for Mr Huang Snr (as Mr Huang Snr would have it). The shares cannot be transferred to a new trustee as HD International is deadlocked. The interested parties suggested variations to the orders or trustee arrangements going forward, to protect Mr Huang’s position in the Commercial List proceedings that shares held by the trustee in Yufeng are held on trust for him. The parties pointed to two approaches to a problem such as this.

71. In Re Beechworth Land EstatesPty Ltd (in liq) and Griffıth Estates Pty Ltd (in liq) [2018] NSWSC 1703, Black J declined to make a vesting order on an interlocutory application. His Honour observed that such an order “is not appropriately made where there are multiple contested claims over the relevant property which have not yet been determined”: at [24].

72. In Aspinallv Aqua Sports Pty Ltd (2018) 57 Fam LR 594; [2018] NSWSC 706, Ward CJ in Eq was prepared to replace the trustee of a family trust, where the husband and wife were embroiled in family law litigation and could not make decisions for the day-to-day operations of the business operated by the trust. Where the wife was concerned, however, that the new trustee did not make decisions about the business which may prejudice her position in the Family Court, her Honour also directed “the New Trustees not take any step to cease or cause the cessation of the operation of the … business presently carried out by the [trustee] or to terminate the employment of the [wife]” absent consent or order of the Family Court.

73. If it be the case that HD International holds its 30 shares in Yufeng on trust for Mr Huang Snr, then the new trustee is on notice of Mr Huang Snr’s asserted interest, is impressed with the same trust and will hold the Yufeng shares subject to the same trust in favour of Mr Huang Snr: United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 at 247 (reversed on other grounds: Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41). Nor is there anything to prevent a further vesting order being made, if need be: s 71(8). But what is clear is that, if the shares are not vested in the new trustee, then the shares will continue to be held by a deadlocked trustee, which is itself unsatisfactory.

74. The plaintiffs accept that the new trustee cannot deal with the Yufeng shares until the Commercial List proceedings are concluded. To put the matter beyond doubt, I propose to make various notations and directions so that Willow is on notice of Mr Huang Snr’s asserted interest in the Yufeng shares and does not deal with the shares until the entitlement to the shares is resolved in the Commercial List proceedings or further order of the Court.

Orders

78. For these reasons, make the following orders:

1. NOTE that whether HD International Pty Ltd (the outgoing trustee) holds shares in Yufeng Investment Group (Australia) Pty Ltd ACN 160 437 374 on trust for the Guo Family Trust or on trust for Changran Huang is presently in issue in proceedings No 329438 of 2022 in the Commercial List of this Court.

2. FURTHER NOTE that Willow G Holdings Pty Ltd ACN 676 411 626 (the incoming trustee) is on notice of Changran Huang’s equitable interest, if any, in the shares in Yufeng Investment Group (Australia) Pty Ltd.

3. Order pursuant to s 70(1) of the Trustee Act 1925 (NSW) that Willow G Holdings Pty Ltd ACN 676 411 626 be appointed as a new trustee of the Guo Family Trust established by the deed dated 19 September 2014 in substitution for the outgoing trustee.

4. Order pursuant to s 71(1) of the Trustee Act 1925 (NSW) that, upon the appointment of Willow G Holdings Pty Ltd ACN 676 411 626 as trustee of the Guo Family Trust pursuant to Order 3, the property of the Guo Family Trust vest in Willow G Holding Pty Ltd in its capacity as trustee of the Guo Family Trust.

5. DIRECT the new trustee not to deal with the shares in Yufeng Investment Group (Australia) Pty Ltd until further order of the Court, either in these proceedings or in proceedings No 329438 of 2022 in the Commercial List of this Court.

6. Liberty to apply.

**********

Amendments

15 October 2024 - Catchwords: "new trustee" amended to "trustee".

Decision last updated: 15 October 2024