HEATHVALE PASTORAL PTY LTD

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
HEATHVALE PASTORAL PTY LTD
[2025] SASC 156
Reasons for Ruling of the Honourable Chief Justice Kourakis (ex tempore)
EQUITY - TRUSTS AND TRUSTEES - APPLICATIONS TO COURT FOR ADVICE AND AUTHORITY
EQUITY - TRUSTS AND TRUSTEES - POWERS, DUTIES, RIGHTS AND LIABILITIES OF TRUSTEES - GENERAL MATTERS
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COURT SUPERVISION - DIRECTION
This is an application by Heathvale Pastoral Pty Ltd (‘Heathvale’), as trustee for the Heathvale Pastoral Trust and the Heathvale Asset Trust (collectively, ‘the trusts’), seeking advice and directions as to whether it is justified in defending certain claims made against it as the third respondent in an action brought in this Court (CIV-24-001057) (‘the action’). Heathvale also seeks direction that it should be allowed recourse to the property of the trusts for the purpose of paying its reasonable costs of defending those claims in the action.
The action is brought by a beneficiary of the trusts, Geoffrey Goode, who also makes claims against his son, Tim, and Tim’s wife, Zoe. At all relevant times, Tim ad Zoe were, and continue to be, directors of Heathvale. Tim and Zoe are also beneficiaries of the trusts. The claim against Heathvale is that distributions were made to Tim and Zoe in breach of Heathvale's duties and without regard to the other beneficiaries of the trusts, by making distributions solely to Tim and Zoe in the 2023 and 2024 financial years.
Held, dismissing the application and refusing to give the directions sought:
1.The claim regarding the distributions may be characterised as a claim by a beneficiary against the trustee, if one focuses solely only on the legal capacity in which Heathvale made the distributions and the legal capacity in which its directors, Tim and Zoe, resolved to make those distributions. However, that characterisation fails to recognise the practical legal effect of Heathvale’s decisions; Namely, to advantage Tim and Zoe, as beneficiaries, who were also the controlling minds of Heathvale, which made the decisions as against the other beneficiaries, and Geoffrey in particular.
2.The critical test, which involves an evaluative judgment, is whether it is fairer and more practical to leave competing claimants to the beneficial interest in a trust estate to engage in litigation amongst themselves, at their own risk as to costs, with the trustee remaining as a necessary but inactive party in the proceedings; or whether it is fairer and more practical that the trustee be the active litigant with recourse to the trust fund to cover the costs of litigation.
a. In respect of the evaluative judgment which is to be made, see Palmer J in Macedonian Orthodox Community Church of St Petka Inc (No 3) [2006] NSWSC 1247.
3.The fairer and more practical approach is to allow the beneficiaries to engage in litigation at their own cost. Refusing the direction sought ensures the litigation does not directly affect the assets of the trust, thereby protecting the assets of the trust. To give a trustee access to the funds of a trust for litigation in the action means that there will be less available for distribution by a trustee who properly applies its mind fairly to what distributions should be made.
4.The absence of particularised costs of defending the claims made against the trust, from which funds are to be sought, infers that the beneficiaries have approached the litigation on the basis that there is an identity of interest between themselves and the trustee, and that a major motive for bringing this application is to obtain a forensic advantage in the litigation by having Heathvale, and Tim and Zoe's costs, largely defrayed through access to the trust funds.

Macedonian Orthodox Community Church of St Petka Inc (No 3) [2006] NSWSC 1247, discussed.

HEATHVALE PASTORAL PTY LTD
[2025] SASC 156
Civil: Application
Kourakis CJ:

This is an application by Heathvale Pastoral Pty Ltd (‘Heathvale’), as trustee for the Heathvale Pastoral Trust and the Heathvale Asset Trust, for advice and directions on whether it is justified in defending certain claims made against it as the third respondent, in an action brought in this court, being CIV-24-001057 (‘the action’). The action is brought by a beneficiary of the trusts, Geoffrey Goode (‘Geoffrey’). Geoffrey also makes claims against his son, Tim, and Tim’s wife, Zoe, who at all relevant times were, and continue to be, the directors of Heathvale. Heathvale also seeks direction that it should be allowed recourse to the property of the Pastoral Trust and/or the Asset Trust for the purpose of paying its reasonable costs of defending claims made against it in the action.
Heathvale seeks an amount of $66,000 for its costs in the period 13 September 2024 to the date of hearing this application, and an amount of $220,000 for its future costs, including a six-to-10-day trial. In the course of Heathvale’s submissions it became apparent that the estimate provided is for the hearing and determination of all claims in the action. Heathvale has not proffered any estimate of defending the particular claims made against it in paras [38]-[47] of the statement of claim.
An oral application was made in the course of the argument today to amend the application for directions to include another claim made against Heathvale in the action. I refuse the application. The pleadings are still not in a state to enable me to properly characterise the nature of that claim and to reach a conclusion as to whether it would be fair and practical to give Heathvale recourse to the trust funds to defend it. In any event, the parties have not come before me today ready to argue it. I do not preclude another application for advice and directions being made later to deal with the other claim.
Heathvale, as I observed, is a trustee of two trusts. The Heathvale Pastoral Trust is the trust through which the farming operations of farming land in the south-east of this State are conducted. I have been told today that the Heathvale Asset Trust is the holding entity of farming, and other, land.
Geoffrey’s son, Tim, and his partner, Zoe, who are the directors of Heathvale, are also beneficiaries of the trusts. They are the first and second respondents to the action. Geoffrey has another son, Matthew, from whom he is estranged, and a daughter, Linda. Neither Matthew nor Linda are parties to the action, nor have they been joined to this application for advice and directions. Nonetheless, the statement of claim, on which the action proceeds, relies on the failure of Heathvale to make distributions to Matthew and Linda. A point is taken by Heathvale that Geoffrey cannot rely on any breach, or make a claim on behalf of any of the other beneficiaries, in respect of a breach of trust by Heathvale. That is so. However, the claim against Heathvale made by Geoffrey, which I will shortly outline, is that distributions were made to Tim and Zoe in breach of Heathvale's duty and without regard to the other beneficiaries of the trusts. There is no reason to preclude Geoffrey from relying on the failure to make distributions to the other beneficiaries as an item of evidence in support of his claim.
The breach of trust claims, pursued against Heathvale, are that Heathvale breached its duty as a trustee by making distributions in the 2023 and 2024 financial years to, and only to, Tim and Zoe. In the 2022/2023 financial year, the distribution made was $359,152 to each of them. In the 2023/2024 financial year, it was $44,899 to each of them. The distributions are alleged to have been in breach of Heathvale's duty because they were made without any real and genuine consideration of the objects of the Heathvale Pastoral Trust. It is alleged that the distributions were irresponsible, capricious, and wanton, having regard to the sensible expectations of the settlor, and the objects of the Pastoral Trust, in that they were:
·made in a manner that preferred the interest of Tim and Zoe as directors of Heathvale over the interests of the other beneficiaries; and
·contrary to the purpose of the Heathvale Pastoral Trust, which was to provide for the beneficiaries in an even-handed and impartial way. Importantly, the claims are made in the main proceedings against Tim and Zoe personally for knowingly assisting in those breaches.
In making those claims, Geoffrey relies on the fact that he has become estranged from Tim and Zoe, and that they have had no contact outside legal representatives. He also relies on the allegation that Tim and Zoe made no inquiries as to the needs of the other beneficiaries, and relies on certain other conduct of Tim and Zoe in dealing with the assets of the Heathvale Pastoral Trust.
As I have observed, other claims are also made in the action. A claim is made by Geoffrey as against Tim personally of undue influence and unconscionable conduct, procuring Geoffrey’s consent to changes made to the appointor nominated in the Trust Deed. Another claim relates to a distribution made to Geoffrey in an earlier financial year, which Geoffrey claims remains unpaid. That is the dispute in respect of which pleadings are not finalised, and on which I refused permission to amend this application for directions. There is also a claim that Geoffrey has an equitable interest in another property of which Heathvale is the registered proprietor.
Geoffrey has also sought injunctions which would restrict Heathvale's capacity to deal with the assets of the Pastoral Trust. However, importantly, the proposed injunctions exempt any reasonable expenditure connected to the farming operations. Effectively, what Geoffrey seeks is to enjoin Heathvale from either dissipating the assets or making its assets available to Tim and Zoe to defend the claims against them. I do not accept Heathvale’s submission that those injunctions, if granted, would in any way restrict the farming operations. There is therefore no valid reason for Heathvale to defend them. Nor is there any good reason to allow Heathvale recourse to the assets of the trust to defend the applications for injunctions.
The claim by Geoffrey in respect of the distributions could be characterised as a claim by a beneficiary against the trustee, if one focussed only on the legal capacity in which Heathvale made the distribution and the legal capacity in which its directors, Tim and Zoe, resolved to make those distributions. However, that characterisation fails to recognise the practical legal effect of Heathvale’s decisions. That practical legal effect is to advantage, as beneficiaries, Tim and Zoe, who were also the controlling minds of Heathvale, which made the decisions as against the other beneficiaries, and Geoffrey in particular. In that sense, the controversy, at its core, is a controversy between beneficiaries as to the extent to which they, as beneficiaries, should share in any distributions of the income of the trust. The particular form of controversy in this case is between two beneficiaries, who are also directors of the Heathvale, and who have caused it to make distributions to themselves alone, and Geoffrey, who is a beneficiary, whom those resolutions have been denied any distribution. That is not a question in which the trustee itself has any direct interest. Nor is it a dispute in which it should become involved.
Geoffrey seeks orders that would set aside the distributions. There may well be tax implications of doing so, but that is a question which does not arise here. If a finding of breach of trust is made and the relief sought is given, then the taxation consequences will be a consequence only of breach of trust by Heathvale which was procured by Tim and Zoe. At this stage, the question is whether Heathvale should defend the allegation of breach. The persons who stand to benefit or lose, depending on the decision that is made, are Tim and Zoe on the one hand, or Geoffrey on the other.
Heathvale and Geoffrey, through their respective counsel, agree that the test in applications of this kind is correctly set out in the judgment of Palmer J in Macedonian Orthodox Community Church of St Petka Inc (No 3):[1]
I think that the development of the law in this area has now reached the point where I may state the following proposition.
Where a trustee seeks an order that it is justified in defending a claim against the trust estate by recourse to the trust assets for the costs of the litigation, the question will be whether it is more practical, and fairer, to leave the competing claimants to the beneficial interest in the trust estate to fight the litigation out amongst themselves, at their own risk as to costs and leaving the trustee as a necessary but inactive party in the proceedings, or whether it is more practical, and fairer, that the trustee be the active litigant with recourse to the trust fund for the costs of the litigation. What is “practical and fair” will depend on the particular circumstances of each case and will include:
·whether the beneficiaries of the trust estate have a substantial financial interest in defending the claim;
·what are the financial means of the beneficiaries to fund the defence;
·the merits and strengths of the claim against the trust estate;
·the extent to which recourse to the trust estate for defence costs would deprive the successful claimant of the fruits of the litigation;
·if the trust is a charitable trust rather than a private trust, what, if any, are the considerations of public interest.
[1] [2006] NSWSC 1247, [62].
Importantly, the critical test, which in my view involves an evaluative judgment, is whether it is more practical and fairer to leave the competing claimants to the beneficial interest in the trust estate, to fight the litigation out amongst themselves, and at their own risk as to costs, leaving the trustee as a necessary but inactive party in the proceedings; or whether it is more practical and fairer that the trustee be the active litigant with recourse to the trust fund for the costs of litigation.
I make the following observations on the matters which Palmer J identified as bearing on that evaluative judgment.
Do the beneficiaries of the trust estate have a substantial financial interest in defending the claim? The answer here is plainly yes. In this case, Tim and Zoe have a financial interest, in the distributions made to them and therefore at least a commensurate interest in defending the claim. They also have an ongoing financial interest in defending the claim, because the relief sought also includes the removal of Heathvale. Plainly, there is a prospective financial benefit to Tim and Zoe in retaining the trustee over which they have control, so as to advance their own financial interests in the future.
What are the financial means of the beneficiaries to fund the defence? Tim and Zoe propose to fund the defence of the claims made against them from the impugned distributions made to them. I can only infer that cash is still available to them from those distributions. In any event, they have substantial property holdings in their own right from which they could raise finance to defend the proceedings.
I pause here to return to another observation I made earlier concerning the estimate provided to the Court, through Heathvale's solicitor, that the trial would take between six and 10 days, and just over $200,000 would be required to defend the action, including preparation. There was no attempt in the material put before me to breakdown that amount to deal only with the costs of defending the claims made against Heathvale in paras [38]-[47] of the statement of claim.[2]
[2] Geoffrey William Goode, ‘FDN 6 Claim Revision 1’, Submission in Geoffrey William Goode v Timothy Michael Goode, Zoe Lee Goode and Heathvale Pastoral Pty Ltd, 13 September 2024.
That is a matter of serious concern. It raises an inference that Tim and Zoe have approached this litigation on the basis that there is an identity of interest between themselves and Heathvale in the defence of the action as a whole. That is not the case.
Indeed, so obviously is it not the case that their counsel has recognised that there may be conflicts which might not, but may, require the separate representation of Heathvale on the one hand and Tim and Zoe on the other.
That raises the prospect of two sets of counsel on that side of the bar table. That is not an attractive prospect when Heathvale’s case, advanced in support of the advice and directions it seeks, is based primarily on not unnecessarily dissipating the assets of the trust.
The failure to pay attention to what is required to defend just those claims made in paras [38]-[47] and in seeking from this Court a direction that would give Heathvale access to an amount for its costs of over $200,000 suggests that a major motive for bringing this application is to obtain a forensic advantage in the litigation by having Heathvale, and Tim and Zoe's costs, largely defrayed through access to the trust funds.
There is an alternative. That alternative is to leave it to those who have a real financial interest in the distributions, and whether or not they are set aside, to engage in the litigation at their cost. Ultimately, who becomes responsible for the bulk of those costs will depend on the outcome and ultimate findings as to whether there were breaches of trust or not.
What are the respective merits and strengths of the claim against the trust estate? It is not possible to form any firm conclusion about that. I am satisfied that Geoffrey has an arguable case.
To what extent would recourse to the trust estate for the defence of the action deprive a successful claimant of the fruits of the litigation? That is not a substantial issue here. However, to give Heathvale access to the funds of the trust for the litigation will ultimately mean that there will be less available for distribution by a trustee who properly applies its minds fairly to what the distributions should be.
Having regard to those matters, I have reached the conclusion that the fairer and more practical position is to allow the beneficiaries to engage in the litigation at their own costs. I do not accept that the trust assets are at risk. The question here is who should share the trust income and in what proportion. By refusing to give the directions sought by Heathvale, the litigation will not directly affect the assets of the trust, so in that sense, declining to give the direction protects the assets of the trust.
True it is that if the distributions are set aside, there may well be tax implications that would be a drain on the assets of the trust. No beneficiary will benefit from that result. That is a risk which the parties to these proceedings would be well-advised to consider carefully before taking the proceeding to their ultimate conclusion, but that is a matter for them.
The point I wish to make, for present purposes, is that those adverse taxation consequences will only eventuate if it is found that Heathvale has breached its duty and that the distributions should be set aside. If that finding is made, then a real question will arise as to who should bear the burden of those taxation consequences. It should not be assumed that it would be a loss which the trust would have to bear.
For those reasons I decline to give the advice and directions sought by Heathvale.

[2025] SASC 156

28 February 2025