Harriet Ogburn Plenary Administrator the Public Trustee in and for State of Western Australia v Ogburn
[2018] WASC 188
•22 JUNE 2018
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: HARRIET OGBURN PLENARY ADMINISTRATOR THE PUBLIC TRUSTEE IN AND FOR STATE OF WESTERN AUSTRALIA -v- OGBURN [2018] WASC 188
CORAM: CHANEY J
HEARD: 31 JANUARY - 1 FEBRUARY 2018
DELIVERED : 22 JUNE 2018
PUBLISHED : 22 JUNE 2018
FILE NO/S: CIV 1634 of 2017
BETWEEN: HARRIET OGBURN PLENARY ADMINISTRATOR THE PUBLIC TRUSTEE IN AND FOR STATE OF WESTERN AUSTRALIA
Plaintiff
AND
DAMIAN OGBURN
Defendant
Catchwords:
Trusts - Breaches of trust - Intermingling of funds - Misappropriation of trust property - Denial of equitable interest of beneficiary - Whether trustee should be relieved of liability for breaches
Legislation:
Trustees Act 1962 (WA), s 75
Result:
Orders for account and substitution of trustee made
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr G D Cobby |
| Defendant | : | Mr G A Rabe |
Solicitors:
| Plaintiff | : | Public Trustee |
| Defendant | : | Summers Legal |
Case(s) referred to in decision(s):
Nil
CHANEY J:
By order made on 3 April 2017, the Public Trustee was appointed as plenary administrator of the estate of the plaintiff. The plaintiff is the sister of the defendant. Their mother, Mrs Moira Ogburn (Moira) died in November 2012. On 19 January 2012, a portfolio of shares and units (share portfolio) was transferred by Moira to the defendant. On 24 March 2012, Moira executed a deed of gift of the share portfolio to the defendant, although by then the transfer of the share portfolio to the defendant had been completed. During 2015, the defendant was engaged in Family Court proceedings that included disputes over property. On 12 November 2015, the plaintiff contacted the legal officer at the Office of the Public Trustee, Ms Catherine Sadleir and asked Ms Sadleir to contact the defendant's family law lawyer, Ms Jane Keeling. Ms Sadleir did so, and in the exchanges which followed it was revealed that the defendant was contending in the Family Court proceedings that he was not beneficially entitled to the share portfolio, but rather held it on trust for the plaintiff and thereafter for Moira's grandchildren.
The Public Trustee then endeavoured to obtain information about the share portfolio, and on 9 February 2016, requested the transfer of the share portfolio to the Public Trustee as plenary administrator for the plaintiff. On 29 February 2016, Ms Keeling wrote to Ms Sadleir advising that their client was not prepared to transfer the funds to the Public Trustee. On 26 April 2016, Ms Sadleir wrote to the defendant seeking an account of the trust from its inception to that date. By this time, the defendant had engaged another solicitor, Mr Bower of the firm Corser & Corser, to assist him in respect to dealings with the Public Trustee. On 2 May 2015, Corser & Corser wrote to the Public Trustee referring to Mr Bower's letter of 26 April 2016 and advising that they were taking instructions in relation to the questions raised.
On 13 June 2016, Ms Sadleir emailed Mr Bower seeking a substantive response to the request for an account, and foreshadowed making an application for an account if a response was not provided.
On 23 June 2016, Corser & Corser wrote to the Public Trustee in which they said:
As you know, Dr Ogburn contends that he holds the funds presently invested with Ord Minnett on trust for Harriet but that there is no particular reason why they should be withdrawn from their present investments and transferred to the Public Trustee.
The letter then set out various reasons why Corser & Corser contended that it would be 'premature' to commence an action seeking an order for an account.
On 21 July 2016, Ms Sadleir responded noting that 'as between Ms Ogburn and yourself there is no question that your client holds the shares on trust for her'. The letter suggested the Public Trustee should be joined in the Family Court proceedings so as to protect the interests of the plaintiff in the share portfolio.
Over the next few months the Public Trustee sought further responses from the defendant's solicitors. Eventually, on 15 September 2016, Corser & Corser wrote to the Public Trustee advising that the Family Court proceedings involving Dr Ogburn and his former spouse had concluded and that the share portfolio remained under Dr Ogburn's control. The letter continued:
Dr Ogburn refutes the proposition that the Public Trustee has a valid basis to claim the Ord Minnett fund ostensibly for the benefit of Harriet Ogburn because there is no evidence to establish that Harriet has an equitable interest in it, despite Dr Ogburn's previously expressed view to that effect.
Any action taken by Dr Ogburn by the Public Trustee by which it seeks to take control of the fund will be defended.
That rather remarkable turnaround led to the institution of these proceedings in which the plaintiff claims a declaration that the defendant holds the share portfolio on trust for the plaintiff, an account of the profits of the shares, an order replacing the defendant as trustee of the trust with the Public Trustee and an order vesting the shares and units in the Public Trustee as trustee of the trust. The plaintiff relies upon the denial of the trust in the letter of 15 September 2016, the intermingling of trust property with the defendant's property, and misappropriation and dissipation of trust property as breaches of trust supporting the relief claimed.
The defendant denies any entitlement to relief, but counterclaims for a declaration that he holds the share portfolio on a constructive trust for the purpose of his using the proceeds of the share portfolio at his discretion to make provision for the plaintiff during her lifetime and thereafter to give the residue of the proceeds of the share portfolio, if any, to Moira's grandchildren.
To understand the counterclaim, it is necessary to discuss the manner in which the case was pleaded.
The source of the trust
The statement of claim pleads that on or about 19 January 2012, or alternatively by deed of gift dated 24 March 2012, Moira gifted the share portfolio to the defendant. It then pleads that after the gift of the share portfolio on a date unknown to the plaintiff, the defendant declared himself to hold the share portfolio on trust for the plaintiff to use the share portfolio for the benefit of the plaintiff during her lifetime and to hold any remainder on trust for the grandchildren of Moira. It can be noted that the terms of the trust said to have been declared by the defendant are in substance the same as the terms of the trust upon which the defendant himself pleads he held the share portfolio.
The statement of claim then provides particulars of the declaration. That is said to be confirmed by correspondence and oral statements of the defendant's family law solicitors and Corser & Corser and a handwritten letter sent by the defendant to the plaintiff in or about late January 2017. Properly construed, the pleading does not suggest that those communications constituted the declaration, but rather provided evidence from which the existence of the declaration can be inferred.
The relief specified in the statement of claim is simply a declaration that the defendant holds the share portfolio on trust for the plaintiff, although at the hearing, counsel for the plaintiff acknowledged that the relief in fact sought is in terms of the declaration by the defendant pleaded, namely that the share portfolio is held for the benefit of the plaintiff during her lifetime with the remainder on trust for the grandchildren of Moira.
The defence pleads that by deed of gift dated 24 March 2012, Moira gifted the share portfolio to the defendant for the purpose of the defendant using the proceeds of the portfolio at his discretion to make provision for the plaintiff during her lifetime, including the funding of permanent high care if necessary, and thereafter to give the residue of the proceeds of the share portfolio, if any, to Moira's grandchildren. The defence then pleads that the share portfolio has increased in value between January 2012 and November 2017 and that the defendant has acted as a prudent trustee. It also pleads that no distributions were made by the defendant for his personal benefit 'during the duration of the Family Court proceedings' or since then. The defendant's outline of submissions filed in advance of the hearing described as 'the ultimate issue for determination' being whether the plaintiff's interest in the share portfolio arises pursuant to 'an express trust declared by the defendant at some unspecified time' or 'a trust implied as a matter of law and enforceable as a constructive trust imposed as from 24 March 2012 in the circumstances as pleaded' in the amended defence and counterclaim.
The defence then denies 'any intermingling of the property the subject of the trust asserted by the plaintiff but admits some intermingling of property the subject of the constructive trust asserted by the defendant'. It then admits the withdrawal by the defendant of trust funds for various purposes including for the purpose of meeting the defendant's personal liabilities. The defendant pleads that between late 2015 and late 2017, various expenditures were made by him personally in relation to property jointly owned by the defendant and the plaintiff in which the defendant resides, tax liabilities in relation to interest and dividends earned by the share portfolio and certain legal expenses referable to the share portfolio issues. Finally, the defence pleads that in the event of the court determining in relation to the constructive trust asserted by the defendant that the defendant is personally liable for any breach of that trust, the defendant would seek relief pursuant to s 75 of the Trustees Act 1962 (WA) on the grounds that he has acted honestly and reasonably and ought be excused for any such breach.
The basis upon which the trial proceeded
It is apparent from what the defendant, in its written submissions, identified as 'the ultimate issue for determination', that the defendant approached the trial on the basis that if the plaintiff was unable to prove the trust asserted, namely one created by the defendant's declaration, her entitlement to the other relief sought, namely an account and removal of the defendant as trustee by reason of his breaches, would fall away.[1] That approach was taken notwithstanding that counsel for the defendant accepted that the defendant's liability to account, and liability for breaches, was the same regardless of whether the trust was created by declaration or by what he described as a constructive trust arising from the express purpose of the transfer to him of the share portfolio.[2]
[1] ts 7.
[2] ts 5.
The real issue in the proceedings was therefore not whether the share portfolio was held in trust, nor was it as to the terms of that trust. Rather, the issue was whether the conduct of the defendant was such as to amount to breaches of trust and whether the Public Trustee should replace the defendant as trustee or whether the defendant should be relieved of the consequences of his breaches pursuant to s 75 of the Trustees Act. Accordingly, after exchanges between the court and counsel at the commencement of the trial, and after a brief adjournment to enable counsel to take instructions and confer with each other, it was agreed between the parties that the trial would proceed on the basis of the following agreed fact:
The defendant was at all material times since 19 January 2012, and remains, a trustee of the portfolio pleaded at par 2 of the plaintiff's further re‑amended statement of claim including the associated cash management account, to make provision for the plaintiff and the grandchildren as described at par 16 of the proposed minute of re‑amended defence and counterclaim.
Breaches of trust
Intermingling of trust property
It was common ground that the defendant instructed his stock brokers, Ord Minnett, to establish a cash management account in the defendant's name in order to operate the share portfolio, and that interest accruing on the share portfolio and amounts deposited by the defendant in his own right was credited to that account. In the period between 10 November 2011 and 5 March 2012, the defendant deposited $57,000 of his own monies into the cash management account. The defendant admits that between 1 September 2014 and 29 February 2016, he transferred a total of $75,000 from the cash management account to his St George bank account. Those transactions consisted of a withdrawal of $30,000 on 1 September 2014 to pay $25,000 in relation to the defendant's personal tax liability or the tax liability of the defendant's private company through which he conducted his business affairs - Ogcorp Pty Ltd (Ogcorp). A further withdrawal from the cash management account of $15,000 was made on 7 October 2017 to contribute to a liability of the defendant or of Ogcorp for taxation in the sum of $22,000 due on 28 July 2014. A third withdrawal of $30,000 was made on 29 February 2016 which was said to be in respect of anticipated legal fees to Corser & Corser in relation to the share portfolio and these proceedings.
Dr Ogburn's explanation for his payment into the cash management account of a total of $57,000 was that, in late 2011, his mother was living with the defendant and his then wife, Beverley, and his son in their home. He said that Beverley was threatening to throw them out of the house, and he thought that the share portfolio may be needed to be sold and the proceeds used for a deposit for a nursing home for Moira. Because his inquiries suggested that the value of the share portfolio at that time would be insufficient for the deposit required for a nursing home, he began depositing cash into the cash management account to reduce the shortfall, depositing in all $57,000.[3] That evidence does not sit easily with the earlier evidence contained in the same witness statement where Dr Ogburn said he deposited $57,000 of his own monies into the cash management account 'with the intention of withdrawing those funds for my own purposes when required'.[4] Nor is it consistent with the position asserted by the defendant through his solicitors during 2015 and 2016 that the share portfolio was transferred to him in order to hold on trust for the benefit of his sister with remainder over for his mother's grandchildren. Nor is it consistent with the agreed existence and terms of the trust upon which the trial proceeded. This is one illustration of the general unreliability of the defendant's evidence.
[3] Exhibit 10, Supplementary Witness Statement of Damian Martin Ogburn, par 6.
[4] Exhibit 10, Supplementary Witness Statement of Damian Martin Ogburn, par 4.
What the evidence in relation to the payments into the cash management account of $57,000 illustrates beyond question, is the intermingling of the defendant's property with trust property and his complete lack of appreciation of a trustee's obligation to keep funds separate. That intermingling of trust property was accepted by the defendant's counsel as amounting to a breach of the defendant's duties as trustee.[5]
Misappropriation of funds
[5] ts 147.
On 2 April 2014, the defendant transferred $35,000 from the cash management account to another St George Bank account which the defendant pleads was an account of Ogcorp. The defendant pleads that 'by that time the defendant had spent approximately $250,000 of his own money on renovations to his ex‑wife's home at 6 Peirse Way, Marmion, to make the home liveable for his mother'. Dr Ogburn gave evidence that he had spent that amount to ensure his home was suitable for his mother when she came to live with him and Beverley. He said that Beverley cared for his mother very well and that he paid her $1,000 or $1,500 per week from his business to care for his mother.[6] Dr Ogburn said that he withdrew $35,000 in April 2014 as part reimbursement for the payment of the $1,000 per week that he had made to Beverley as his mother's full‑time carer.[7] In cross‑examination, Dr Ogburn proffered the explanation that he was about to have repairs done to repair damage caused by his sister to his house and was intending to use the money for that purpose. However, his family lawyer advised him not to spend money on the house which might form part of the matrimonial property pool, so instead he used the money to discharge Ogcorp's tax liabilities.[8] He then said that his mother had always told him to make sure that he paid himself back for all the things that he had done for her and because he had not done that during the period of her life, he felt entitled to utilise funds from the cash management account to do so. That too was correctly and properly acknowledged by counsel for the defendant to amount to a clear breach of the defendant's trust obligations, and provides a stark example of the defendant's complete lack of appreciation of the nature of a trust and of a trustee's duties.
[6] Exhibit 9, Witness Statement of Damian Martin Ogburn, pars 45 ‑ 46.
[7] Exhibit 10, Supplementary Witness Statement of Damian Martin Ogburn, par 13.
[8] ts 127.
The plaintiff pleads that on or about 30 August 2012, the defendant used an amount of $2,120.54 of dividends paid into the cash management account in order to pay a portion of the purchase price for 2,790 units in the Carindale Property Trust purchased for the plaintiff for his own use and benefit. The defendant pleads that that purchase of units had the effect of increasing the value of the share portfolio, thus suggesting that the units form part of the trust property. On that basis, and assuming the defendant accounts for the shares purchased, the purchase does not constitute a breach.
Denial of the plaintiff's interest in the share portfolio
It is an obvious breach of a trustee's obligations in response to a request by a beneficiary to account, to deny the existence of a trust of which he is trustee. That is precisely what Corser & Corser did in its letter of 16 September 2016. Dr Ogburn's evidence was that he did not know what an 'equitable interest' is and therefore did not expressly instruct Corser & Corser to make such an assertion on his behalf. That evidence is disingenuous. On 13 September 2016, Mr Bower sent an email to the defendant. The email commenced by saying 'to not respond to the PT in any way would expose you to the small risk of being ordered to pay the PT's costs of some or all of any formal legal action that it might commence'. That opening suggests that the email was being sent in response to a suggestion, presumably by Dr Ogburn, that Corser & Corser simply not respond to the Public Trustee's correspondence. The email then recommended that Corser & Corser write back to the Public Trustee in the terms that were contained in Corser & Corser's subsequent letter of 15 September 2016.[9] In relation to the paragraph in which the existence of an equitable interest was denied, Mr Bower's email included after the words 'equitable interest' an explanation in parenthesis which read '(ie that she is entitled to benefit from it)'. The email then concluded as follows:
I do not recommend that we say anything more, and in particular I don't think we should say that you still intend to preserve and use the fund solely for Harriet's care and thereafter transfer it to your late mother's grandchildren because the PT might attempt to seize on that to say that you have declared yourself to be the trustee of the fund for Harriet's benefit, but that it will be more efficient for the PT to be the trustee of that fund. Please let me know if you approve.
[9] See [7] above.
Putting aside the question of propriety of that recommendation, it is clear that Dr Ogburn accepted the advice by email sent approximately two hours after the receipt of Corser & Corser's email.[10]
[10] Exhibit 9, Witness Statement of Damian Martin Ogburn, DMO 25.
The denial of the existence of the trust, albeit that it was eventually remedied when the defendant amended the defence and introduced the counterclaim in December 2017, clearly constitutes a breach of trust and of the defendant's obligation to account.
Trustees Act 1962 (WA) s 75
Section 75 of the Trustees Act provides that, if it appears to the court that a trustee may be personally liable for any breach of trust but has acted honestly and reasonably, or ought fairly be excused for the breach of trust or for omitting to obtain the directions of the court in the matter in which he committed the breach, the court may relieve the trustee either wholly or partly from personal liability for that breach. The defendant seeks to rely on that section in relation to what, at the end of the trial at least, were admitted breaches by him of the trust on which he held the share portfolio.
The basis upon which s 75 is invoked appears to be that the defendant's contention that he was, at all times, acting in the interests of his mother and his sister in relation to the share portfolio, or to the extent that he intermingled funds or utilised funds for his personal purposes, it was reasonable for him to do so having regard to expenditure which he had incurred over the years for the benefit of his mother and his sister. I do not accept that that is a basis upon which the relief claimed by the plaintiff in these proceedings should be denied. Clear and unequivocal requests to account were made by the Public Trustee on the plaintiff's behalf. I am satisfied that the only reasonable explanation for the defendant's refusal to account was that he did not want to reveal the extent of his misuse of the trust funds. At the very least, the defendant's conduct as trustee, and indeed his evidence at trial, demonstrated a complete failure to appreciate the duties of a trustee. Many of his explanations for his conduct were illogical and inconsistent. There is no basis to conclude that the defendant acted reasonably or that fairness requires that he be excused for his breaches. Nor does he put forward any adequate proposal to remedy his breaches or to fully account for them.
It is clear that this is a case which requires that there be an order that the defendant provide an account of the trust property and an order that the Public Trustee be substituted as trustee of the share portfolio (including the cash management account) in place of the defendant in order to administer the trust in the terms of the existing trust as agreed in these proceedings. To give effect to that order, there should also be an order vesting the shares and units and the proceeds of the cash management account in the Public Trustee as trustee of the trust. I will hear the parties as to the precise form of the orders to be made.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
TS
ASSOCIATE TO THE HONOURABLE JUSTICE CHANEY29 JUNE 2018
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