Hesse v Hardie - [2022] WASC 156

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   HESSE -v- HARDIE [2022] WASC 156
CORAM:   MASTER SANDERSON
HEARD:   16 FEBRUARY 2022
DELIVERED          :   9 MAY 2022
PUBLISHED           :   9 MAY 2022
FILE NO/S:   CIV 1011 of 2021
BETWEEN:   GEOFFREY ERIC HESSE
Plaintiff
AND
VERONICA MARIE HARDIE
First Defendant
B.C.H. NOMINEES PTY LTD as trustee for THE B.C.H. FAMILY TRUST
Second Defendant
KEIAN HOLDINGS PTY LTD
Third Defendant

Catchwords:

Practice and procedure - Application by defendant for summary judgment - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA)

Result:

Summary judgment granted to defendant

Category: B

Representation:

Counsel:

Plaintiff	:	DI Connor
First Defendant	:	C Eastwood
Second Defendant	:	C Eastwood
Third Defendant	:	C Eastwood

Solicitors:

Plaintiff	:	Friedman Lurie Singh & D'Angelo
First Defendant	:	Eastwood Law
Second Defendant	:	Eastwood Law
Third Defendant	:	Eastwood Law

Case(s) referred to in decision(s):

Breen v Williams (1996) 186 CLR 1
Brynes v Kendle (2011) 243 CLR 253
Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6
IMO The Will and Estate of Owen Charles Brown (dec) [2016] VSC 258
Sutton Investments Pty Ltd v Realistic Investments Pty Ltd [2017] WASCA 14

MASTER SANDERSON:

This is the defendants' application to strike out the plaintiff's amended statement of claim dated 5 August 2021 (ASOC). The defendants require an extension of time to bring this application. The application was not brought until 5 October 2021, well outside the 21 day time limit allowed for the making of a summary judgment application. The defendants offer some explanation for the delay but really this is one of those cases where the defendants say the strength of their application is such it would be in the interests of justice to grant the extension to bring the action to an end. It is appropriate then to consider the merits of the defendants' application before dealing with the application for an extension. For the sake of completeness, I should note that the defendants seek, in the alternative, to strike out the ASOC. However, that is very much a secondary position. The defendants maintain they are entitled to summary judgment.
There was no dispute between the parties as to the principles applying when a defendant applies for summary judgment. These principles were set out by the Court of Appeal in Sutton Investments Pty Ltd v Realistic Investments Pty Ltd [2017] WASCA 14 [24]. Without repeating what was said in that decision, two points are to be noted. First, summary judgment is only available in the clearest of cases. Second, for the purposes of the summary judgment application, the plaintiff is confined to the facts as pleaded in the statement of claim and it must be assumed those facts will be proved at trial. A summary judgment application is not an occasion to decide any issue of fact between the parties.
Before dealing with the statement of claim in detail, I should offer an overview of the plaintiff's claim. The second defendant is the trustee of the BCH Family Trust (Trust). As trustee the second defendant owed certain fiduciary duties to the beneficiaries of the Trust, including the plaintiff. The terms of the Trust were amended on 20 September 2011 by deed poll which included a clause (operable from the date of death of the Deceased) providing the plaintiff with an annuity to be paid from income received by the Trust. In the period immediately following the Deceased's death, the second defendant was without a director as a consequence of the Deceased having lost capacity in mid 2015 and the operation of Article 8.3(c)(1) of the Constitution of the second defendant. By reason of the Deceased's incapacity from mid 2015, the appointment of the first defendant as a director of the second defendant on 16 September 2016 was invalid and, accordingly from that time she acted as a trustee de son tort of the Trust between 16 September 2016 and 1 March 2021.
The plaintiff alleges the first defendant, acting as trustee de son tort, owed the beneficiaries of the Trust, including the plaintiff, the same fiduciary duties as the second defendant in its capacity as trustee. It is alleged the first defendant breached those duties by failing to take steps to direct the affairs of the third defendant so as to ensure the third defendant had funds available to pay to the second defendant for the purpose of meeting the 'annuity' payment to the plaintiff. Further, the plaintiff says the first defendant directed the third defendant to sell its income producing assets for the purpose of ensuring the third defendant had no income available for distribution to the second defendant and could not pay any such funds to the second defendant. The plaintiff also alleges, while acting as trustee de son tort, the first defendant breached her fiduciary duties to the beneficiaries of the Trust, including the plaintiff, by reason of having engaged in a number of other transactions associated with the second and third defendants.
The plaintiff also claims the third defendant owed fiduciary duties to the beneficiaries of the Trust that were co‑extensive with the duties owed by the first and second defendants as a consequence of a third defendant being a corporate creature, vehicle or alter ego of the first defendant. The plaintiff alleges that the third defendant breached those fiduciary duties in a manner that mirrors the breaches alleged against the first defendant.
The defendants say the plaintiff's case as now pleaded in the ASOC contains causes of action which are contradictory to the plaintiff's primary claim. For instance, the plaintiff makes a claim that the 2011 variation of the Trust instrument giving rise to the plaintiff's primary claim is invalid. In the alternative, the plaintiff makes a claim that certain provisions of the 2011 variation are 'ultra vires'.
The defendants say the amendments contained in the ASOC have the dual effect of making the plaintiff's claim reliant upon proving his case against the first defendant. That has the effect of rendering the plea against the second defendant (and the claims with respect to the execution and variation of the Trust Deed) entirely redundant. Nonetheless, the defendants say the way the plaintiff frames the case against the first defendants requires a finding that the duties of the second defendant, which were assumed by the first defendant, include a positive duty requiring the second defendant to direct the affairs of the third defendant and procure income distributions from the third defendant for the purpose of enabling the payment of the 'annuity'. On this analysis, the defendants say the fundamental question posed by the plaintiff's claim is whether the second defendant owed any positive duty which it could have breached by failing to procure the income distributions from the third defendant. If no such duty exists, then neither the first or third defendants owed any such duty to the plaintiff and the plaintiff's claim must fail.
It is appropriate then to look at the facts in more detail beginning with the position of the second defendant. The second defendant is trustee of the Trust. It was incorporated on 30 June 1976. The Trust was created by deed executed on 2 September 1976 (Trust Deed). The Trust is a discretionary family trust and was probably created for tax purposes. The Trust Deed operates so as to vest the assets of the trust fund in the trustee for the benefit of the beneficiaries on terms contained in the Trust Deed. The Trust Deed confers absolute discretion upon the trustee insofar as distribution of the Trust Fund and any income accrued is concerned. Accordingly, the status of the beneficiaries can be put no higher than discretionary objects for distribution. This can be contrasted with the position under a unit trust where the holders of units are entitled to a distribution of both the corpus and a percent of income based upon their unit holding. The rights of a beneficiary under a discretionary trust amount to nothing more than a right to ensure the Trust is properly administered.
The plaintiff is a general beneficiary of the Trust. On 20 September 2011 the Trust executed a Deed of Variation (2011 Variation). The 2011 Variation amended the definitions of 'the guardian', 'the appointor', 'specified beneficiary' and 'general beneficiaries'. Further, cl 2.00 of the Trust Deed was amended so as to read:
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 ERIC HESSE shall survive BRIAN CUTHBERT HESSE, then from the commencement of the month immediately following the death of BRIAN CUTHBERT HESSE and thereafter during the lifetime of GEOFFREY ERIC HESSE, and subject to clause 3.01, to pay the first $72,000.00 per annum to GEOFFREY ERIC HESSE 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 ERIC HESSE) 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:-.
It is the plaintiff's position that the amended cl 2.00 created an annuity in his favour. The defendants dispute that is the case. In my view, it is arguable the effect of the amendment was to create an annuity. I find it difficult to see how the clause can be read in any other way. In any event, for the purposes of a summary judgment application, I am prepared to assume that was the effect of the clause. That said, I would also accept the defendants' submission that the payment of any annuity is conditional upon the Trust having sufficient assets to meet that payment.
The plaintiff's entitlement under cl 2.00 of the Trust Deed as amended was activated upon the death of the Deceased. The Deceased passed away on 15 May 2018. Accordingly, the entitlement arose in the accounting period ending 30 June 2018. At the date of the Deceased's death, the Trust owned no income producing assets. The only current assets of the Trust shown in the financial statements for the year ended 30 June 2018 was shares held in private companies namely Keian Holdings Pty Ltd, Mountway Nominees Pty Ltd and units in the Mountway Unit Trust. The Trust received no cash income in the accounting period ended 30 June 2018. What the Trust did receive was a dividend payment from the third defendant declared out of that company's historical retained earnings. The Trust made a payment of $6,000 to the plaintiff for the month of June 2018 being the last calendar month of the accounting period. The financial statements of the Trust reveal in subsequent years the Trust has received negligible income. The financial position of the Trust, since the date of the Deceased's death, is not a matter of dispute between the parties.
To succeed in its cause of action, the plaintiff must establish the second defendant owed a duty to the plaintiff to take steps to ensure his entitlement under cl 2.00 of the Trust Deed (as amended) was paid to him. The defendants concede the second defendant, as a trustee, was a fiduciary. It is the Trust instrument which specifies the fiduciary's powers and duties. The fiduciary duties said to be owed by the second defendant are pleaded in par 3(d) of the ASOC. That paragraph reads as follows:
(d) in the premises, owed fiduciary duties to the beneficiaries of the Trust including the following:
(i) a duty to provide beneficiaries with accurate information concerning the administration of the trust and to permit examination of documents relating to the Trust and its administration;
(ii) a duty to avoid conflicts of interest;
(iii) a duty to act impartially and fairly as between the beneficiaries of the Trust;
(iv) a duty to act properly and in good faith in administering the businesses, assets and liabilities of the Trust.
(v) A duty to exercise the discretions conferred on it by the Trust Deed in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretions were conferred.
The alleged breach of these fiduciary duties is pleaded in par 26 of the ASOC. That paragraph reads as follows:
The Second Defendant has breached its fiduciary duties referred to at paragraphs 3(d)(ii)-(v) herein in that:
(a) it failed to properly administer and direct the Third Defendant’s financial affairs such that the Second Defendant had available income to pay the Plaintiff the annuity provided for in clause 2.00(a) of the Trust Deed as varied notwithstanding:
(i) that at all material times from 15 May, 2018 the Directors of the Second Defendant, including the First Defendant who purported to act as such, were the same as those of the Third Defendant;
(ii) that the Third Defendant was in possession of significant assets which, properly managed, could have been invested to provide income that should have been made available to the Second Defendant for distribution to the Plaintiff pursuant to clause 2.00(a) of the Trust Deed as varied;
(iii) the Second Defendant’s fiduciary duties pleaded at paragraph 3 (d)(ii)-(v) herein.
(b) it failed and refused to consider, or properly consider, whether to make any distributions to the Plaintiff, on the basis that it had no capital and/or income to distribute notwithstanding:
(i) that the Third Defendant was at all material times a wholly owned subsidiary of the Second Defendant;
(ii) that the Third Defendant at all material times owned substantial assets;
(iii) that at all material times from 15 May, 2018, the Directors of the Second Defendant, including the First Defendant who purported to act as such, were the same as those of the Third Defendant;
(iv) its fiduciary duties referred to at paragraph 3 (d)(ii)-(v).
(c) it failed to consider, or properly consider whether to make any distributions of the Trust’s income and/or capital to the Plaintiff after 15 May, 2018 notwithstanding:
(i) that prior to the Deceased’s death the Deceased had paid the Plaintiff’s rent and private health insurance premiums;
(ii) that at all times the Plaintiff’s principal source of income has been Centrelink payments and he is unlikely to work in the future;
(iii) that the Plaintiff does not own any real property, or substantial assets;
(iv) that other beneficiaries of the Trust are in a sound financial position;
(v) that the assets of the Trust are substantial;
(vi) the Deceased’s Will did not make any significant provision for the Plaintiff;
(vii) the Deceased as the sole director of the Second Defendant and the Guardian of the Trust attempted, by the 2011 Variation, to provide for the Plaintiff by the Annuity in clause 2.00(a) thereof.
and the Plaintiff will contend that such failure to make any distribution to the Plaintiff was contrary to any reasonable expectation of the Deceased and by reason thereof the Second Defendant has breached the duty referred to in 3(d)(iii) herein.
(d) it failed to consider, or properly consider whether to make any distributions of the Trust’s income or capital to the Plaintiff as it has failed to make any enquiries of the Plaintiff concerning his financial position and needs.
(e) it has failed to act impartially as between the beneficiaries of the Trust in that:
(i) it caused or allowed the Third Defendant to purchase the Booragoon Apartment in 2019, and allowed the First Defendant to live in it, whilst not making any distributions to the Plaintiff for the period after 30 June, 2018.
(ii) it caused or allowed the Third Defendant to sell the properties referred to at paragraph 19 herein, which favoured the First Defendant’s interest as a potential recipient of the capital of the Trust over the Plaintiff’s interests as a potential recipient of the income of the Trust pursuant to clause 2.00(a) of the Trust Deed as varied;
(iii) it failed to cause the Third Defendant to lease the three commercial properties referred to in paragraph 19 from about 2015 with the result that the Trust was deprived of rental income.
The defendants say the plaintiff 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 the plaintiff's case is that the first defendant owed the same duties as the second defendant to the beneficiaries of the Trust, including the plaintiff. If the second defendant owed no such duty then the first defendant owed no such duty. For the same reason, the claim against the third defendant would also fail.
The plaintiff, 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 Brynes v Kendle (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 Brynes 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 the plaintiff is saying there is a fiduciary obligation on the part of the second defendant and by extension the first defendant, to act in a particular way so as to enable the annuity to be paid to the plaintiff. In my view, there is no arguable case that such a fiduciary obligation exists.
Having reached that conclusion, it is not strictly necessary for me to deal further with matters raised by the defendants. But for the sake of completeness, I will deal with the position of the first defendant. There is a dispute between the plaintiff and the first defendant as to whether she was properly appointed as a director of the second defendant or acted as a trustee de son tort from 2016. Whether the first defendant was validly appointed to the role of director of the second defendant or acted as a defacto director is not really to the point. The first defendant accepts she acted as a director and as a consequence owed a fiduciary duty to the second defendant. But that does not mean as a director of the second defendant, the first defendant owed a fiduciary duty to the beneficiary of the Trust. There is nothing to suggest there were actions on the part of the first defendant whether she was a director of the second defendant, a defacto director of the second defendant or a trustee de son tort acted in any way which amounted to a breach of her fiduciary duty.

Turning then to the third defendant, at par 36 of the ASOC the plaintiff alleges the third defendant, a third party, owed fiduciary duties to the beneficiaries of the Trust including the plaintiff. The plaintiff pleads the duties were co‑extensive with those owed by the first defendant acting as Trustee de son tort and by the second defendant. It is also pleaded the duties arise as a consequence of the third defendant being 'the corporate creature, vehicle or alter ego of the first defendant and as a result subject to the same fiduciary duties the first defendant and/or the second defendant owed to the beneficiaries of the Trust'. It would seem the pleaded status of the third defendant is a reference to the categories of relationship between a corporate third party and a fiduciary which gives rise to accessorial liability: see Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6. It is the defendants' position, which I accept, that Grimaldi does not give rise to the conclusion that an entity, by reason of falling into that category of relationship, independently owes a fiduciary duty to a beneficiary of a trust. Furthermore, the plaintiff pleads no material facts in the ASOC which could result in a 'transmitted fiduciary obligation' as that expression is used in Grimaldi.
The third defendant was historically a commercial enterprise controlled and managed by the Deceased. It carried on a commercial leasing enterprise with proprietary interests in commercial and residential property and it leased the commercial properties to the car dealerships owned by entities controlled by the Deceased. Up until the Deceased's related entity sold the car dealerships in 2005, the third defendant owned four commercial properties - one in Melville, one in Booragoon and two in Myaree. After the car dealerships were sold in 2005, the second defendant, who already owned 50% of the shares in the third defendant, acquired the remaining 50% interest. As a condition of the sale of the car dealerships, the property in Melville was sold and the remaining commercial properties were leased by the purchaser. The remaining three properties were subsequently sold. The third defendant has, at various times, owned certain residential properties in Rossmoyne and Booragoon. The first defendant resides in one of those properties in Booragoon and the evidence establishes she pays market rental for the unit. Nothing in the affairs of the third defendant could give rise to any fiduciary obligation arising from the relationship between the third defendant and the second defendant.
Accordingly, I am satisfied summary judgment ought be entered in favour of the defendants. The question then arises as to whether an extension of time to bring the application should be granted. On balance, I am satisfied it should. Having concluded the plaintiff's action cannot succeed, it would not be in the interests of justice to put the parties to the time and expense of further litigating a matter simply because a procedural time limit in the Rules of the Supreme Court 1971 (WA) had not been met. On publication of these reasons, the parties should confer as to the form of orders and as to costs. If no agreement can be reached, short submissions from each of the parties should be filed within 7 days of the date of publication of these reasons.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AH
Associate to Master Sanderson
9 MAY 2022