Hillier v Martin (No 7)

Case [2021] FCA 1221

FEDERAL COURT OF AUSTRALIA

Hillier v Martin (No 7) [2021] FCA 1221

File number: SAD 113 of 2020
Judgment of: CHARLESWORTH J
Date of judgment: 11 October 2021
Catchwords: EQUITY – hostile litigation concerning property held on trust – applicant seeking an order that the solicitors for the first respondent reimburse payments made by entities holding trust property in respect of the first respondent’s legal representation in the action – source and nature of the Court’s jurisdiction to make the order – whether the first respondent is prima facie entitled to apply trust property for the payment of her legal fees and disbursements in the proceeding – whether the principles governing an application for a mandatory interlocutory injunction apply – whether the order can and should be made in the absence of an undertaking as to damages
Legislation:

Competition and Consumer Act 2010 (Cth)

Corporations Act 2001 (Cth)

Federal Court of Australia Act 1976 (Cth) ss 5, 19, 22, 23

Judiciary Act 1903 (Cth) ss 79, 80

Federal Court Rules 2011 (Cth) r1.32

Uniform Civil Procedure Rules 2005 (NSW) r 54.3

Cases cited:

Alsop v Wilkinson (a firm) v Neary [1996] 1 WLR 1220

Australian Broadcasting Corporation v Lenah Game Meats Pty Limited (2001) 208 CLR 199

Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57

Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618

Blunden v Commonwealth (2003) 218 CLR 330

Frost v Bovaird (2012) 203 FCR 95

Hillier v Martin (No 4) [2021] FCA 710

Ideal Bedding Company Limited v Holland [1907] 2 Ch 157

Martin v Hillier (No 2) [2021] FCA 958

McDonald v Horn [1995] ICR 685

Mobileworld Operating Pty Ltd v Telstra Corporation Limited [2005] FCA 1365

Rattigan v Hanly [2020] NSWSC 1722

Re Beddoe, Downes v Cottan [1893] 1 Ch 547

Re Estate Schwartz, Deceased; Application of Gellert; Gellert v Bentwood and Schwartz [2015] NSWSC 1484

Rizeq v Western Australia (2017) 262 CLR 1

Samsung Electronics Company Ltd v Apple Inc (2011) 217 FCR 238

Sandalciyan v International Development and Construction Pty Limited [2010] FCA 1145; 80 ACSR 31

Sellar v Lasotav Pty Ltd, in the Matter of Lasotav Pty Ltd [2008] FCA 1766

Tait v P.T. Ltd as Trustee of the Scentre Tuggerah Trust [2015] FCA 1015

Division: General Division
Registry: South Australia
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
Number of paragraphs: 113
Date of last submissions: Applicant:  1 October 2021
Respondent:  5 October 2021
Date of hearing: 28 September 2021
Counsel for the Applicant: Mr R Whitington QC with Ms H Doyle
Solicitor for the Applicant: Sykes Bidstrup
Counsel for the First Respondent: Mr S Ower SC
Solicitor for the First Respondent: Norman Waterhouse
Counsel for the Second Respondent: The Second Respondent did not appear
Counsel for the Third Respondent: Mr T Besanko
Solicitor for the Third Respondent: Kain Lawyers

ORDERS

SAD 113 of 2020
BETWEEN:

JAMES HILLIER

Applicant
AND:

VICTORIA MARTIN

First Respondent

NORDBURGER OPERATIONS PTY LTD

Second Respondent

ERIK…

Continue reading Hillier v Martin (No 7)

Sign in free to access the full text

Details
AGLC
Hillier v Martin (No 7) [2021] FCA 1221
Case
[2021] FCA 1221
Decision Date

CaseChat Overview and Summary

Hillier v Martin (No 7) was a case brought before the court regarding a dispute over the ownership and control of a hamburger business trading as Nordburger. Mr Hillier, the brother of Mrs Martin, brought the case against Mrs Martin, alleging the existence of a joint venture agreement involving himself, Mrs Martin, and Erik Vari Pty Ltd. He sought a declaration that Mrs Martin held shares in Nordburger Pty Ltd on trust for the joint venturers. Mrs Martin denied the existence of a joint venture agreement and alleged that Nordburger Operations Pty Ltd held the business assets as the duly appointed Trustee of the Nordburger Holdings Trust. The legal issues before the court were whether the first respondent was prima facie entitled to apply trust property for the payment of her legal fees and disbursements, and if the principles governing an application for a mandatory interlocutory injunction applied. The court found that the first respondent was not entitled to apply trust property for the payment of her legal fees and disbursements, and that the principles governing an application for a mandatory interlocutory injunction did not apply. Therefore, the court ordered Norman Waterhouse Lawyers to reimburse any company or entity in the Nordburger Group from which they had received payments of fees and disbursements in connection with the representation of the first respondent in the proceedings. The amount to be reimbursed was to be paid into court pending the determination of these proceedings.

Orders

Orders of the court

1. Norman Waterhouse Lawyers is to reimburse any company or entity in the Nordburger Group from which Norman Waterhouse Lawyers have received payments of fees and disbursements in connection with the representation of the first respondent in the within proceedings, such amounts to be paid into court pending the determination of these proceedings.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

For the reasons that follow, I am satisfied that it is appropriate to make an order in the terms sought.BACKGROUND The parties are in dispute as to the ownership and control of a hamburger business trading as Nordburger. Mr Hillier is the brother of the first respondent, Mrs Victoria Martin. Mr Hillier’s case is that there exists a joint venture agreement involving himself, Mrs Martin and the third respondent Erik Vari Pty Ltd. He alleges that, pursuant to the joint venture agreement, the assets of the business were held by the company Nordburger Pty Ltd, of which Mrs Martin was sole director and shareholder. He seeks a declaration to the effect that at all material times Mrs Martin held the shares in Nordburger Pty Ltd on trust for the joint venturers on the terms of the joint venture agreement. The material times date back to late 2012 when the joint venture was allegedly formed. I will refer to the trust alleged by Mr Hillier as the JV Trust. Mr Hillier asserts an equity share in the corpus and income of the JV Trust of at least 40%. He acknowledges Mrs Martin has an interest of at least 20% in the same. Among other things, Mr Hillier alleges that Mrs Martin caused the assets of the business to be transferred to Nordburger Operations Pty Ltd in circumstances constituting a breach of the joint venture agreement, breach of fiduciary obligations arising by virtue of the JV Trust, and a fraud on a power in respect of the JV Trust. He alleges that the transfer had no valid effect on the terms and operation of the joint venture agreement. He alleges that the transfer was undertaken at a time when Mrs Martin was the sole director and shareholder of both Nordburger Pty Ltd and Operations and the controlling mind of each entity. Among other things, Mr Hillier seeks a declaration that Operations holds the business assets on trust for the benefit of the joint venture participants and on terms consistent with the joint venture agreement. The fact of the transfer to Operations does not appear to be disputed. It is Mrs Martin’s case that the transfer occurred in the context of a restructure of the business in late 2019. Mrs Martin denies the existence of a joint venture agreement and so denies the existence of any trust arising out of any such agreement. She alleges that Operations holds the business assets as the duly appointed Trustee of the Nordburger Holdings Trust (NH Trust), being an express trust settled by Deed (the NHT Deed) shortly prior to the transfer. According to the NHT Deed, Mr Hillier and Mrs Martin are the only primary beneficiaries. There appear to be many other persons meeting the description of secondary beneficiaries. It is Mrs Martin’s case that the terms of the NHT Deed are consistent with the terms of a prior family trust and reflect the prior legal relations between her and Mr Hillier in respect of their past business activities. She denies that Vari has any interest in the business, whether by virtue of any joint venture agreement, or at all.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

In summarising the applicable principles, his Honour referred to Alsop and said:64At 1224, Lightman J also observed, in relation to the question of costs in a beneficiary dispute:‘A beneficiaries’ dispute is regarded as ordinary hostile litigation in which costs follow the event and do not come out of the trust estate: see per Hoffmann LJ in McDonald v Horn [1995] ICR 685, 696.’65This statement does no more than reflect the principle that an executor or trustee will not be able to rely upon the right of indemnity in respect of legal costs incurred in protecting only his, or her, personal interests. Thus, in Miller v Cameron (1936) 54 CLR 572 at 578–579; [1936] HCA 13, Latham CJ expressed the view that a trustee who defended an action for his removal was thereby representing his own interests and not those of the trust estate.66The rationale of indemnification, in respect of the expenses of litigation, as between trustees and the trust estate, or other fiduciaries and those on whose behalf they are acting, is that the party who has incurred the expense has not been acting for his, or her, own benefit but for the benefit of the estate or person in question: Wishart v Castlecroft Securities Ltd 2010 SC 16 at 46 [71]; [2009] CSIH 65 at [71] (Lord Reed for the Court).67In National Trustees Executors and Agency Company of Australasia Limited v Barnes (1941) 64 CLR 268 at 279; [1941] HCA 3, Williams J (Rich ACJ agreeing) observed:‘Such expressions as acting ‘for the benefit of’ ‘with reference to’ or ‘on indiscriminately in the judgments, but they all mean the same thing, namely, that the question is whether the costs, charges and expenses are properly incurred by the trustee as an incident of his administration of the estate.’68(On the basis of these authorities alone, the concession made by the Plaintiff, referred to earlier as to the costs of administration, was properly made.)69However, that is not the end of the matter. Generally speaking, if, as executor, a defendant proceeds to defend proceedings without the authority of an order of the Court, or without an indemnity of the other residuary beneficiaries, he does so at his own risk as to costs. As the plurality of the High Court wrote in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 at 93–94 [70]–[71]; [2008] HCA 42 at [70]–[71]:‘In particular, trustees who are sued, particularly for breach of trust, may sometimes experience uncertainty about whether they will be able to obtain indemnity as to the costs of their defence under s 59(4) in any event. Perhaps they will if their breach is excused under s 85(2); but they cannot be sure, in advance, that the court’s discretionary power to excuse the breach will be exercised in their favour, and one of the matters to be excused is their failure to obtain the court’s direction under s 63 or otherwise …In short, provision is made for a trustee to obtain judicial advice about the prosecution or defence of litigation in recognition of both the fact that the office of trustee is ordinarily a gratuitous office and the fact that a trustee is entitled to an indemnity for all costs and expenses properly incurred in performance of the trustee’s duties. Obtaining judicial advice resolves doubt about whether it is proper for a trustee to incur the costs and expenses of prosecuting or defending litigation. No less importantly, however, resolving those doubts means that the interests of the trust will be protected; the interests of the trust will not be subordinated to the trustee’s fear of personal liability for costs.’(emphasis in original)70In Application of Uncle’s Joint Pty Ltd (2014) 12 ASTLR 487 at 494 [24]–[25]; [2014] NSWSC 321, Brereton J (as his Honour then was) wrote at [24]–[25]:‘Typically, as in National Trustees Executors and Agency Company of Australasia Ltd v Barnes, trustees will be allowed their costs out of the estate in this type of case only after the proceedings against them have been resolved in their favour. Thus in Armitage v Nurse [1998] Ch 241, Millett LJ, with the concurrence of the other members of the court, said (at 263):In my judgment the respondents should have the right to recoup themselves out of the trust fund but only if and when the action against them is discontinued or dismissed.In Frost v Bovaird, the full Federal Court rejected (at [79]) the submission that in the case of beneficiaries disputes the trustee was, pending the determination of the claim and without more, entitled to use the trust funds to meet legal costs incurred in defending the claim, the prima facie position being, as stated by Lightman J, that a trustee’s legal costs incurred in defending a beneficiaries dispute do not come out of the estate. However, the Court acknowledged (at [75]) that the judgment of the High Court in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 (‘St Petka’) recognised that it was open to trustees faced with an allegation of misconduct by a beneficiary to apply for judicial advice, pursuant to which they might be entitled to resort to trust assets for their defence.’(emphasis added)

Ratio Decidendi

Legal Principle Established

Among other things, Mr Hillier alleges that Mrs Martin caused the assets of the business to be transferred to Nordburger Operations Pty Ltd in circumstances constituting a breach of the joint venture agreement, breach of fiduciary obligations arising by virtue of the JV Trust, and a fraud on a power in respect of the JV Trust. He alleges that the transfer had no valid effect on the terms and operation of the joint venture agreement. He alleges that the transfer was undertaken at a time when Mrs Martin was the sole director and shareholder of both Nordburger Pty Ltd and Operations and the controlling mind of each entity. Among other things, Mr Hillier seeks a declaration that Operations holds the business assets on trust for the benefit of the joint venture participants and on terms consistent with the joint venture agreement. The fact of the transfer to Operations does not appear to be disputed. It is Mrs Martin’s case that the transfer occurred in the context of a restructure of the business in late 2019. Mrs Martin denies the existence of a joint venture agreement and so denies the existence of any trust arising out of any such agreement. She alleges that Operations holds the business assets as the duly appointed Trustee of the Nordburger Holdings Trust (NH Trust), being an express trust settled by Deed (the NHT Deed) shortly prior to the transfer. According to the NHT Deed, Mr Hillier and Mrs Martin are the only primary beneficiaries. There appear to be many other persons meeting the description of secondary beneficiaries. It is Mrs Martin’s case that the terms of the NHT Deed are consistent with the terms of a prior family trust and reflect the prior legal relations between her and Mr Hillier in respect of their past business activities. She denies that Vari has any interest in the business, whether by virtue of any joint venture agreement, or at all. The above summary is based on my current understanding of the pleadings and is not intended to be exhaustive of all of the issues to be tried. For present purposes it is sufficient to identify that the legal controversy to be determined at trial concerns the existence (or otherwise) of the JV Trust and the validity of the NH Trust as constituted by the NHT Deed. The factual subject matter of that controversy is a business that is a going concern and that (on the limited materials presently before me) appears to have been in a sound financial state at the time of the preparation of its accounts for the 2019 financial year. It is important to emphasise that on the cases of both Mr Hillier and Mrs Martin, the assets of the Nordburger business are held on trust. Mrs Martin does not plead that Operations is owner of the trust assets other than in its capacity as a trustee. It is convenient to refer to the assets of the whole of the Nordburger business enterprise as the “trust assets” irrespective of the identification of the proper trust governing the relations between Mr Hillier and Mrs Martin. The identification of the proper trust is an issue yet to be tried.