HORWOOD -v- AEGES PTY LTD
[2020] WASC 299
•3 SEPTEMBER 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: HORWOOD -v- AEGES PTY LTD [2020] WASC 299
CORAM: CURTHOYS J
HEARD: 23 JUNE 2020
DELIVERED : 3 SEPTEMBER 2020
FILE NO/S: CIV 2457 of 2019
BETWEEN: LOUISE HORWOOD
Plaintiff
AND
AEGES PTY LTD
Defendant
Catchwords:
Trust - Liquidation - Removal of trustee
Legislation:
Trustees Act 1962
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | D Thompson |
| Defendant | : | H Robinson |
Solicitors:
| Plaintiff | : | Butcher Paull & Calder |
| Defendant | : | Haydn Robinson |
Case(s) referred to in decision(s):
Nil
CURTHOYS J:
On 15 August 2019 Ms Horwood filed an originating summons in the Supreme Court seeking the following orders:
1.Aeges Pty Ltd be removed as trustee of the FJ (Angus) Horwood Family Trust.
2.Paralo Pty Ltd be appointed as trustees of the FJ (Angus) Horwood Family Trust.
3.All property now held by Aeges Pty Ltd be vested in the new trustees on their appointment as trustees.
4.All documents and business records of Aeges Pty Ltd be delivered up to Paralo Pty Ltd.
5.Further and in the alternative Aeges Pty Ltd pay all beneficiary loan accounts standing in the books of accounts of the FJ (Angus) Horwood Family Trust.
6.The directors of Aeges Pty Ltd namely Genevieve Anne Robinson, Jill Horwood and Peter Horwood personally pay the costs of this application to the Plaintiff.
7.The said directors of Aeges Pty Ltd pay to Paralo Pty Ltd any money paid out of Aeges Pty Ltd for defending these proceedings.
8.Such further or other relief as this Honourable Court considers appropriate.
The matter was argued before me on 23 June 2020. Following the hearing I reserved my decision.
On 4 August 2020 I was advised by CX Law Pty Ltd that pursuant to a resolution of creditors Aeges Pty Ltd was wound up as a creditor's voluntary winding up on 31 July 2020. The court invited the parties to make submissions on the effect of the liquidation of Aeges Pty Ltd on these proceedings. The parties did not make any submissions.
Trustees Act 1962
Sections 77 and 78 of the Trustees Act relevantly provides:
77.New trustees, Court may appoint
(1)The Court may, whenever it is expedient to appoint a new trustee or new trustees, and it is inexpedient, difficult or impracticable so to do without the assistance of the Court, make an order for the appointment of a new trustee or new trustees, either in substitution for, or in addition to, any existing trustee or trustees, or although there is no existing trustee.
(2)In particular, and without limiting the generality of the provisions of subsection (1), the Court may make an order appointing a new trustee in substitution for a trustee who -
…
(b)has been held by the Court to have misconducted himself in the administration of the trust; or
…
(f)is a corporation that has ceased to carry on business, or is in liquidation, or has been dissolved.
(3)An order under this section, and any consequential vesting order or conveyance, does not operate further or otherwise as a discharge to any discharged, former or continuing trustee than an appointment of new trustees under any power for that purpose contained in any instrument would have operated.
…
(5)Every trustee appointed by the Court has, as well before as after the trust property becomes by law or by assurance or otherwise vested in him, the same powers, authorities, and discretions, and may in all respects act, as if he had been originally appointed a trustee by the instrument (if any) creating the trust.
78.Vesting orders, when Court may make
(1)The Court may make an order, in this Act called a vesting order, that has effect as provided in section 85.
(2)A vesting order may be made in any of the following cases, namely -
(a)where the Court appoints or has appointed a new trustee; or
…
Section 85(1) of the Trustees Act relevantly provides:
In the case of a vesting order consequential on the appointment of a new trustee or the retirement of a trustee, the vesting order has the same effect -
(a)as if the persons (if any) who, before the appointment or retirement, were the trustees had duly executed all proper conveyances of the property for such estate or interest as the Court directs; or
(b)if there is no such person as is mentioned in paragraph (a), or no such person of full capacity, as if such person had existed and been of full capacity, and had duly executed all proper conveyances of the property for such estate or interest as the Court directs.
The hearing proceeded on the basis of an application under s 77(1) of the Trustees Act alleging misconduct on the part of Aeges Pty Ltd seek plaintiff's submissions filed 18 June 2020.
Ms Horwood essentially sought to argue that there were conflicts in the position of the trustee and its directors (the affidavit of Louise Horwood sworn 5 August 2019).
By reason of the liquidation of the trustee, Aeges Pty Ltd, it is unnecessary to resolve whether or not the Aeges Pty Ltd engaged in misconduct as a basis for removal of it as trustee. The fact that Aeges Pty Ltd is in liquidation (s 77(2)(f) of the Trustees Act) is sufficient basis for the removal of Aeges as trustee.
New trustee
The removal of Aeges as trustee of the trust requires the appointment of a new trustee; s 77(1) provides the court with power to appoint a new trustee in substitution for any existing trustee. Ms Horwood seeks an order that Paralo Pty Ltd (ACN 634 614 976) be appointed as trustee. The shareholders and directors of Paralo are Louise Horwood, Patti Algie Horwood, Raquel Horwood and Christine Isabelle Martin. Each of Louise, Patti and Raquel are beneficiaries of the trust and Christine Martin is their mother. (Affidavit of Louise Horwood sworn 5 August 2019 LH37). Paralo has consented to act as trustee of the FJ (Angus) Horwood Trust Pty Ltd (Affidavit of Louise Horwood sworn 5 August 2019 LH-38).
Although Aeges opposed the appointment of Paralo now that Aeges is in liquidation the arguments advanced by them essentially fall away.
There is no alternative entity proposed as trustee and in the circumstances it is appropriate that Paralo Pty Ltd be appointed as trustee with consequential vesting orders.
Order 5 seeks an order that Aeges pay all beneficiary loan accounts standing the books of account of the FJ (Angus) Horwood Family Trust That will be a decision to be made by the new trustee - Paralo. I aqm not prepared to make an order.
The remaining order seeks that the directors of Aeges namely Genevieve Anne Robinson, Jill Horwood and Peter Horwood personally pay the costs of this application to the plaintiff. In so far as Ms Horwood sought costs based on the conduct of Aeges as Trustee, as against its conduct of this litigation, no argument was directed to this order in the submissions. I am not satisfied that it is appropriate to make such an order.
Similarly, in relation to the order 7 seeks that the said directors of Aeges pay to Paralo any monies paid out of Aeges for defending these proceedings no submissions were made in relation to this. I am not satisfied that it is appropriate to make such an order.
I will hear the parties as to costs although I note that Since Aeges is in liquidation leave to proceed may be required.
Orders
Aeges Pty Ltd (In Liquidation) be removed as trustee of the FJ (Angus) Horwood Trust.
Paralo Pty Ltd be appointed as trustee of the FJ (Angus) Horwood Trust.
The property of the FJ (Angus) Horwood Trust be vested in Paralo Pty Ltd.
The plaintiff have leave pursuant to s 500 of the Corporations Act to allow the making of the orders herein.
The parties have liberty to apply.
In respect of the order sought in paragraph 4 of the plaintiff's originating summons dated 15 August 2019 regarding documents and business records, and the issue of costs:
(a)the plaintiff file and serve a written outline of submissions by 14 September 2020;
(b)the defendant file and serve a responsive written outline of submissions by 30 September 2020;
(c)the matter be listed for a further hearing at a special appointment lasting no more than two hours on a date to be fixed by the Court.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
MDM
Associate to the Honourable Justice Curthoys
3 SEPTEMBER 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: HORWOOD -v- AEGES PTY LTD (IN LIQ) [2020] WASC 299 (S)
CORAM: CURTHOYS J
HEARD: 19 OCTOBER 2020
DELIVERED : 9 DECEMBER 2020
FILE NO/S: CIV 2457 of 2019
BETWEEN: LOUISE HORWOOD
Plaintiff
AND
AEGES PTY LTD (IN LIQ)
Defendant
Catchwords:
Replacement trustee – Lien – Documents and information which relate to the administration of the trust
Legislation:
Trustees Act 1962 (WA), s 77
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | D W Thompson |
| Defendant | : | L Christensen |
Solicitors:
| Plaintiff | : | Butcher Paull & Calder |
| Defendant | : | CX Law |
Cases referred to in decisions:
Coad v Wellness Pusuit Pty Ltd (in liq) [2009] WASCA 68
Franknelly Nominees Pty Ltd v Abrugiato [2013] WASCA 285
Hancock v Rinehart (Trust documents) [2018] NSWSC 1684
Horwood v Aeges Ltd [2020] WASC 299
In Re Waratah Group Pty Ltd (in liq) [2020] VSC 523
Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344; (2008) 74 NSWLR 550
Pitard Consortium Pty Ltd v Les Denny Pty Ltd [2019] VSC 614
CURTHOYS J:
The defendant, Aeges Pty Ltd (Aeges) was the corporate trustee of the FJ (Angus) Horwood Trust (the Trust).
On 31 July 2020, Aeges was placed into liquidation pursuant to a creditors' voluntary winding up.
Section 77(2)(f) of the Trustees Act 1962 (WA) permits the court to appoint a substitute trustee when a corporation has ceased to carry on business, or is in liquidation, or has been dissolved.
On 3 September 2020, the court relevantly ordered that:[1]
1.Aeges be removed as trustee of the Trust;
2.Paralo Pty Ltd (Paralo) be appointed as trustee of the Trust;
3.the property of the Trust be vested in Paralo;
4.the plaintiff have leave pursuant to s 500 of the Corporations Act 2001 (Cth) to allow the making of the orders herein; and
5.the parties have liberty to apply.
[1] Horwood v Aeges Ltd [2020] WASC 299 [16] ‑ [20].
Two issues remain to be dealt with:
1.whether all documents and business records of Aeges should be delivered up to Paralo the new trustee of the of the Trust; and
2.costs.
Documents and information which relate to the administration of the trust
In Hancock v Rinehart (Trust documents)[2] Brereton J said the following with respect to an outgoing trustee's obligation to its successor:[3]
[T]hat obligation may be summarised as being – subject to the court's discretion to mitigate it – to hand over to an incoming trustee all documents and information which relate to the administration of the trust so as to enable the incoming trustee to fulfil his duties. The rationale for it is that the new trustee is, prima facie, entitled to be placed in just a good as position as the outgoing trustee in relation to all aspects of the administration of the trust. Cases which relieve trustees of the obligation to permit inspection by beneficiaries of documents which evidence their reasons for exercising their discretionary powers are founded on the principle that such decisions are not examinable (at least absent want of good faith, or express obligation), and that rationale does not apply against a replacement trustee. While the Court has a discretion to direct that documents or information not be supplied where satisfied that that is the appropriate course, the onus lies on the outgoing trustee to show why that discretion should be exercised. (emphasis added)
[2] Hancock v Rinehart (Trust documents) [2018] NSWSC 1684 [41] (5 November 2018).
[3] Hancock v Rinehart (Trust documents) [41].
Although the submissions of both parties used the phrase, 'books and records',[4] it seems to me that the better term to use is that used by Brereton J, namely, the documents and information which relate to the administration of the trust.
[4] See Plaintiff's Outline of Submissions, 19 October 2019 (Plaintiff's Submissions); Defendant's Outline of Submissions, 19 October 2019 (Defendant's Submissions).
The liquidator of Aeges accepts that but for the fact that Aeges is insolvent, Paralo would be entitled to the delivery up of the documents and information which relate to the administration of the trust.[5]
[5] ts 46 ‑ 47 (19/10/2020).
However, the liquidator of Aeges asserts a lien over the documents and information which relate to the administration of the trust. He submitted:[6]
Whether the assets of the trust are cash or books and records, the order vesting the trust assets is effective but, is subject to the defendant's lien to support its right of indemnity, which means that the defendant may withhold delivery of the trust's assets to either the new trustee or a beneficiary until the lien is satisfied (see by way of example Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 369 ‑ 370, Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42 at 52 ‑ 53, and Prior v Simeon [No 2] [2011] WASC 61 at [12], Jones v Matrix Partners Pty Ltd (2018) 260 FCR 310 at [35], [41], and [42] per Allsop CJ and adopted by Farrell J at [196] and [197] and Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth of Australia [2019] HCA 20 per Keifel CJ, Keane and Eidleman JJ at [32] and [33], Bell, Gaegler and Nettle JJ at [80] ‑ [83] and Gordon J at [132] ‑ [138]).
[6] Defendant's Submissions [5].
The liquidator's reliance on the cases cited in its submissions is misplaced. Those cases do not concern a right of indemnity against a replacement trustee. Typically, they apply to the right of a trustee to an indemnity against a beneficiary.
The real issue in determining whether the liquidator is entitled to assert a right to retain possession is whether a possessory lien arises when a replacement trustee is appointed by the court.
In Coad v Wellness Pusuit Pty Ltd (in liq)[7] Buss JA (Wheeler and Pullin JJA agreeing) stated:[8]
An equitable lien is a form of equitable charge over property which arises automatically, by implication of equity, to secure the discharge of an actual or potential indebtedness. See Hewett v Court[1983] HCA 7; (1983) 149 CLR 639, 663 (Deane J).
It arises 'as part of a scheme of equitable adjustment of mutual rights and obligations': Davies v Littlejohn[1923] HCA 64; (1923) 34 CLR 174, 185 (Isaacs J). Those observations of Isaacs J in Davies were made in the context of the lien of an unpaid vendor of real property, but, as Gibbs CJ noted in Hewett (645), they are of general application. See also Bridgewater v Leahy[1998] HCA 66; (1998) 194 CLR 457 [110] (Gaudron, Gummow and Kirby JJ).
The creation and subsistence of an equitable lien do not depend upon possession. It may be enforced by an order for sale made by the court or, in the case of a lien over a fund, by a court order for payment from the fund. The implication of an equitable lien may, in a particular case, be precluded or qualified by the agreement (express or implied) of the parties. See Hewett, 663 (Deane J).
[7] Coad v Wellness Pusuit Pty Ltd (in liq) [2009] WASCA 68.
[8] Coad v Wellness Pusuit Pty Ltd (in liq) [41] ‑ [43].
It follows that possession is not necessary to sustain the liquidator's lien. It further follows that delivery up of the documents and information which relate to the administration of the trust to Paralo would not discharge the lien.
In Franknelly Nominees Pty Ltd v Abrugiato[9] Buss JA (McLure P and Newnes JA agreeing) stated:[10]
Under the general law a trustee is personally liable for all trust liabilities incurred by the trustee unless, in a particular case, personal liability has been excluded by express agreement between the trustee and the creditor. See Muir v City of Glasgow Bank (In liq)(1879) 4 App Cas 337, 355, 362 (Earl Cairns LC), 388 (Lord Blackburn); Vacuum Oil Co Pty Ltd v Wiltshire[1945] HCA 37; (1945) 72 CLR 319, 324 (Latham CJ), 335 (Dixon J); Octavo Investments Pty Ltd v Knight[1979] HCA 61; (1979) 144 CLR 360, 367 (Stephen, Mason, Aickin & Wilson JJ). It is immaterial that the liability was incurred for the benefit of the beneficiaries or that the creditor knew the trustee was acting in the capacity of trustee.
Although a trustee is in general personally liable for all trust liabilities incurred by the trustee, in equity the trustee has a right of indemnity out of the trust assets for liabilities properly incurred in the management or administration of the trust. The trustee has a power of recoupment and a right to exoneration. The right of indemnity is an incident of the trustee's office and is inseparable from it. See Worrall v Harford[1802] EngR 342; (1802) 8 Ves Jun 4, 8; [1802] EngR 342; 32 ER 250, 252 (Lord Eldon LC); Kemtron Industries Pty Ltd v Commissioner of Stamp Duties (Qld) [1984] 1 Qd R 576, 585 (McPherson J, Andrews SPJ agreeing).
A trustee has an equitable lien or charge over the trust assets for the purpose of enforcing the right of indemnity. The lien or charge arises by operation of equity from the trust relationship. See Re Pumfrey(1882) 22 Ch D 255, 261 - 262 (Kay J); Vacuum Oil (324, 335); Octavo Investments (367); Chief Commissioner of Stamp Duties for New South Wales v Buckle[1998] HCA 4; (1998) 192 CLR 226 [47] ‑ [50] (Brennan CJ, Toohey, Gaudron, McHugh & Gummow JJ).
A trustee's equitable lien or charge confers a beneficial interest in the trust assets and this interest takes priority over any claims of the beneficiaries. See Octavo Investments (367, 370); Buckle [47] ‑ [50].
A trustee is entitled, as against the beneficiaries, to retain the trust assets, or an appropriate part of them, until the right of indemnity has been satisfied. See Stott v Milne(1884) 25 Ch D 710, 715 (Earl of Selborne LC, Cotton & Lindley LJJ agreeing); Jennings v Mather[1901] 1 QB 108, 113 - 114 (Kennedy J); Re Owers[1941] Ch 389, 391 (Simonds J); Kemtron (587); Octavo (367); Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd(1992) 8 WAR 42, 53 (Owen J, Malcolm CJ & Walsh J agreeing); Buckle [47].
A trustee's right of indemnity and equitable lien or charge does not cease upon the trustee retiring or being replaced by a new trustee. It is an independent right which does not depend on the new trustee's right of indemnity, if any. See Kemtron (585 ‑ 586); Coates v McInerney(1992) 7 WAR 537, 539 (Anderson J); Dimos v Dikeakos Nominees Pty Ltd[1996] FCA 1619; (1996) 68 FCR 39, 40 (Jenkinson J, Olney J agreeing), 43 - 44 (Heerey J, Olney J agreeing); Rothmore Farms Pty Ltd v Belgravia Pty Ltd[1999] FCA 745 [36] ‑ [39] (Mansfield J); Southern Wine Corporation Pty Ltd (In liq) v Frankland River Olive Co Ltd[2005] WASCA 236; (2005) 31 WAR 162 [30] (McLure JA, Wheeler JA agreeing). As to whether a former trustee is entitled, as against a new trustee, to retain the trust assets, or an appropriate part of them, as security for an accrued right of indemnity, see the discussion in Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd[2008] NSWSC 1344; (2008) 74 NSWLR 550 [12] ‑ [50] (Brereton J).
[9] Franknelly Nominees Pty Ltd v Abrugiato [2013] WASCA 285.
[10] Franknelly Nominees Pty Ltd v Abrugiato [205] ‑ [210].
In Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd[11] Brereton J stated that:[12]
The starting point is that it is universally accepted that the nature of the trustee's interest is that of an equitable lien – that is, an equitable security interest arising not by agreement of the parties but by operation of law. It is also universally accepted that the only remedy of the trustee against the trust assets is judicial sale or appointment of a receiver. That is consistent with the nature of an equitable lien as a mere hypothecation. Such a security does not confer on the security holder any right of foreclosure, nor any right to possession of the property. It creates an interest which the security holder can enforce, as I have said, by judicial sale or appointment of a receiver, but such a security holder cannot bring an action for possession of the property the subject of the equitable lien. It seems to me to follow that, insofar as Jennings v Mather – which in turn influenced the observations in Re Suco Gold – depends on the view that the trustee's lien carries with it a right to retain possession, it is mistaken.
But it is necessary to consider whether the view that an equitable lien does not confer a right to possession of the subject property can be reconciled with those cases which establish that the trustee is entitled to retain trust property as against a beneficiary or an execution creditor. At least as against a beneficiary, the answer is that that entitlement is a manifestation of set-off, in that once a trustee has an accrued right of indemnity, the trustee is entitled to set it off against the beneficiary's claim to the trust assets, and to refrain from distributing until the trustee's claim is satisfied. In the closely analogous field of the trustee's personal right of indemnity against a beneficiary, this was explained in Re Akerman[1891] 3 Ch 212 by Kekewich J (at 219):
A person who owes an estate money, that is to say, who is bound to increase the general mass of the estate by a contribution of his own, cannot claim an aliquot share given to him out of that mass without first making the contribution which completes it. Nothing is in truth retained by the representative of the estate; nothing is in strict language set off; but the contributor is paid by holding in his own hand a part of the mass, which, if the mass were completed, he would receive back.
As the authors of Jacobs' Law of Trusts, 5th ed, point out (at [2111]): 'The beneficiary is treated as already having in his hands a portion of the assets and therefore is satisfied pro tanto'. This is also reflected in the cases to which I have referred such as Hillig v Darkinjung Local Aboriginal Land Council, Jennings v Mather and Kentrom Industries v Commissioner of Stamp Duties, which establish that the trustee is entitled to retain only sufficient to cover the indemnity and not more.
A second explanation – which applies both to distribution as to beneficiaries, and to execution creditors as in Jennings v Mather – is that a distribution to a beneficiary or seizure by an execution creditor would be destructive of the security interest, whereas transfer to a new trustee is not.
To my mind, then, it follows in principle that a former trustee does not have a right to retain, as against a new trustee, the trust assets as security for an accrued right of indemnity, though the former trustee is entitled to ensure the new trustee does not take steps which will destroy, diminish or jeopardise the old trustee's right of security, which subsists in the trust assets after their transfer to the new trustee. This view accords with the conclusions of Rolfe J and Barrett J in the New South Wales cases to which I have referred. It follows that I respectfully decline to follow the observations of the Full Court of Supreme Court of South Australia in Re Suco Gold.
[11] Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd[2008] NSWSC 1344; (2008) 74 NSWLR 550.
[12] Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [46] ‑ 50].
Brereton J's decision in Lemery was followed by McDonald J in Pitard Consortium Pty Ltd v Les Denny Pty Ltd:[13]
[13] Pitard Consortium Pty Ltd v Les Denny Pty Ltd [2019] VSC 614 [8] ‑ [16].
It is not in issue that, prior to their replacement by the plaintiffs, each of the defendants incurred liabilities on behalf of the trust of which it was a trustee. At issue in the current proceeding is the right of possession and control of trust assets worth many millions of dollars. The plaintiffs contend that, as validly appointed trustees, they have a right of possession of trust assets. The defendants contend, on the other hand, that they are entitled to retain possession of the trust property as against the plaintiffs until their right of indemnity has been satisfied.
A trustee has a right of indemnity out of trust assets for expenses or liabilities incurred by the trustee by recoupment of expenditure and exoneration from liability. The trustee's right of indemnity is secured by an equitable lien over trust assets which arises by operation of law and confers a proprietary interest, in the nature of a security interest, in the trust assets. This security interest takes priority over the claims of beneficiaries. Where trust property is transferred to a new trustee, the former trustee's lien survives. The new trustee takes trust property subject to the lien.
A trustee is entitled to retain possession of trust property as against a beneficiary until its right of indemnity is exercised. There is conflicting authority as to whether a former trustee is entitled to retain possession of trust property as against a new trustee until the former trustee's right of indemnity has been exercised. In Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd, having undertaken a careful review of relevant case law, Brereton J correctly observed that the authorities were 'in a state of some disarray'. Ultimately, Brereton J concluded that:
[A] former trustee does not have a right to retain, as against a new trustee, the trust assets as security for an accrued right of indemnity, though the former trustee is entitled to ensure the new trustee does not take steps which will destroy, diminish or jeopardise the old trustee's right of security, which subsists in the trust assets after their transfer to the new trustee.
I agree with Brereton J's conclusion as set out above. This conclusion rests upon Brereton J's finding that a trustee's right of indemnity is an equitable lien which does not confer a right of possession, but rather is 'enforceable by the trustee only by judicial sale or appointment of a receiver, and not by foreclosure or by sale out of Court'. One of the authorities cited by Brereton J in support of this proposition is the judgment of the High Court in Hewett v Court. As to the nature of an equitable lien, Deane J stated:
An equitable lien is a right against property which arises automatically by implication of equity to secure the discharge of an actual or potential indebtedness. Though called a lien, it is, in truth, a form of equitable charge over the subject property in that it does not depend upon possession and may, in general, be enforced in the same way as any other equitable charge, namely, by sale in pursuance of court order or, where the lien is over a fund, by an order for payment thereout.
This passage has been cited with approval by the Victorian Court of Appeal in McDonalds Australia Ltd v Bendigo and Adelaide Bank Ltd, and the Western Australian Court of Appeal in Coad v Wellness Pursuit Pty Ltd.
In The Law of Securities, the authors describe the nature of an equitable lien as follows:
The equitable lien differs from the equitable charge mainly in mode of creation. It arises by implication of law in certain circumstances. Once in existence, it basically confers the same remedies, viz. the powers of sale and appointment of a receiver but only of course through the court ... The equitable lien arises purely from implication of law ... The equitable lien, like the equitable charge, is a pure hypothecation; it involves no transfer of actual or potential ownership, it does not depend on possession and it rests only on equity, with the result that it is unenforceable against the bona fide purchaser for value without notice of the legal estate. Nevertheless, it is an 'interest' in land; it is of a proprietary character.
The characterisation of an equitable lien as conferring a beneficial interest in property, but not in the nature of a possessory security, underpins the statement in Jacobs' Law of Trusts in Australia:
The better view is that the former trustee does not have the right to retain, as against the new trustee, possession of trust assets as security for an accrued right of indemnity, although the former trustee is entitled to ensure that the new trustee does not take steps which will destroy, diminish or jeopardise the former trustee's right of security.
In Hewett, Deane J described an equitable lien as 'a form of equitable charge'. An equitable charge does not confer a right of possession of property which is subject to the charge.
The judgment of the High Court in Octavo supports the proposition that a trustee is entitled to retain possession of trust property as against a beneficiary in aid of the trustee's right of indemnity. However, Octavo does not mandate the conclusion that a former trustee retains a right of possession as against a new trustee. I agree with Brereton J in Lemery that a trustee's retention of trust property as against a beneficiary is consistent with equitable concepts of set–off, and with the rule that a trustee is not required to make a distribution to a beneficiary to the extent that a beneficiary has outstanding obligations to the trust. There is no scope for the application of this principle as between a former and new trustee. The former trustee's equitable lien is not a right of possession. It is a security which survives the transfer of trust property to a new trustee. Further, it can be enforced against trust property in the hands of the new trustee. The new trustee receives the trust property subject to the former trustee's equitable lien.
Lemery has been cited with approval by the Western Australian Court of Appeal in Franknelly Nominees Pty Ltd v Abrugiato.
His Honour then discussed the decisions which found that a trustee does have a right of possession against a replacement trustee and distinguished them:[14]
[14] Pitard Consortium Pty Ltd v Les Denny Pty Ltd [17] ‑ [37]; see also, In Re Waratah Group Pty Ltd (in liq) [2020] VSC 523 [54].
I shall now consider authorities which have concluded, contrary to Lemery, that a former trustee does have a right to retain possession of trust property as against a new trustee as security for an accrued right of indemnity.
The leading authority is the judgment of the Full Court of the South Australian Supreme Court in Re Suco Gold Pty Ltd. King CJ (Jacobs and Matheson JJ agreeing) expressly addressed the right of a trustee to retain possession of trust property as against a new trustee:
The trustee's lien is an equitable lien which confers on him a charge over the trust property, whether in his possession or not, for the purpose of protecting and enforcing the right of indemnity. It also confers on the trustee a right to possession of the trust property for the purpose of protecting and enforcing the right of indemnity. The right of possession of the trustee, until his right of indemnity is exercised, is superior to those of a new trustee or the cestuis que trust.
Mr Craig, who appeared with Ms Bell for the defendants, submitted that this statement forms part of the ratio in Re Suco. He submitted that as the judgment is that of an intermediate appellate court, it is binding upon me sitting as a judge at first instance.
I reject Mr Craig's submission that the above passage from the judgment of King CJ forms part of the ratio of Re Suco. King CJ's observations regarding a former trustee's right of possession of trust property as against a new trustee are obiter. No question of the right of possession of trust property of a new trustee arose for determination in Re Suco because no new trustee had been appointed.
I accept that the observations of King CJ are seriously considered dicta. However, as a trial division judge of the Supreme Court of Victoria I am not bound to follow seriously considered dicta in a judgment of an intermediate appellate court. I do not agree with King CJ's conclusion that a former trustee's right of indemnity confers a right of possession of trust assets as against a new trustee. As discussed above, I agree with Brereton J's conclusion in Lemery that a former trustee's equitable lien is not a possessory right vis-à-vis a new trustee.
There are two judgments of the Victorian Supreme Court which are consistent with King CJ's judgment in Re Suco: Tolhurst Druce & Emmerson v Maryvell Investments Pty Ltd and Rosenberg v Fifteenth Eestin Nominees Pty Ltd (No 2).
In Tolhurst, an application was made by a liquidator for possession of property owned by the defendant company. The sole director and shareholder of the defendant contended that the liquidator was not entitled to possession because the defendant had initially held title to the property as trustee of the family trust.
Dodds-Streeton J rejected the defendant's contention that it owned the property in its capacity as trustee. Nevertheless, her Honour did consider the defendant's right of possession of the property, on the assumption that it was the trustee. Her Honour stated that a trustee's right of indemnity is a lien which has priority over the claims of beneficiaries and successive trustees.
In support of this conclusion her Honour extracted a passage from the judgment in Octavo in which the plurality stated that a trustee's right of indemnity confers a right to retain possession of trust property as against beneficiaries. Her Honour also cited the passage from the judgment of King CJ in Re Suco referred to earlier in this judgment.
Dodds-Streeton J's observations regarding the right of possession of trust property of a former trustee are obiter. Her Honour rejected the defendant's contention that it held the relevant property as a trustee. Dodds-Streeton J's judgment in Tolhurst was delivered approximately 14 months prior to the judgment of Brereton J in Lemery. I consider the reasoning of Brereton J to be more persuasive. His Honour's conclusion that a former trustee's equitable lien does not confer a right of possession of trust property as against a new trustee is based upon a careful consideration of the nature of an equitable lien as a non-possessory right.
In Rosenberg, Habersberger J expressly considered whether a former trustee had a right to retain possession of trust property as against a new trustee, pending satisfaction of its right of indemnity. Glen Oak Pty Ltd was appointed trustee of the E Rosenberg Investment Trust. The former trustee, Fifteenth Eestin, made a claim against the trust to be indemnified out of trust assets in respect of liability it incurred whilst trustee. Fifteenth Eestin opposed an order for vesting of the real property of the investment trust with Glen Oak Pty Ltd pending satisfaction of its right of indemnity. Habersberger J concluded that Fifteenth Eestin had a right to retain possession of trust property until its right of indemnity was satisfied:
The parties were agreed that there should be a declaration that the execution by Emanuel Rosenberg of the Deed of Removal and Appointment made 15 July 2004 operated to vest the property of the Investment Trust, other than real property subject to the Transfer of Land Act 1958 (the TLA), in Glen Oak as trustee, subject to the lien or charge of Fifteenth Eestin to secure its right of indemnity in respect of the liabilities of the Investment Trust. That is the effect of the provisions of the Trustee Act 1958, in particular s 45(1). What is vested by that sub-section is title to the trust property, other than real property subject to the TLA. However, the vesting of title does not carry with it a right to possession where the former trustee has a charge or lien securing its right of indemnity.
In support of the final sentence set out above, Habersberger J cited the page in Kennedy J's judgment in Jennings v Mather which contains the following passage:
Of course, when the accounts come to be made up, if it should appear that nothing is due to the trustee on the trading, there is nothing in respect of which he needs to be indemnified, and his lien over the goods is gone; but until the accounts are made up he is entitled to a lien over all the assets of the estate. A lien (putting aside the question of bankruptcy, with which I will deal directly) has always been held to be sufficient title as against the world to hold the goods until that lien is satisfied, or is proved not to exist.
Habersberger J delivered judgment in Rosenberg approximately 15 months after Brereton J's judgment in Lemery. There is no reference in Habersberger J's judgment, and its extensive footnotes, to the judgment of Brereton J. It would appear that his Honour was not referred to the judgment. In Lemery, Brereton J dealt specifically with the passage from Kennedy J's judgment in Jennings v Mather cited by Habersberger J in support of the proposition that the vesting of title does not carry with it a right to possession where the former trustee has a charge or lien securing its right of indemnity.
In respect of the judgment of Kennedy J in Jennings v Mather, Brereton J stated:
A number of observations may be made about that judgment. The first is, as Mr Ashhurst SC for the applicant points out, allowing the execution creditor to take the property in question would have destroyed the right of indemnity in respect of it. Second, the case deals with competing claims to trust assets, between the trustee's execution creditor and the trustee's trustee-in-bankruptcy; it is silent on the position of a replacement trustee. Third, the observation of Kennedy J, to the effect that a lien is sufficient title as against the world to withhold goods until the lien is satisfied or proved not to exist, is true of a common law possessory lien, but it is far from clear that it is an accurate statement of a characteristic of an equitable lien.
I respectfully decline to follow Habersberger J's judgment in Rosenberg. The judgment does not address the non-possessory nature of an equitable lien.
In Apostolou v VA Corporation Aust Pty Ltd, the applicants claimed that liquidators of a corporate trustee had acted unreasonably or illegally in winding up the company and were not entitled to their fees. The applicants submitted that the corporate trustee may have been replaced as trustee by the applicant himself, thereby requiring the liquidators to obtain a judicial sale order in respect of assets of corporation. Finkelstein J rejected this contention on several bases, including the right of a former trustee to retain possession of trust property until its right of indemnity is satisfied:
Third, even if trust property includes property in which the former trustee retains an equitable interest, the retiring trustee is entitled to retain possession of the trust property, subject to a court order to the contrary, until it is paid what it is due or until it sells the property. I acknowledge that Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (Lemery Holdings) holds that a retiring trustee cannot retain possession of trust property as against a new trustee. With respect, in my opinion there is no doubt that a retiring trustee can hold trust property to secure his right of reimbursement against both the beneficiaries and a new trustee. Stott v Milne (1884) 25 Ch D 710 decision of a powerful Court of Appeal presided over by the Lord Chancellor, states the rule in unqualified terms. So also does G Bogert, Trust and Trustees (2nd ed, rev 1982) s 718 in the following passage:
If a successor trustee has been appointed, he cannot recover possession of the trust property from the retiring trustee until the latter is paid from the trust property for all advances from his own funds properly made for the benefit of the trust. If there is a duty on the part of the trustee to convey the property to a beneficiary at the termination of the trust, the trustee can insist on reimbursement for expenses incurred by him for the benefit of the trust before he is obliged to execute a conveyance. The trustee may assert this right of retention against principal or income of the trust.
That the right of indemnity is not lost if possession is given up is not, contrary to what is said in Lemery Holdings, to the point. Nor, also contrary to what is said in Lemery Holdings, is there a principled distinction between a claim for possession by a beneficiary (whose claim is said to be defeated by the lien) and a claim for possession by a new trustee (whose claim is said to defeat the lien). Lemery Holdings bases the distinction on the potential for the destruction of the security interest, considering it less likely if the property passes to a new trustee. In the end, the risk depends upon the honesty of the individual, not the legal capacity in which the individual holds the property. This is not to suggest that in an appropriate case, a court does not have power to order that trust property be delivered into the hands of the new trustee on terms by which the old trustee's indemnity is fully protected: see for example Global Funds Management v Burns Philp Trustee Co Ltd (1990) 3 ASCR 183.
Stott v Milne is cited by Finkelstein J as authority for the proposition that 'there is no doubt that a retiring trustee can hold property to secure his right of reimbursement against both the beneficiary and a new trustee'.
At issue in Stott was the trustee's right of indemnity, as against a beneficiary, to be reimbursed legal expenses in respect of proceedings brought on behalf of the trust. The judgment is silent as to a former trustee's right of indemnity as against a new trustee. The passage from the 1982 edition of Trusts and Trustees quoted by Finkelstein J above is inconsistent with the passage from the 2016 edition of Jacobs' Law of Trusts in Australia set out in this judgment. I do not accept Finkelstein J's conclusion that there is no principled distinction between a trustee's right to retain possession of trust property as against a beneficiary compared to the absence of the right of a former trustee to retain possession as against a new trustee. I agree with Brereton J that a trustee's right to retain that trust property is consistent with equitable concepts of set-off, and the rule that a trustee is not required to make a distribution to a beneficiary to the extent that a beneficiary has outstanding obligations to the trust. Further, Finkelstein J does not address the non-possessory nature of an equitable lien. With respect, I do not consider the basis upon which Finkelstein J declined to follow Lemery to be persuasive.
In Prior v Simeon (No 2), the plaintiff was the registered proprietor of land held on trust for the defendants. Corboy J had previously made an order for the sale of the land to give effect to the plaintiff's right of indemnity in respect of liabilities incurred on behalf of the trust. The plaintiff applied to vary the orders for the sale of the land to allow him to lease the property for a short term pending its sale.
Corboy J considered the question of whether the trustee's equitable lien is a possessory security. His Honour noted that Brereton J in Lemery had declined to follow King CJ in Re Suco. Corboy J concluded that the plaintiff was entitled to an order for possession of the land in aid of his accrued right of indemnity, and not merely pursuant to a direction of the court made ancillary to an order for judicial sale. Corboy J considered himself bound to follow Re Suco unless he concluded that the judgment was plainly wrong.
Unlike Corboy J, I do not consider myself bound to follow Re Suco. Further, Corboy J's judgment does not address the non-possessory nature of an equitable lien.
I accept the analysis of Brereton J and McDonald J for the reasons stated by them. I also note the Western Australian Court of Appeal's endorsement of Brereton J's decision in Franknelly.[15]
[15] Franknelly Nominees Pty Ltd v Abrugiato [210].
It follows that the liquidator of Aeges is not entitled to a possessory lien against Paralo so as to retain the documents and information which relate to the administration of the trust.
In the circumstances, since the liquidator's right to an indemnity, if any, will not be lost by delivering up the documents and information which relate to the administration of the trust to the new trustee, Paralo, an order should be made directing that documents and information which relate to the administration of the trust be delivered up by Aeges to Paralo.
Are the books and records assets of the trust so amenable to a lien over them?
The plaintiff submitted:[16]
The books and records of a trust are not (or not normally) trust property themselves. They are not property that is being held for the benefit of the trust's beneficiaries, or which may be paid or applied for their benefit: see Equity Trust (Bahamas) Ltd -v- Basel Trust Corporation [2012] JRC 006, at [21].
[16] Plaintiff's Submissions [4].
Given that I have concluded that the liquidator of Aeges is not entitled to a possessory lien and is obliged to deliver up the documents and information which relate to the administration of the trust, it is not necessary to determine this question.
Costs
The liquidator opposed the delivery up of the documents and information which relate to the administration of the trust to Paralo as the new trustee. He was unsuccessful.
The plaintiff seeks an order against or payment of her costs of this proceeding, to be taxed if not agreed.[17]
[17] Plaintiff's Submissions [15].
The plaintiff seeks this order:[18]
[O]n the basis of the general rule that costs follow the event. She has succeeded in obtaining the relief she set out to obtain in commencing these proceedings. The fact that the directors of the defendant pre-empted the Court's decision by placing the defendant into voluntary administration, and ultimately into liquidation, should make no difference. This is not a case where, through no act of either party, the basis for the litigation has fallen away. Placing the defendant into external administration was the choice of the defendant and its directors, and they should not thereby be allowed to evade the costs consequences of their opposition to the relief sought by the plaintiff.
[18] Plaintiff's Submissions [16].
In relation to the general costs of the proceedings, there has been no resolution of the primary action. The general rule is that if there is no resolution then each party should bear their own costs. I am not persuaded that there is any reason not to follow the general rule. There is no evidence that Aeges was placed into liquidation to avoid costs sought by the plaintiff. That assumes that the relief would have been granted, a point which has not been determined.
There is some force in the liquidator's submission that by email dated 13 August 2020, the plaintiff did not seek costs against the defendant and that the defendant was only a party as it was necessary for it to be so. However, that was before a lien was asserted by the liquidator.
Neither party substantially engaged with the decisive issue in the application, namely, whether the lien claimed by the liquidator of Aeges is possessory so as to enable the liquidator to retain possession of documents and information which relate to the administration of the trust.
In the circumstances, the appropriate order is that there be no order as to costs.
Orders
The Court orders that:
1.The liquidator of Aeges Pty Ltd deliver up to Paralo Pty Ltd all documents and information which relate to the administration of the FJ (Angus) Horwood Trust.
2.There be no order as to costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
SB
Research Associate to the Honourable Justice Curthoys
8 DECEMBER 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: HORWOOD -v- AEGES PTY LTD (IN LIQ) [2020] WASC 299 (S2)
CORAM: CURTHOYS J
HEARD: 12 SEPTEMBER 2022
DELIVERED : 22 NOVEMBER 2022
FILE NO/S: CIV 2457 of 2019
BETWEEN: LOUISE HORWOOD
Plaintiff
AND
AEGES PTY LTD (IN LIQ)
Defendant
Catchwords:
Practice and procedure - Discovery - Legal professional privilege - Common interest privilege - Appointment of administrator or liquidator
Legislation:
Nil
Result:
Claim for privilege dismissed
Category: B
Representation:
Counsel:
| Plaintiff | : | D Thompson |
| Defendant | : | H Robinson |
| Interested Party | : | M Paterson |
Solicitors:
| Plaintiff | : | Butcher Paull & Calder |
| Defendant | : | No appearance |
| Interested Party | : | Michael Paterson & Associates |
Cases referred to in decision:
Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405
Australian Reliance Group Pty Ltd v Coverforce Insurance Brokers Victoria Pty Ltd [No 3] [2017] WASC 60
Buttes Gas & Oil Co v Hammer [1981] QB 223
Crawford v Quail [2021] WASC 290
Eastmark Holdings Pty Ltd v Kabraji [No 3] [2012] NSWSC 1463
Hancock v Rinehart (Trust Documents) [2018] NSWSC 1684
Horwood v Aeges Pty Ltd (in liq) [2020] WASC 299 (S)
Horwood v Davenport [2014] WASC 436
Samootin v Official Trustee in Bankruptcy [No 2] [2012] FCA 316
CURTHOYS J:
On 9 December 2020, I made orders requiring the liquidated defendant, Aeges Pty Ltd (Aeges), as former trustee of the FJ (Angus) Horwood Trust (the Trust), to hand over the books and records of the Trust to the new trustee, Paralo Pty Ltd.[19] The beneficiaries of the Trust include the plaintiff, Louise Horwood, and her sisters.
[19] See Horwood v Aeges Pty Ltd (in liq) [2020] WASC 299 (S).
Since the orders for delivery were made, books and records have been provided in stages. Aeges' liquidator remains in possession of a number of documents.
An interested party, Cheryl Davenport, now claims litigation privilege and common interest privilege over the remaining documents and seeks to assert that claim before this court. Ms Davenport is the executor for the estate of the plaintiff's late father, Angus Horwood. She is also Mr Horwood's spouse and beneficiary under his will. Mr Horwood was a director of Aeges.
Aeges did not seek to be heard and is content to abide by the determination of the court in this matter.
The claimed privilege
Ms Davenport claims privilege in respect to documents concerning CIV 2499 of 2016 and CIV 1681 of 2014.
CIV 2499 of 2016 is a claim by Ms Horwood and her sisters against Ms Davenport and Aeges. The matter involves claims that Ages acted in breach of trust or alternatively its fiduciary duties in its management of the Trust and that Mr Horwood assisted or was otherwise involved in those breaches. The claim has been dormant since 27 August 2021 (the breach of trust action).
CIV 1681 of 2014 was an application for pre-action discovery by Ms Horwood and her sisters to Ms Davenport and Aeges. Pre-action discovery was ultimately awarded (the pre-action discovery application).[20]
[20] See Horwood v Davenport [2014] WASC 436.
The documents over which Ms Davenport claims privilege are listed in attachments MP1 to MP2 of the affidavit of Michael Paterson sworn 5 September 2022 and attachment LH-6 of the affidavit of Louise Horwood sworn 16 August 2022. They comprise email correspondence between the parties in the pre-action discovery application and the breach of trust action. Ms Davenport was a defendant in both actions.
Ms Davenport submits these emails were exchanged for the purpose of aiding in her defence in the pre-action discovery application and the breach of trust action and are therefore protected by litigation privilege and common interest privilege.
Legal principles
Trust records and information
An outgoing trustee has a duty to cooperate fully and actively in the transfer of the trusteeship by making all relevant documents and correspondence available to the incoming trustee.[21] The rationale for this obligation is the prima facie entitlement of the new trustee to be placed in as good a position as the outgoing trustee with respect to all aspects of administration of the trust.[22]
[21] Hancock v Rinehart (Trust Documents) [2018] NSWSC 1684 [39].
[22] Hancock[41].
The obligation of a trustee to deliver trust documents to its successor is distinct from the generally more limited right of beneficiaries to access trust documents and information.[23] For example, the reasons for discretionary decisions are not usually disclosable to a beneficiary but will normally need to be disclosed to a new trustee.
[23] Hancock [36] - [40].
Nonetheless, the court has a discretion to direct that documents or information not be supplied where satisfied that doing so is the appropriate course.[24] That discretion is part of the court’s general equitable supervisory jurisdiction in relation to trusts. However, where an outgoing trustee does not wish to provide documents and information to an incoming trustee, the onus lies on the outgoing trustee to show why the discretion should be exercised.[25]
[24] Hancock [41]
[25] Hancock [41]
Aeges does not seek to discharge the onus falling on a former trustee seeking to retain trust records and information as against an incoming trustee. Ms Davenport is seeking in effect for the court to exercise its supervisory jurisdiction in her favour as a third party.
Common interest privilege
Common interest privilege is not a privilege separate to legal professional privilege. As Hill J observed in Crawford v Quail,[26] 'it is an exception to the general rule that legal professional privilege does not attach to communications with third parties. For that reason, the relevant communication must be privileged to deserve protection under a claim of common interest privilege'.
[26] Crawford v Quail [2021] WASC 290 [36].
Her Honour further stated:[27]
Common interest privilege applies where material subject to legal professional privilege in the hands of one person is provided to another who has a presently existing common interest in the subject matter of the privilege. A common interest in the outcome of the litigation will be sufficient to enable any party with that interest to rely on it.
In Lane v Admedus Regen Pty Ltd, McKerracher J summarised the elements that were required in order for common interest to apply:
(a) the relevant communication must be subject to legal professional privilege;
(b) the interest said to be common must be identified; and
(c) the exchange of the information or advice, subject to legal professional privilege must relate to that interest.
(footnotes omitted)
[27] Crawford [34] - [35].
Common interest privilege cannot subsist in cases where the interests of the parties claiming it are 'selfish and potentially adverse to each other'.[28]
[28] Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405, 409; see also Australian Reliance Group Pty Ltd v Coverforce Insurance Brokers Victoria Pty Ltd [No 3] [2017] WASC 60 [14]; Crawford v Quail [2021] WASC 290 [38].
The privilege may be used as a sword conferring the right on each party to the common interest access to the documents in question.[29]
[29] Eastmark Holdings Pty Ltd v Kabraji [No 3] [2012] NSWSC 1463 [70] - [86].
It does not matter here that Aeges has not asserted privilege because in such cases, 'the court should - for the purposes of discovery - treat all persons interested as if they were partners in a single firm or departments in a single company. Each can avail himself of the privilege in aid of litigation'.[30]
[30] Buttes Gas & Oil Co v Hammer [No 3] [1981] QB 223 (Denning MR).
The onus is on Ms Davenport to justify why the documents in respect of which it claims privilege should not be handed over to the new trustee.
The parties' submissions
Ms Horwood submitted that 'it is almost trivially true' that both Aeges and Ms Davenport had an interest in defeating the claims made in the pre-action discovery application the breach of trust action. Their respective interests were asserted to be selfish and potentially adverse to each other.[31]
[31] Plaintiff's outline of submissions filed 22 August 2022 [18] (Plaintiff's Submissions).
In respect of the the breach of trust action, Horwood submitted that:[32]
If the plaintiffs in [the breach of trust action] were to succeed in their action against Aeges, it would have potential causes of action against [Ms Davenport], as the representative of the deceased estate of Angus Horwood. That is because Aeges would be compelled to restore to the Trust the property it had lost to the late Angus Horwood, and would (because those losses occurred precisely because of Mr Horwood's manipulation of Aeges and its affairs for his own benefit) be entitled to seek disgorgement and/or compensation from Mr Horwood's deceased estate. Each defendant in [the breach of trust action] has an interest in avoiding liability, but in [Ms Davenport's] case that interest includes an interest in avoiding liability to Aeges. Aeges and [Ms Davenport] can have no common interest in these circumstances capable of negating what would otherwise be a waiver of privilege (if the necessary underlying privilege is established at all).
[32] Plaintiff's Submissions [20].
In respect of the pre-action discovery application, Horwood submitted that:[33]
the descriptions given to the documents in question, which are listed in Attachment LH-6 to the Horwood Affidavit, make no mention of [the pre-action discovery application]. Nor do their dates suggest that they have any relevance to or role in [the pre-action discovery application]. Judgement was given in that proceeding on 26 November 2014 (see Attachment LH-16 to the Horwood Affidavit), yet the earliest document listed appears to date from November 2016. It is difficult, in advance of actual evidence from [Ms Davenport], to see how any of these documents could have been created or sent for the purposes of [the pre-action discovery application].
[33] Plaintiff's Submissions [21].
Ms Davenport summarises her submissions as follows:
(a)there have been no adverse interests between the defendants in the breach of trust action to date;
(b)an adverse interest might arise if the plaintiffs in the breach of trust action were successful in that action against Aeges, however, it is no longer possible for those plaintiffs to be successful against Aeges because leave to continue against Aeges is so unlikely to be given;
(c)Ms Davenport has no possible claim against Aeges, and even if it did, taking action against Aeges would need court approval, which would not be forthcoming, given the insolvent state of Aeges;
(d)the defendants in the breach of trust action only ever had, and will now only ever have, a common interest in defending the claim in the breach of trust action; and
(e)further, all of the correspondence in respect of which privilege is claimed was exchanged at a time when no adverse interests had arisen between the defendants in the breach of trust action.[34]
[34] Interested party's responsive submissions filed 5 September 2022 [4.8].
Can Ms Davenport claim common interest privilege?
Upon appointment of a liquidator to Aeges its interests were potentially adverse to those of Ms Davenport.[35]
[35] Samootin v Official Trustee in Bankruptcy [No 2] [2012] FCA 316 [26].
From Ms Davenport's submissions it appears that she in essence claims privilege because Aeges' interests could never be adverse to her by reason of the practicalities of Aeges' lack of funds and its inevitable liquidation.
Ms Davenport has proceeded on the basis that leave will never be given to continue the action against Aeges. Although, Aeges does not have significant funds it may be that a court would grant leave. The test is a possible adverse interest.
In addition, even if an administrator or liquidator had not been appointed to Aeges, I am not persuaded that the interests of Aeges and Ms Davenport are not potentially adverse. As Horwood submitted at [23] above, Horwood could potentially seek disgorgement or compensation from Mr Horwood's estate. In which case, Aeges and its directors might well have conflicting interests.
Ms Davenport's claim that common interest privilege exists in relation to the documents has not been established.
Costs should follow the event.
Orders
I accordingly make the following orders:
(1)The interested party's claim for privilege is dismissed.
(2)The interested party is to pay the plaintiff's costs of the application, to be taxed if not agreed.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
SB
Associate to the Honourable Justice Curthoys
22 NOVEMBER 2022
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