Hesse v Hardie
[2023] WASCA 173
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: HESSE -v- HARDIE [2023] WASCA 173
CORAM: MITCHELL JA
VAUGHAN JA
VANDONGEN JA
HEARD: 17 NOVEMBER 2023
DELIVERED : 4 DECEMBER 2023
FILE NO/S: CACV 53 of 2022
BETWEEN: GEOFFREY ERIC HESSE
Appellant
AND
VERONICA MARIE HARDIE
First Respondent
B.C.H. NOMINEES PTY LTD as trustee for THE B.C.H. FAMILY TRUST
Second Respondent
KEIAN HOLDINGS PTY LTD
Third Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram: MASTER SANDERSON
Citation: HESSE -v- HARDIE [2022] WASC 156
File Number : CIV 1011 of 2021
Catchwords:
Practice and procedure - Application for summary judgment - Whether summary judgment properly granted - Where master failed to consider and determine aspects of the plaintiff's claim before awarding summary judgment - Whether amendment to trust deed expanding the classes of objects of powers of appointment was arguably not authorised by the trust deed - Whether trustee of a discretionary family trust comprising all of the shares in a corporation that owns significant assets capable of generating dividends is arguably under a duty to exercise its control to procure the corporation to invest the corporation's assets in a way that generates income for the trust - Whether the statement of claim pleaded arguable grounds for removing and replacing the trustee
Legislation:
Trustees Act 1962 (WA), s 77(1)
Result:
Appeal allowed
Summary judgment set aside
Matter remitted to the General Division
Category: B
Representation:
Counsel:
| Appellant | : | D I Connor |
| First Respondent | : | C V Eastwood |
| Second Respondent | : | C V Eastwood |
| Third Respondent | : | C V Eastwood |
Solicitors:
| Appellant | : | Connor Legal |
| First Respondent | : | Eastwood Law |
| Second Respondent | : | Eastwood Law |
| Third Respondent | : | Eastwood Law |
Case(s) referred to in decision(s):
Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552
Antill-Pockley v Perpetual Trustee Co Ltd (1974) 132 CLR 140
Bartlett v Barclays Bank Trust Co Ltd [1980] 1 Ch 515
Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256
Breen v Williams (1996) 186 CLR 1
Bridgetown/Greenbushes Friends of the Forest Inc v Department of Conservation and Land Management (1997) 18 WAR 126
Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253
Cardaci v Cardaci [2023] WASCA 158
Eatts v Gundy [2014] QCA 309; [2015] 2 Qd R 559
Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87
Gunns Ltd v Alishah [2009] TASSC 45; (2009) 19 Tas R 38
IMO The Will and Estate of Owen Charles Brown (dec) [2016] VSC 258
In the Will of Gutheil (1922) 30 CLR 293
Kennon v Spry [2008] HCA 56; (2008) 238 CLR 366
Re Richardson [1956] St R Qd 485
Spencer v The Commonwealth of Australia [2010] HCA 28; (2010) 241 CLR 118
JUDGMENT OF THE COURT:
Summary
The appellant (Geoffrey)[1] is a 'Specified Beneficiary' and a 'General Beneficiary' of the BCH Family Trust (Trust), which was instigated by his father Brian in 1976. The second respondent (BCH) is the Trustee of the Trust. The principal asset of the Trust is all of the issued shares in the third respondent (Keian). Dividends payable on those shares are the only current source of income of the Trust.
[1] Certain persons who are involved in this case share common surnames. As is common in family trust disputes, it is convenient to refer to them by their first names to avoid confusion, without intending any disrespect.
In 2011, the Trust Deed was purportedly amended to include the first respondent (Veronica), who was Brian's de facto partner, and her two sons as 'Specified Beneficiaries' and 'General Beneficiaries'. The amendment also gave effective control of the Trust to Veronica and her sons after Brian's death, while providing for Geoffrey to receive an annuity payable from the income of the Trust. Following Brian's death in 2018, the Trust received no dividends from Keian, and so had no income from which to pay the annuity.
Geoffrey commenced the primary proceedings in which, in very broad terms, he most relevantly claimed that:
1.the 2011 amendment to the Trust Deed was invalid;
2.BCH breached its duty as Trustee, including by failing to properly administer Keian's financial affairs so as to provide an income to the Trust; and
3.BCH should be removed as Trustee of the Trust.
On 17 May 2022, the master granted the respondents' summary judgment application and dismissed the primary proceedings. Geoffrey now appeals against those orders.
For the following reasons, each of the claims referred to at [3] above is reasonably arguable. Summary judgment should not have been granted. The appeal should be allowed, the order for summary judgment should be set aside and an order refusing the summary judgment application should be substituted.
Factual background
The following factual background appears, from the pleadings and affidavit evidence adduced in the primary proceedings, to be uncontroversial. In setting out these facts, we have omitted reference to certain matters which, although they may be significant at any ultimate trial of the action, are not clearly uncontroversial.
Family relationships
Brian was born in March 1935 and died on 15 May 2018. Geoffrey, who was born in November 1955, is Brian's only child. Brian divorced Geoffrey's mother in the late 1950s. Brian was in a de facto relationship with Veronica from the late 1980s until the time of his death. Veronica was born in April 1947. Veronica has two children to a former relationship, Paul Hardie (Paul) and Mark Hardie (Mark).
During his working life, Brian was a successful businessman who operated car dealerships through corporations which he controlled. While the detail of the relevant business structures is not common ground between the parties, it is unnecessary to resolve those differences in this appeal.
The 1976 Trust Deed
A deed executed by the Settlor (Bernard Hall) and BCH on 2 September 1976 (Trust Deed) established the Trust.[2] Brian was the instigator of the Trust. At that time, Brian was a shareholder, director and secretary of BCH. BCH was the sole Trustee of the Trust. The 'children and remoter issue' of Brian were the 'Specified Beneficiaries'. Relevantly, Brian 'and any spouse child (adopted or otherwise) and remoter issue of' Brian were 'General Beneficiaries'. Brian was the Guardian and, during his lifetime, the Appointor of the Trust. After Brian's death and Geoffrey's 28th birthday, the Appointor was Raymond Hesse and Geoffrey 'jointly and the survivor of them'.
[2] Affidavit of Geoffrey Hesse sworn 22 February 2021, annexure GEH 1 (Green AB 71 - 111).
Relevantly, under cl 2.00 of the Trust Deed, until the Vesting Day, the Trustee is to hold the trust fund upon trust:
to pay divide or apply the whole or any part or parts of the income thereof to or between or for the maintenance support or benefit of all or any one or more of the General Beneficiaries in such proportions and in such manner as the Trustee shall in his uncontrolled discretion from time to time think fit and determine …
The Vesting Day is defined to be 80 years from the date of the Trust Deed (ie 2 September 2056) 'or such earlier term as the Trustee in its discretion shall think fit'. Clause 2.01 provides for the Trustee to accumulate income as capital, while cl 2.02 empowers the Trustee to apply the capital of the Trust for charitable purposes.
Under cl 13.021 of the Trust Deed, the Trustee may not exercise the power of appointment under cl 2.00 in relation to any General Beneficiary who is not a Specified Beneficiary without the consent of the Guardian.
Under cl 5 of the Trust Deed, as and from the Vesting Day the Trustee stands relevantly possessed of the trust fund and the income thereof:
1.in trust for such of the General Beneficiaries and such charitable purposes as the Trustee, with the consent of the Guardian, may appoint (cl 5.1); and
2.insofar as any part of the trust fund shall not have been disposed of under cl 5.1, in trust for such of the Specified Beneficiaries as shall be living on the Vesting Day as tenants in common in equal shares (cl 5.2).
Clause 8.1 of the Trust Deed empowers the Trustee, in its absolute discretion, to transfer the capital or income of the trust fund to a General Beneficiary for the Beneficiary's own enjoyment. Clause 8.2 empowers the Trustee to loan money to any General Beneficiary. These powers may only be exercised with the consent of the Guardian under cl 13 of the Trust Deed.
Under cl 16 of the Trust Deed:
16.1Every discretion or power hereby or by law conferred on the Trustee shall be an absolute and uncontrolled discretion or power and no Trustee shall be held liable for any loss or damage accruing as a result of his concurring or refusing or failing to concur in an exercise of any such discretion or power.
16.2No Trustee shall be liable for any error of judgment or mistake of law or other mistake or for anything save the wilful misconduct or wilful breach of this trust by such Trustee and the Settlor and each Trustee shall be held harmless against any claims losses death duties taxes and impositions arising in connection with the trust fund or any part thereof.
Clause 19 provides for the Appointor to remove a Trustee, appoint an additional Trustee and appoint a new Trustee in place of any Trustee who for any reason ceases to be a Trustee.
Clause 22 of the Trust Deed provides for the Trustee, acting with the consent of the Guardian, to vary the Trust, relevantly in the following terms:
Subject to Clause 13 hereof the Trustee for the time being may at any time from time to time by deeds revoke add to or vary all or any of the trusts terms and conditions hereinbefore contained … and may by the same or any other deed or deeds declare any new or other trusts terms and conditions concerning the Trust Fund or any part or parts thereof the Trusts whereof shall have been so revoked added to or varied … provided that such new or other trust powers discretions alterations or variations:
22.01insofar as the beneficial interests created by this Deed are revoked added to or varied shall be for the benefit of all or any one or more of the General Beneficiaries or the next-of-kin of any of them …
Save as provided in this clause these presents shall not be capable of being revoked added to or varied. (emphasis added)
Keian becomes a wholly owned subsidiary of BCH in 2006
Keian was registered as a company in April 1971. Prior to 15 June 2006, BCH held 5,000 of the 10,000 issued shares in Keian. The other 5,000 shares were held by Baron Holdings Pty Ltd (Baron), a company controlled by Brian.[3]
[3] Amended Statement of Claim (ASC) par 4 (Blue AB 58); Second and Third Defendants' Statement of Defence (Defence) par 4(a) (Blue AB 36); affidavit of Paul Hardie sworn 5 October 2021, pars 15 - 17 (Green AB 149); affidavit of Paul Hardie sworn 15 February 2022, annexures PAH 125 and PAH 126 (especially at Green AB 352, 353 - 354).
On 7 February 2005, Keian sold a commercial property which it owned at 170 Leach Highway, Myaree. Geoffrey says that the sale price was approximately $4.9 million,[4] while Paul contends that it was only $3 million and that Keian collected net sale proceeds of about $335,000 after the discharge of mortgages.[5]
[4] Affidavit of Geoffrey Hesse sworn 22 February 2021, par 20.1 (Green AB 66).
[5] Affidavit of Paul Hardie sworn 5 October 2021, par 52 (Green AB 156 - 157).
From 15 June 2006, BCH held all of the issued shares in Keian. At this time, Brian was the sole director of Keian.[6]
Brian's 2011 Will and variations to the Trust Deed
[6] Affidavit of Geoffrey Hesse sworn 22 February 2021, pars 18 - 19 (Green AB 66); affidavit of Paul Hardie sworn 5 October 2021, pars 15 - 16 (Green AB 149).
On 20 September 2011, Brian executed his last Will. The Will bequeathed Geoffrey some personal effects of sentimental value and gave the residue of his estate to Veronica. If Veronica predeceased Brian, then the residue of his estate was to be divided equally between Geoffrey, Paul and Mark.[7]
[7] Affidavit of Geoffrey Hesse sworn 22 February 2021, annexure GEH 2 (Green AB 113 - 115).
Also on 20 September 2011, Brian signed what purported to be a deed of variation of the Trust Deed (Variation Instrument).[8] The Variation Instrument was made by BCH as Trustee of the Trust and Brian as Guardian of the Trust. BCH's company seal was not affixed to the place for execution of the Deed by BCH in accordance with s 127 of the Corporations Act 2001 (Cth) or elsewhere to the Variation Instrument. Brian signed the Variation Instrument as sole director and secretary of BCH and as Guardian of the Trust.
[8] Affidavit of Geoffrey Hesse sworn 22 February 2021, annexure GEH 3 (Green AB 116 - 121).
The Variation Instrument altered the definitions of Appointor and Guardian in the schedule to the Trust Deed, so that those offices were held by:
1.Brian during his lifetime;
2.after his death, Veronica; and
3.after her death, Mark and Paul 'jointly and the survivor of them'.
The definition of 'Specified Beneficiary' in the schedule to the Trust Deed was amended to read:
The 'Specified Beneficiary' shall mean each of the following persons: the children and remoter issue of [Brian]; and [Veronica] and the children and remoter issue of [Veronica].
The definition of 'General Beneficiary' in the schedule was relevantly amended to include:
[Brian] and any spouse, child (adopted or otherwise) and remoter issue of [Brian] and any spouse of such children and remoter issue; and any child (adopted or otherwise) or remoter issue of [Veronica] and any spouse of such children and remoter issue …
Clause 2.00 of the Trust Deed was amended to read:
2.00 Until the vesting day hereinafter referred to as ('the Trust Period') the Trustee shall hold the trust fund UPON TRUST to pay, divide or apply the whole or any part or parts of the income thereof as follows:
(a) If and only if [Geoffrey] shall survive [Brian], then from the commencement of the month immediately following the death of [Brian] and thereafter during the lifetime of [Geoffrey], and subject to clause 3.01, to pay the first $72,000.00 per annum to [Geoffrey] by instalments of $6,000.00 per calendar month; and thereafter
(b)subject to sub-clause 2.00(a) the balance of the income thereof to or between or for the maintenance support or benefit of all or any one or more of the General Beneficiaries (including [Geoffrey]) in such proportions and in such manner as the Trustee shall in its uncontrolled discretion from time to time think fit and determine;
PROVIDED ALWAYS THAT, subject to clause 2.00(a), the Trustee may determine at any time or times hereinafter during the trust period if the Trustee in its uncontrolled discretion thinks fit to:- [the original cl 2.01 and cl 2.02 then follow]
The Variation Instrument also added cl 13.04 to the Trust Deed, in the following terms:
Notwithstanding clause 13.02, on and from the date of death of [Brian] the terms of clause 2.00 of the Trust Deed as contained in that clause from its commencement, including clause 2.00(a) and 2.00(b) down to and including the words 'thinks fit to:-' shall not be varied, amended, added to, revoked or otherwise changed.
Appointment of Veronica as Brian's attorney in July 2013
By enduring power of attorney made in July 2013, Brian appointed Veronica as his enduring attorney.[9]
Appointment of Veronica as a director of Keian on 1 April 2014
[9] Affidavit of Paul Hardie sworn 5 October 2021, par 21(c) (Green AB 150).
On 1 April 2014, Veronica was appointed as a director of Keian. Veronica and Brian were both directors of Keian until Brian's death on 15 May 2018.[10]
Appointment of Veronica as BCH's attorney in July 2014
[10] Affidavit of Paul Hardie sworn 5 October 2021, par 21(d) (Green AB 150) and annexure PAH 21.
By power of attorney dated 19 July 2014 executed by Veronica and Brian on behalf of BCH, BCH appointed Veronica as its attorney.[11]
Incapacity of Brian in 2015
[11] Affidavit of Paul Hardie sworn 5 October 2021, par 21(e) (Green AB 150).
From at least mid-2015, Brian was unable to manage his affairs or perform his duties as an officer of BCH and Keian, and as Appointor and Guardian of the Trust, as he lacked the capacity to do so.[12]
[12] ASC par 5(e) (Blue AB 59); Defence par 5(e) (Blue AB 40).
From this time, Brian resided in a nursing home. On 21 November 2015, Keian sold a residential property in Rossmoyne, at which Brian resided prior to moving to the nursing home, for $2.9 million.[13] Paul says that Keian collected net sale proceeds of about $366,000 from this sale after the discharge of a mortgage.[14]
Purported appointment of Veronica as BCH director in September 2016
[13] Affidavit of Geoffrey Hesse sworn 22 February 2021, annexure GEH 11 (Green AB 126).
[14] Affidavit of Paul Hardie sworn 5 October 2021, par 159 (Green AB 172 - 173).
ASIC records show that Veronica purportedly assumed office as a director of BCH on 16 September 2016.[15] The validity of that appointment is challenged in the primary proceedings. The respondents accepted that the appointment was invalid for the purposes of the summary judgment application.[16]
Death of Brian in May 2018
[15] Affidavit of Paul Hardie sworn 5 October 2021, annexure PAH 1 (Green AB 181).
[16] Primary ts 64.
Brian passed away on 15 May 2018. At that time, he resided in a nursing home. Veronica was granted probate of the Will on 28 December 2018.[17] Pursuant to that Will, Brian's two shares in BCH passed to Veronica. On Brian's death, Veronica became the sole director of Keian and, at least purportedly, the sole director of BCH. ASIC records indicate that Veronica became the company secretary of BCH on the date of Brian's death.[18] She became, at least purportedly, the Appointor and Guardian of the Trust under the amendments made to the Trust Deed by the Variation Instrument.
Assets of Brian's estate and the Trust
[17] Affidavit of Geoffrey Hesse sworn 22 February 2021, annexure GEH 2 (Green AB 112 - 115).
[18] Affidavit of Paul Hardie sworn 5 October 2021, annexure PAH 1 (Green AB 182).
The value of Brian's assets at the time of his death were estimated at $63,809, comprising Telstra shares ($3,408), 2 shares in BCH ($2) and 5 shares in Baron ($60,399). His liabilities were estimated at $852,657. The principal liability was a loan from Keian of which $748,444 was outstanding at the date of his death. The balance of his liabilities comprised overdrawn bank accounts, outstanding fees to the nursing home operator and a debt owed to the Australian Taxation Office. The net deficit was $788,848.[19]
[19] Affidavit of Geoffrey Hesse sworn 22 February 2021, annexure GEH 4 (Green AB 122).
The financial statements for the Trust in the 2017/2018 financial year indicate that the principal assets of the Trust were shares in Mountways Nominees Pty Ltd (with a book value of $9,999) and Keian (with a book value of $10,000). Its income for the 2016/2017 financial year was $317,158.01, while its income for the 2017/2018 financial year was $341,443.74. Apart from a very small amount of interest, this income comprised dividends from Keian and associated franking credits.[20]
[20] Affidavit of Paul Hardie sworn 5 October 2021, annexure PAH 120 (Green AB 270 - 271).
We note that, during oral submissions in the appeal, counsel for the respondents suggested that it had not been pleaded or proven that BCH held the shares in Keian as assets of the Trust.[21] That submission had no proper basis and should not have been made. Paragraphs 3(b) and 3(c) of the ASC pleaded that BCH was the Trustee of the Trust and was sued in that capacity and is and was at all material times the owner of all issued shares of Keian.[22] That is clearly a plea that the shares were held by BCH in its capacity as Trustee. Paragraph 3(b) of the Defence pleads as to the transfer of shares from Baron to BCH in 2006, but does not plead that the shares are not trust assets or are owned by BCH beneficially.[23] Moreover, the financial statements for the Trust annexed to Paul's affidavit show the Keian shares to be assets of the Trust.[24]
[21] Appeal ts 31.
[22] Blue AB 57.
[23] Blue AB 35.
[24] Affidavit of Paul Hardie sworn 5 October 2021, annexures PAH 16, PAH 17 and PAH 120 (Green AB 247, 259, 271).
The Trust made distributions to Brian of $284,575.74 in 2016/2017 and $311,428.56 in 2017/2018. The Trust made distributions to Veronica of approximately $31,000 in 2016/2017 and $21,000 in 2017/2018. The Trust made no distributions to Geoffrey in 2016/2017, and distributions of approximately $8,600 to Geoffrey in 2017/2018.[25]
[25] Affidavit of Paul Hardie sworn 5 October 2021, annexure PAH 120 (Green AB 274).
At least up until the time summary judgment was entered, Geoffrey had received only one distribution from the Trust since Brian's death, being a payment of $6,000 made in December 2018.[26]
[26] Although there was no evidence to this effect, counsel for the appellant informed the court that some distributions had occurred more recently at appeal ts 27.
According to its 2018/2019 and 2019/2020 financial statements, the Trust received no significant income and made no distributions in those financial years.[27]
Sale and purchase of property by Keian in 2018 and 2019
[27] Affidavit of Paul Hardie sworn 5 October 2021, annexures PAH 16 and PAH 17 (Green AB 246, 249, 258, 261).
Keian sold the following parcels of commercial real estate to third parties in 2018 and 2019:[28]
1.15 Thurso Road, Myaree, sold in May 2018 for $990,000;
2.80 Norma Road, Booragoon, sold in April 2019 for $2.2 million; and
3.22 Thurso Road, Myaree, sold in June 2019 for $1,357,000.
[28] Affidavit of Geoffrey Hesse sworn 22 February 2021, annexures GEH 8 and GEH 9 (Green AB 66 - 67, 123 - 124).
In November 2019, Keian purchased a residential apartment in Booragoon for the sum of $649,000. Veronica lived in the Booragoon property from early 2020 until she moved into a nursing home in about February 2021. Paul says that she paid rent of $450 per week for the apartment while she resided there.[29]
Appointments of Paul and Mark in February 2021
[29] ASC par 21 (Blue AB 65); Defence par 21 (Blue AB 46); affidavit of Paul Hardie sworn 5 October 2021, pars 160 - 162 (Green AB 173).
On 16 February 2021, Paul and Mark were appointed as directors of BCH. Veronica ceased to be a director of BCH on 1 March 2021. Paul became company secretary on 16 February 2021.[30]
[30] Affidavit of Paul Hardie sworn 5 October 2021, annexure PAH 1 (Green AB 181 - 182).
Paul was also appointed as a director of Keian on 16 February 2021.[31]
[31] Affidavit of Paul Hardie sworn 5 October 2021, par 30 (Green AB 152).
Paul was appointed Veronica's guardian ad litem in the primary proceedings by order made on 14 September 2021.[32]
[32] Affidavit of Paul Hardie sworn 5 October 2021, par 20 (Green AB 149).
Geoffrey's claims in the primary proceedings
In the ASC, Geoffrey advances principal claims which may be broadly characterised as follows:
1.The Variation Instrument did not validly amend the Trust Deed because:
(a)Clause 22 of the Trust Deed only authorised the Trustee to make amendments by deed, and the Variation Instrument was not executed by BCH as a deed because BCH's common seal was not affixed to the document as provided for by s 127 of the Corporations Act as it stood in September 2011 (ASC 8).
(b)Clause 22 of the Trust Deed only authorised amendments to the 'trusts terms and conditions hereinbefore contained',[33] which referred to cls 1 ‑ 21 of the Trust Deed. The amendments making Veronica and her issue Specified Beneficiaries and General Beneficiaries, and making Veronica the Appointor and Guardian of the Trust, were to the subsequent schedule to the Trust Deed and not the provisions 'hereinbefore contained' (ASC 14 - 15).
(c)Clause 22.01 of the Trust Deed required that any variation which varied the 'beneficial interests' created by the Trust Deed be for the benefit of at least one of the General Beneficiaries or their next of kin. The variations adding Veronica and her issue to the identified Specified Beneficiaries and General Beneficiaries were not to the benefit of any of the General Beneficiaries or their next of kin (ASC 9 - 13).
2.BCH breached its 'fiduciary' duties including by:
(a)failing to provide Geoffrey with certain business records of BCH and Keian (ASC 25); and
(b)failing to properly administer Keian's financial affairs such that BCH had available income to pay Geoffrey the annuity provided for in cl 2.00(a) of the Trust Deed as varied by the Variation Instrument (ASC 26).
3.BCH should be removed as Trustee on the basis that it is expedient to do so by reason of the conflict between the interests of BCH's current directors and Geoffrey's interests as beneficiary of the annuity payable, and by reason of the pleaded breaches of fiduciary duty (ASC 27 - 28).
[33] Affidavit of Geoffrey Hesse sworn 22 February 2021, annexure GEH 1 (Green AB 107 - 108).
Veronica and Keian are both alleged to be liable on the basis that they knowingly participated in BCH's breach of trust (ASC 29 - 30). While there are other bases pleaded for their liability, including that Veronica breached her fiduciary duties while acting as trustee de son tort of the Trust, it is convenient to focus on the alleged breach of trust by BCH in this appeal.
Disposition
Claim of invalidity of the Variation Instrument
In granting summary judgment, the master did not consider and determine whether the claims as to invalidity of the Variation Instrument were arguable. This might have been on the basis that he implicitly accepted the respondents' written submissions, which were recorded at [6] and [7] of the primary decision. In that regard, the respondents submitted that Geoffrey's claims with respect to the execution and variation of the Trust Deed (see [45.1] above) contradicted his 'primary claim' that relied on alleged breach of fiduciary duties (see [45.2] above). The respondents also submitted that those claims were rendered 'entirely redundant' by the claim that Veronica breached fiduciary duties while acting as trustee de son tort of the Trust (see [46] above).
However, the claims referred to at [45.1] above were advanced as alternatives to the other claims and needed to be considered before awarding summary judgment to the respondents. If the claims referred to at [45.1] succeeded, then the consequence would be that, following Brian's death without further children, Geoffrey (who was childless and does not on the evidence have a relevant interest in any corporations or trusts) would be the only Specified Beneficiary and the only General Beneficiary under the Trust Deed. That might provide a basis on which it would be expedient to replace BCH as Trustee of the Trust. The claims of breach of 'fiduciary' duty by BCH while it acted as Trustee is not necessarily inconsistent with that claim. In any event, it is reasonably arguable that the amendment to cl 2.00 of the Trust Deed - providing Geoffrey with an annuity that was clearly to his benefit - was authorised by cl 22 of the Trust Deed, even if the other amendments effected by the Variation Instrument were not.
While appeal ground 1 is largely directed to the absence of reasons, it also asserts that the master dismissed the claims without due consideration. For the above reasons, the master erred by failing to consider and determine whether the claims of invalidity of the Variation Instrument were reasonably arguable. This was a matter that he was required to consider and determine before awarding summary judgment. Ground 1 is established to that extent.
The respondents have not filed a notice of contention to the effect that the master's decision should be upheld on the basis that none of the claims referred to at [45.1] above have any reasonable prospect of succeeding. It follows that the appeal should be allowed on ground 1.
In any event, the claim referred to at [45.1(c)] above has reasonable prospects of success sufficient to foreclose summary dismissal. It is reasonably arguable that:
1.At the time of execution of the Variation Instrument, Geoffrey was the only Specified Beneficiary and Geoffrey and Brian (and any corporations and trusts in which Brian had an interest) were the only General Beneficiaries. This would be on the arguable basis that the reference to a 'spouse' in an instrument drafted in 1976 would only be to a person to whom Brian was lawfully married.
2.The addition of Veronica, Paul and Mark as Specified Beneficiaries and General Beneficiaries, and as Appointor and Guardian of the Trust, was not for the benefit of Geoffrey, Brian and any related corporations and trusts or their 'next of kin'. It is arguable that, in an instrument drafted in 1976, a person who might today be referred to as a de facto spouse is not the 'next of kin' of a General Beneficiary who dies with a surviving child. Indeed, while the construction of the term 'next of kin' in an instrument always depends on the context, the primary common law meaning of the phrase 'next of kin' is the deceased's nearest blood relation at the time of death, which does not ordinarily include a person to whom a deceased was married at the time of their death.[34] Section 14 of the Administration Act 1903 (WA), as it stood in 1976, provided for the distribution of an intestate's estate to the deceased's 'husband or wife' and then the 'next of kin'. This also suggests a distinction between a spouse and the 'next of kin'.
3.The reference to 'beneficial interests created by this Deed' in cl 22.01 is to the equitable rights which the objects of the powers of appointment contained in the Trust Deed have to the due administration of the Trust,[35] and the contingent interest of the Specified Beneficiaries under cl 5.2 of the Trust Deed. Since the Trust Deed does not create any vested legal or equitable interest in the trust fund, cl 22.01 would be meaningless if the reference to 'beneficial interests created by this Deed' was to a vested proprietary right.
4.The addition of a new class of persons to the Specified Beneficiaries and General Beneficiaries varied the 'beneficial interests' of Geoffrey and Brian by diluting the value of those interests, and placing the Appointor's and Guardian's control of the Trust in other hands, in a way that was not to their benefit.
5.Therefore, the amendments to the definitions of 'Specified Beneficiary', 'General Beneficiary', 'Appointor' and 'Guardian' effected by the Variation Instrument were not authorised by cl 22 of the Trust Deed as they fell within the proviso in cl 22.01 of the Trust Deed.
Claim of breach of duty to administer the assets of the Trust
[34] See Eatts v Gundy [2014] QCA 309; [2015] 2 Qd R 559 [19]; Antill-Pockley v Perpetual Trustee Co Ltd (1974) 132 CLR 140, 143 - 144 (McTiernan ACJ), 146 (Gibbs J, Stephen J concurring); Re Richardson [1956] St R Qd 485, 492; In the Will of Gutheil (1922) 30 CLR 293, 299 (Knox CJ), 304 - 305 (Isaacs J), 310 (Higgins J). See also the discussion in Australian Succession Law (Westlaw online) [230.1190].
[35] See Kennon v Spry [2008] HCA 56; (2008) 238 CLR 366 [49], [74] - [75], [125].
In our view, the claim referred to at [45.2 (b)] above is also reasonably arguable. The master found that this claim was not arguable on the following basis:[36]
The defendants say [Geoffrey] does not plead any form of positive duty which could conceivably give rise to the breaches identified in paragraphs 26(a) and (b) of the ASOC. Furthermore, there is nothing in the Trust Deed or the 2011 Variation which contains such a duty. The defendants say in Australia, fiduciary duties are prescriptive. They are not positive in the sense of requiring a fiduciary to take any particular steps. In support of that position, the defendants rely on the High Court decision in Breen v Williams (1996) 186 CLR 1 [19] ‑ [28]. The defendants say [Geoffrey's] case is that [Veronica] owed the same duties as [BCH] to the beneficiaries of the Trust, including [Geoffrey]. If [BCH] owed no such duty then [Veronica] owed no such duty. For the same reason, the claim against [Keian] would also fail.
[Geoffrey], in his written submissions, does not shy away from the fact that what is pleaded against the defendants amounts to a positive duty to act so as to ensure the annuity is paid. Reliance is placed on the High Court decision in [Byrnes] v Kendle [[2011] HCA 26;] (2011) 243 CLR 253 and the decision of the Victorian Supreme Court in IMO The Will and Estate of Owen Charles Brown (dec) [2016] VSC 258. Both of these cases do refer to positive obligations on a trustee. In [Byrnes] v Kendle the court accepted there was a duty on a trustee to obtain income from a trust property that is capable of generating income. But that is an altogether different concept from what is pleaded in the ASOC. It is not difficult to characterise the obligation to generate income as one aspect of the broader obligation of trustees to preserve and protect trust property. But here [Geoffrey] is saying there is a fiduciary obligation on the part of [BCH] and by extension [Veronica], to act in a particular way so as to enable the annuity to be paid to [Geoffrey]. In my view, there is no arguable case that such a fiduciary obligation exists.
[36] Primary decision [14] - [15].
The ASC is deficient in that there is a lack of correlation between the content of the duties pleaded at ASC 3(d) and the breach of duty pleaded at ASC 26. The description of the duties as 'fiduciary' is at least questionable in some cases and appears to have distracted the master. However, these are pleading issues which could be addressed by amendment and, if necessary, striking out pleadings. They do not provide a proper basis for concluding that Geoffrey's claim is doomed to fail, so that summary judgment should be granted.
In Byrnes, Heydon and Crennan JJ described a trustee's duty to invest the trust fund in the following terms:[37]
Even if there is no direction in the trust instrument that the trust property be invested, it is the duty of the trustee to invest the trust property subject to the limits permitted by the legislation in force under the proper law of the trust and subject to any limits stated in the trust document. If there are no limits of that kind, a trustee who receives a trust asset, like an executor of a deceased estate, must 'lay it out for the benefit of the estate'. That is, it is the duty of a trustee to obtain income from the trust property if it is capable of yielding an income. If the property is money, it should be invested at interest or used to purchase income-yielding assets like shares. If the property consists of business assets, it should be employed in a business. If the property is lettable land, it should be let for rent. And if the intended means of gaining an income turn out to be unsatisfactory, those means must be abandoned and others found. (citations omitted)
[37] Byrnes [119].
The present case does not fall within any of the examples provided in the above passage. However, to recognise that the present case is different from previous cases, and perhaps even novel, is not a proper basis to grant summary judgment. Caution must be exercised not to stifle the development of the law by summarily rejecting a novel claim.[38]
[38] Bridgetown/Greenbushes Friends of the Forest Inc v Department of Conservation and Land Management (1997) 18 WAR 126 , 188 - 189, cited with approval in Gunns Ltd v Alishah [2009] TASSC 45; (2009) 19 Tas R 38 [23].
In the present case, the circumstances are:
1.The only significant assets of the Trust are shares in Keian.
2.The only significant source of income for the Trust from its assets are dividends declared by Keian and associated franking credits.
3.BCH holds all of the issued shares in Keian, and so is able to control the appointment of Keian's company officers and appoint a liquidator for the purposes of winding up the affairs and distributing the property of Keian under s 491 and s 495 ‑ s 496 of the Corporations Act.
4.It can be inferred that Keian has substantial assets which are capable of generating an income which could be the subject of a distribution to shareholders, including the approximately $4.5 million proceeds of the sale of commercial properties in 2018 and 2019 which Paul has not deposed was used to discharge secured debt.
5.Since Brian's death the shares in Keian have not produced any income for the Trust.
6.A purpose of the Trust is to provide Geoffrey with an annuity, which purpose is being defeated by the way in which Keian is managing its affairs.
In our view, it is reasonably arguable that, in these circumstances, BCH as Trustee is obliged to use its control as the sole shareholder of Keian to:
1.procure Keian to take steps to place itself in a position to generate dividends to the extent that it is capable of doing so; and/or
2.place Keian into a members' voluntary liquidation so that Keian's property can be distributed to BCH and used by BCH to generate income for the Trust.
Such a duty might be seen as an aspect of the general duty referred to in the passage of Byrnes quoted at [54] above in its application to the particular circumstances of this case, or as implicit in the terms of the Trust Deed.[39] It is within the scope of the pleaded duty of BCH to act properly in administering the assets of the Trust (ASC 3(d)(iv)).
[39] Although we note that reliance on an implication drawn from the Trust Deed was disavowed by counsel for Geoffrey at primary ts 90.
There was only one authority to which the parties were able to refer the court which dealt with the duties which a trustee may owe where the trustee holds a controlling shareholding in a company with substantial assets. That was the decision of Brightman LJ in Bartlett v Barclays Bank Trust Co Ltd.[40] In that case the trustee bank held a controlling number of shares in companies which owned interests in real property. The value of the shares was reduced as a result of the companies engaging in speculative property development. The beneficiaries sued the trustee bank claiming that the bank was liable to make good to the trust fund losses resulting from the bank having permitted the companies to engage in the speculative property development. Brightman LJ held that the bank, as trustee, was bound to act in relation to the shares and to the controlling position which they conferred in the same manner as a prudent businessperson.[41] The bank was found to have acted in breach of trust by neglecting to ensure it received adequate information concerning the activities of the companies' boards.[42]
[40] Bartlett v Barclays Bank Trust Co Ltd [1980] 1 Ch 515.
[41] Bartlett (532).
[42] Bartlett (534).
While the circumstances of Bartlett are quite different to the present case, it does tend to support the proposition that a trustee may in appropriate circumstances be under a duty of the kind referred to at [57] above.
While there may be an element of novelty to Geoffrey's claim, in our view it is reasonably arguable. While amendment to the ASC may be required to properly plead the claim so that the respondents may fairly respond to it, the claim is in substance raised by the facts pleaded.
If that claim is established, we are not persuaded that the correlative duty of BCH to provide information about the management of Keian does not arguably arise.
It is reasonably arguable that Veronica and Keian might be liable on the alleged basis that they knowingly participated in BCH's breach of trust. Although the master addressed and rejected alternative bases on which they might be liable, he did not consider and determine the issue of knowing participation.
Claim for the appointment of a new Trustee
If either of the claims of invalidity of the Variation Instrument or breach of the duty to invest is established, then it is reasonably arguable that it would be expedient to appoint a new trustee and impracticable in the present case to do so without the assistance of the court. On that basis, the court would be empowered to remove BCH and appoint a new Trustee to the Trust under s 77(1) of the Trustees Act 1962 (WA) or the court's equitable jurisdiction.
The breadth of the court's power to remove a trustee was recently discussed by this court in Cardaci v Cardaci,[43] where it was reiterated that the court has a broad discretion to be 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 trusts, and a faithful and sound exercise of the powers conferred upon the trustee.[44] The breadth of the discretion, and the large range of factors which may inform its exercise, will be an impediment to the grant of summary judgment in many cases, including the present.
[43] Cardaci v Cardaci [2023] WASCA 158 [183] - [208].
[44] Cardaci [199].
BCH is currently controlled by Paul and Mark, who will not have any interest in the administration of the Trust if the claim of invalidity of the Variation Instrument is upheld. If the claim for breach of the duty to administer the assets of the Trust is upheld, they may be found to have managed the affairs of BCH and its wholly owned subsidiary, Keian, (of which at least Paul is also a director) in a way that defeats an important object of the Trust. While amendments to the ASC may be required in order for the claim to be fairly advanced, in our view it cannot be said to be hopeless. The master failed to consider and determine the claim for the appointment of a replacement Trustee in his reasons.
Conclusion
The principles to be applied on an application for summary judgment are well‑established. Summary judgment will be granted only when there is no real question to be tried. The power to order summary judgment is one that should be exercised with great care.[45] It is only in the clearest of cases, when there is a high degree of certainty about the ultimate outcome of the proceeding if it went to trial, that summary judgment ought properly be granted.[46]
[45] Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87, 99.
[46] Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 [57]; Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 [46]; Spencer v The Commonwealth of Australia [2010] HCA 28; (2010) 241 CLR 118 [24], [53] ‑ [55].
In our view, while amendments would appear to be required to the pleadings, the claims sought to be raised by Geoffrey are reasonably arguable and are not doomed to fail. The master erred in granting summary judgment to the respondents.
Therefore, ground 1 is established so far as it contends that the master dismissed the claims for invalidity of the Variation Instrument and replacement of the Trustee without due consideration. Ground 3, which contends that the master erred in summarily dismissing the claim for breach of the duty to administer the assets of the Trust, is also established. It is otherwise unnecessary to determine the appellant's grounds of appeal. At the hearing of the appeal, both counsel agreed that the above aspects of grounds 1 and 3 were determinative of the appeal.
Orders
We will therefore make the following orders:
1.The appeal is allowed.
2.The orders made by the master on 17 May 2022 are set aside and there is substituted an order that the defendants' application for summary judgment is refused.
3.The respondents' application by chamber summons filed on 5 October 2021 is otherwise remitted to the General Division for determination according to law.
We will hear from the parties on the question of costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
RL
Associate to the Honourable Justice Mitchell
4 DECEMBER 2023
3
12
0