Hall v Hall
[2018] VSC 692
•9 November 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY & PROBATE LIST
S ECI 2016 00036
| GREGORY THOMAS HALL | Plaintiff |
| v | |
| THOMAS LYNDEN HALL & ORS (according to the Schedule attached) | Defendants |
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JUDGE: | McDonald J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 9 November 2018 |
DATE OF RULING: | 9 November 2018 |
CASE MAY BE CITED AS: | Hall v Hall & Ors |
MEDIUM NEUTRAL CITATION: | [2018] VSC 692 |
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WILLS AND ESTATES – Application by trustee for approval of settlement of legal proceedings – Appropriate for trustee to enter into deed of settlement and scheme of family arrangement – Supreme Court (General Civil Procedure) Rules 2015 rr 16.01(4), 54.02(2).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D McAloon | Strongman & Crouch Solicitors |
| For the First and Fifth Defendants | No appearance | - |
| For the Second to Fourth Defendants and Ian Redvers Maclaine Morrison (a non-party) | Mr S Wotherspoon | Aitken Partners |
HIS HONOUR:
On 19 February 2016, Gregory Hall commenced a proceeding against Thomas Hall, the second to fourth defendants, and Mr David Davis as the fifth defendant.[1] By a second further amended statement of claim dated 5 December 2017, Gregory advanced claims for the appointment of new trustees to four trusts, an accounting by Thomas of his dealings with trust property, equitable compensation, and other relief. Thomas denied the claims.
[1]The proceeding was dismissed against Mr Davis pursuant to the order of McMillan J made on 1 September 2017. Ms Katrina Cudmore, the first defendant’s wife, was joined as the fifth defendant to this proceeding pursuant to the order of McDonald J made on 13 September 2018.
The proceeding was set down for trial on 1 May 2018 on an estimate of eight to ten days. Following a Court-ordered mediation, heads of agreement were signed by Gregory, Thomas, Robert Hall and Mr Morrison. Mr Morrison agreed to accept appointment as trustee of the trusts, to seek a grant of representation in relation to the late Thomas William Hall’s estate, and to establish a framework for narrowing issues in dispute between Gregory and Thomas. Forensic accounting investigations were undertaken by Mr Phillip Herbert on Mr Morrison’s behalf.
An order was made on 1 May 2018 giving effect to the heads of agreement. Paragraph 5 of that order precluded Mr Morrison from disposing of, distributing, encumbering or otherwise dealing with the assets of the trusts and companies, except in accordance with an order of the Court.
On 7 November 2018, the parties to the current proceeding executed a deed of settlement (‘deed’) to resolve all issues in dispute, save for costs, and reserving the rights of the plaintiff and the first defendant to make applications for their costs.
By a summons dated 8 November 2018, Mr Morrison, in his capacity as trustee of various family trusts, makes an application for approval of the compromise embodied in the deed. The application is made pursuant to rr 16.01(4) and 54.02(2)(c)(i) of the Supreme Court (General Civil Procedure) Rules 2015.
The application is supported by an affidavit of Ms Lizia Lim, which exhibits a memorandum of advice from counsel, Mr Wotherspoon, recommending to Mr Morrison that he, in his capacity as trustee of the various family trusts, together with the second, third and fourth defendants, execute the deed.
I have given careful consideration to the contents of Mr Wotherspoon’s advice to Mr Morrison. I agree, for the reasons set out in Mr Wotherspoon’s advice, that it is appropriate for Mr Morrison to enter into the deed and the scheme of family arrangement.
The scheme of family arrangement is contained in cl 3 and annexure 1 of the deed. By cl 3.5A(c), Thomas is to receive, from a term deposit held by Heather Hall’s estate, a sum calculated after having regard to agreed distributions received by him from the trusts. From that sum, Thomas authorises Mr Morrison to repay to the Scott Forrest Trust $428,408, including interest, owing under the 23 August 2004 loan agreement. Mr Morrison agrees to provide Thomas and Ms Cudmore, the fifth defendant, with the discharge of mortgage. A loan of $108,700 from the Garth Unit Trust is also to be repaid by Thomas.
A comparable process is followed under cls 3.5A(a) and (b) in relation to Gregory and Robert, namely that there is agreement as to the distributions each has received from the trusts. The distributions are taken into account for the purpose of equalising their entitlements under Heather’s estate. It is to be noted that Robert agrees to repay $700,000, including interest, to the Scott Forrest Trust in discharge of he and his wife’s 8 November 2004 loan agreement. Thus, there is equality of treatment between Thomas and Robert in respect of the 2004 loans, even though Robert’s mortgage was discharged in 2008 but Thomas’ mortgage was not.
The Scott Forrest Trust and the TS Hall Settlement Trust are discretionary trusts. In the event that, before vesting, income or capital of those trusts is available for distribution, cl 3.4 requires Mr Morrison to exercise his dispositive powers for the benefit of the sons in equal shares. This obligation conforms with cl 4.2 of Heather’s will.
It is appropriate for Mr Morrison to give his agreement to this clause in his capacity as trustee of the trusts. In giving his agreement, he will be acting consistently with the testamentary wishes of both Thomas senior and Heather that their sons be treated equally. It is appropriate that Mr Morrison execute the deed, albeit that the Scott Forrest Trust foregoes the possibility of receiving interest on loans advanced to Thomas and Robert in 2004.
There is a real question, which was to have been the subject of a three day trial, as to whether the amounts advanced in 2004 were by way of gift, as Thomas contends, or were by way of loan. The amount in question was $428,408 advanced to Thomas. Also in 2004, $700,000 was advanced to Robert. In each instance, the advances were secured by way of mortgage in favour of Rhyse Holdings Pty Ltd, the trustee of the Scott Forrest Trust. This is consistent with the advances being by way of loan.
However, the mortgage in respect of the $700,000 advanced to Robert was discharged without any repayment being made. Also, the accounts of Rhyse Holdings Pty Ltd contained no entry recording the advances to either Thomas or Robert as being by way of loan. The source of those funds was not Rhyse Holdings Pty Ltd, but rather Heather. Prima facie, there is a credible basis for the conclusion that the $428,408 advanced to Thomas in 2004 was by way of gift, not loan.
It is plainly in the interests of the trusts, of which Mr Morrison has been appointed trustee, to avoid the costs of litigation which would otherwise have commenced today in respect of the question of whether the $428,408 advanced to Thomas in 2004 was by way of loan upon which interest would have been accruing.
I also agree with Mr Wotherspoon’s submission that a significant benefit flowing from the execution of the deed is that it disposes of the need for Mr Morrison to file a separate summons to have the Court determine the construction of cls 7.1, 7.2 and 9.3 of Heather’s will.
Absent the deed, Mr Morrison may have needed to obtain orders from the Court regarding the proper construction of cls 7.1, 7.2 and 9.3. Those provisions are concerned, relevantly, with inter vivos distributions and payments made, including to Thomas, by way of remuneration for managing various trusts. The deed removes any uncertainty regarding the operation of these clauses and avoids the expense of further litigation.
The principles which guide the exercise of the power conferred upon the Court by r 54.02(2)(c) were considered by Habersberger J in ExxonMobil Superannuation Plan Pty Ltd v Esso Australia Pty Ltd.[2] His Honour held that the Court’s role in exercising the power conferred by r 54.02 is:
[2](2010) 29 VR 356.
To grant the trustee’s application for an order approving the trustee’s agreement to the compromise, if the court is satisfied of the propriety of the application. That involves considering whether:
(a) the trustee’s decision to agree to the compromise was within power;
(b) there was any impropriety in the trustee’s decision;
(c) the trustee exercised its discretion in good faith; and
(d) the trustee gave fair consideration to the relevant issues.[3]
[3]Ibid 375 [87] (citation omitted).
There is no question that Mr Morrison has the power to execute the deed. Further, I am satisfied that Mr Morrison has been properly advised that he is exercising his power in good faith, and that he has given fair consideration to issues relevant to the execution of the deed.
There are two further matters, though, which bear upon the application for approval of the deed. First, there is the issue of beneficiaries of the discretionary trusts who are not parties to the proceeding. I have been informed by Mr Wotherspoon that two children of each of Robert and Thomas are beneficiaries of the discretionary trusts, and their interests may be affected by the execution of the deed. Thomas and his wife are parties to the proceeding and consent to the compromise. Robert is not a party, but he executed the deed on 7 November 2018.
I am satisfied that the deed is in the interests of all beneficiaries of the trusts, including the children of Robert and Thomas. The expense of ongoing litigation is not in the interests of any of the beneficiaries. Absent some material fact not having been disclosed to the Court, it is appropriate to order that the beneficiaries of the trusts be bound by the compromise of the current proceeding.
The second issue concerns the question of costs. The plaintiff has foreshadowed his intention to make an application for his costs of the proceeding against the defendants. I have been assured by Mr McAloon, who appears for the plaintiff, and Mr Wotherspoon, who appears for Mr Morrison and the second to fourth defendants, that the resolution of any outstanding costs questions will not impact upon the implementation of the deed. In the first instance, the distributions are to be made out of the estate of Heather.
Save for any personal liability of Thomas to pay costs, any costs of the second to fourth defendants will be payable from a discrete pool of assets, which I am informed is valued at approximately $6 million. I am satisfied that the resolution of any liability of one or more of the defendants to pay the plaintiff’s costs is no impediment to the Court approving the deed.
Any application by the plaintiff or by the first defendant, Thomas, for costs is to be filed by 4.00 pm on 16 November 2018. That application is to be supported by any relevant affidavit and submissions not to exceed seven pages in length.
When that material has been received, the Court shall give directions to the other defendants regarding the filing of any material in reply, and my chambers will communicate with the parties regarding an appropriate day for the hearing of the application, if that be necessary. That is, in circumstances where the parties consider the matter cannot be disposed of on the papers.
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SCHEDULE OF PARTIES
S ECI 2016 00036
BETWEEN:
| GREGORY THOMAS HALL | Plaintiff |
- and -
| THOMAS LYNDEN HALL | First defendant |
| RHYSE HOLDINGS PTY LTD (ACN 051 910 500) (including in its capacity as trustee of the Scott Forrest Trust) | Second defendant |
| CAMBACK NOMINEES PTY LTD (ACN 006 611 954) (including in its capacity as trustee of the Reid Street Unit Trust) | Third defendant |
| GARTH INVESTMENTS PTY LTD (ACN 006 943 111) (including in its capacity as trustee of the Garth Unit Trust) | Fourth defendant |
| KATRINA CUDMORE | Fifth defendant |