Hughes v Brandt
[2024] VSC 153
•28 March 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2022 02303
IN THE MATTER of the VITTORIA TRUST
- and –
IN THE MATTER of an application pursuant to r 52.01 of the Supreme Court (General Civil Procedure) Rules 2015
BETWEEN:
| DAVID JAMES HUGHES (as the Trustee of the VITTORIA TRUST) | Plaintiff |
| v | |
| SEAN BRANDT | Defendant |
---
JUDGE: | Ierodiaconou AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 5 December 2023 |
DATE OF JUDGMENT: | 28 March 2024 |
CASE MAY BE CITED AS: | Hughes v Brandt |
MEDIUM NEUTRAL CITATION: | [2024] VSC 153 |
---
TRUSTS – Proceeding between trustee and beneficiary – Trustee seeking declarations that a proposed distribution of trust income is proper and can complete the trustee’s duties and bring the trust to an end – Trustee seeking an order that the account of administration of the trust be passed and entered – Application made pursuant to r 52.01 of the Supreme Court (General Civil Procedure) Rules 2015 – Inherent jurisdiction of the Court – Whether there is jurisdiction – Whether discretion ought be exercised to grant declaratory relief – 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 – McLean v Burns Philp Trustee Co Pty Ltd (1985) NSWLR 623 – Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 – Marsella v Wareham (No 2) [2019] VSC 65.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D J Sanders of counsel | Lawson Hughes Peter Walsh |
| For the Defendant | Ms C H Sparke, one of His Majesty's counsel | Velocity Legal |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Summary.............................................................................................................................................. 1
Evidence............................................................................................................................................... 1
Background......................................................................................................................................... 2
The Vittoria Trust.......................................................................................................................... 2
Subsequent litigation and the Terms of Settlement................................................................. 3
Administration of the Trust subsequent to the Terms of Settlement.................................... 6
Originating motion and summons................................................................................................. 8
Submissions........................................................................................................................................ 9
Does the Court have jurisdiction to make the orders sought by the plaintiff?..................... 9
Should the Court pass accounts?.................................................................................................. 16
Should the Court make declarations?.......................................................................................... 17
Is there a real legal controversy?............................................................................................... 18
Does the plaintiff have a real interest in the controversy?.................................................... 18
Will the declaration quell the controversy?............................................................................ 18
Exercise of discretion.................................................................................................................. 18
Conclusion......................................................................................................................................... 24
HER HONOUR:
Introduction
The plaintiff trustee seeks declarations that a proposed distribution of trust income is proper. Further, that the distribution will complete the trustee’s duties and bring the trust to an end. An order is sought that the plaintiff’s accounts of administration of the trust be passed and entered. The plaintiff says the Court may order the taking of accounts or make such inquiries as appropriate.
The originating motion states that the plaintiff’s application is made pursuant to r 52.01 of the Supreme Court (General Civil Procedure) Rules 2015 (the ‘Rules’). In submissions, the plaintiff relies upon the inherent jurisdiction of the Court.
The defendant says the Court does not have jurisdiction to make the orders sought by the plaintiff. Alternatively, if the Court does have jurisdiction, the defendant strongly opposes the granting of relief.
Summary
The questions for determination and their answers follow.
(a) Does the Court have jurisdiction to make the orders sought by the plaintiff? Yes.
(b) Should the Court pass accounts? No.
(c) Should the Court make declarations? Yes
Evidence
The plaintiff relies on his affidavit sworn on 20 June 2022 (the ‘Hughes affidavit’), and the affidavits of his solicitor, Louise Anne O’Riordan, sworn on 10 August 2023 and 22 November 2023 (the ‘first O’Riordan affidavit’ and the ‘second O’Riordan affidavit’ respectively).
The defendant relies on his affidavits filed on 10 August 2023[1] and sworn on 26 October 2023 (the ‘first Brandt affidavit’ and the ‘second Brandt affidavit’ respectively).
[1]The affidavit is irregular in that it is unclear as to whether it has been sworn or affirmed by the deponent.
Background
The Vittoria Trust
The plaintiff is the trustee of the Vittoria Trust (the ‘trust’). The trust was established by Deed of Settlement in 1995 at the instigation of Janice Vittoria Brandt (the ‘trust deed’), the mother of Sealey Brandt and the defendant, Sean Brandt.[2]
[2]The trust deed is contained in Exhibit ‘DJH-1’ to the affidavit of David James Hughes sworn on 20 June 2022 (the ‘Hughes affidavit’), 19-38.
The trust is discretionary. Clauses 4 and 5 of the trust deed allow the trustee to distribute the trust's income and capital to any beneficiary. Clause 8 sets out the broad powers of the trustee with respect to the trust fund. Clause 9.1 of the trust deed gives the trustee broad discretionary powers:
Subject always to any express provision contrary herein contained every discretion vested in the Trustee shall be absolute and uncontrolled and every power vested in it shall be exercisable at its absolute and uncontrolled discretion and the Trustee shall have the like discretion in deciding whether or not to exercise any such power.
Clause 10 provides for the remuneration of the trustee.
Clause 14 provides for the winding up of the trust. The schedule provides that the termination date is the 80th anniversary of the making of the trust deed.[3] This makes the termination date 12 April 2075. However, the trust may be wound up earlier. Clause 14.1 states that it is in the absolute discretion of the trustee to appoint a date earlier than the termination date to wind up the trust.
[3]The words after “The eightieth (80th) anniversary of …” are illegible. I have presumed it is from the making of the deed.
The trustee of the trust was initially Vici Vittoria Pty Ltd. The primary beneficiary of the trust was Janice and the secondary beneficiaries included Janice’s siblings, children, grandchildren, nephews and nieces, and specified eligible corporations and trusts.[4]
[4]Hughes affidavit, [10].
In 2012, Janice transferred her shares in Vici Vittoria Pty Ltd to the defendant and he subsequently became the sole director of the company.[5]
[5]Ibid, [15].
Janice died on 11 May 2015 and was survived by her two children: Sealey and the defendant. Janice made several wills, the most recent being dated 10 November 2011, which was modified by a codicil dated 20 December 2012 (the ‘Will’).[6] The Will gave the residuary estate equally to Sealey and the defendant.
[6]Ibid, [13].
Subsequent litigation and the Terms of Settlement
Following litigation concerning the grant of Probate of the Will, Ken Collins, a solicitor, was appointed administrator ad colligendum of the estate.[7]
[7]Ibid, [14]; see proceeding S PRB 2015 13791.
On 15 April 2016, following litigation brought by Ken Collins against Vici Vittoria Pty Ltd in its capacity as trustee of the Trust, the Court made the following orders:
…
3.Pursuant to section 48(1) of the Trustee Act 1958 and the inherent jurisdiction of the Court, Vici Vittoria Pty Ltd (ACN 068 952 849) be removed as trustee of the Vittoria Family Trust and Mr David James Hughes of Level 2, 533 Little Lonsdale, Melbourne, Victoria, be appointed trustee of the Vittoria Family Trust in its place.
4. Pursuant to s 51(2)(a) of the Trustee Act 1958, the assets of the Vittoria Family Trust, including the said trust’s rights (if any) pursuant to the transfer of land dated 10 September 2013 purporting to transfer to Vici Vittoria Pty Ltd (ACN 068 952 849) the right title and interest of Janice Vittoria Brandt in the property described in Certificate of Title Volume 08385 Folio 013 and being the property situate at and known as 199 Barkley Street, Mornington, in the State of Victoria, vest in Mr David James Hughes of Level 2, 533 Little Lonsdale Street, Melbourne, Victoria, as the new trustee.
5. Pursuant to section 90(3) of the Transfer of Land Act 1958, the caveat number A431440Q lodged on 21 December 2015 by Vici Vittoria Pty Ltd (ACN 068 952 849) in relation to the property described in Certificate of Title Volume 08385 Folio 013 and being the property situate at and known as 199 Barkley Street, Mornington, in the State of Victoria, be removed.
6. The plaintiff’s costs of and incidental to this proceeding together with the costs of Sealey Brandt of and incidental to this proceeding be paid by Sean Carlton Brandt on an indemnity basis.
…[8]
[8]Ibid, [16]; Orders of McMillan J made on 15 April 2016 in proceeding S CI 2016 00987.
On 28 November 2016, a mediation was held in relation to three related proceedings in this Court pertaining to Janice’s estate and the Trust.
The plaintiff deposes that on 2 February 2017, terms of settlement were executed between the plaintiff, the defendant, Sealey, and Ken Collins (the ‘Terms of Settlement’).[9] The defendant deposes that he did not agree to or sign the Terms of Settlement.[10] For reasons explained below, I am satisfied that the defendant did sign the Terms of Settlement.
[9]Ibid, [17]; Exhibit DJH-1 to the Hughes affidavit, 43-50.
[10]Affidavit of Sean Carlton Brandt sworn on 26 October 2023, [53] (‘second Brandt affidavit’).
The Terms of Settlement relevantly provide as follows:
It is agreed as follows
…
The Trust
2.DJH [the plaintiff] will administer the Trust as set out in these Heads of Agreement Terms of Settlement. The Trust is a discretionary trust. Without binding himself in any way concerning the manner in which he will exercise his discretion to make distributions from the Trust, DJH agrees to give favourable consideration to exercising his discretion under the Trust in accordance with the following provisions of these Terms of Settlement.
3.It is agreed that the account from William Murray Lawyers, in the sum of $14,476.20, is a liability of the Trust. DJR will pay that account using the funds of the Trust, and adjust the final distribution of the Trust so that the burden of this liability is borne by Sean.
4.DJH will advertise pursuant to s 33 of the Trustee Act for any further creditors of the Trust.
5.DJH will pay from the funds of the Trust any further liabilities which exist and which are property payable from the Trust.
6.In order to prepare income tax returns for the Trust which are outstanding, DJH will investigate and ascertain what payments of rent were received by the former Trustee of the Trust in respect of the two residential units, 7A 381 Toorak Road, South Yarra and 7D 381 Toorak Road, South Yarra, prior to 1 September 2016, that being the date since when all of the rental income has been paid to DJH.
7.DJH will, in conjunction with the accountants appointed to the Trust, Sarton Freeman, establish how the rental income from the 13 February 2012 to 31 August 2016 is to be treated for income tax purposes.
8.DJH will arrange for the preparation and lodging of outstanding income tax returns for the Trust.
9.DJH will arrange to sell the two residential units, 7A 381 Toorak Road South Yarra and 7D 381 Toorak Road, South Yarra.
10.It is agreed that the net proceeds of sale of 199 Barkly Street, Mornington are to be paid to KGC and treated and administered on the basis that they are, and that the property was, an asset of the Deceased’s estate, not an asset of the Trust.
11.The parties agree that DJH as Trustee of the Trust is not required to investigate whether any moneys are recoverable by the Trust from Sean or from the Trust having been made to them, or as a result of their having taken withheld or misappropriated any funds belonging to the Trust, during the period from 13 February 2012 until the present date.
12.DJH will apply the funds of the Trust in making the following payments:
(a)in payment to himself of his costs and disbursements in the litigation specified above;
(b)in payment to himself of his reasonable fees for completing the administration of the Trust; and
(c)in reimbursement of the fees and disbursements to accountants, estate agents, and any other agents, incurred in completing the administration of the Trust.
13.When DJH has collected all of the assets of the Trust and has converted them to cash, and when he has paid and discharged all debts and liabilities of the Trust, including income tax payable by the Trustee of the Trust, and he reimbursed himself for those disbursements for which he is entitled so he indemnified out of the Trust, he will give favourable considerations to applying the remaining net funds of the Trust as follows:
(a)in making a distribution of capital in the sum of $414,476.20 to Sealey;
(b)in distributing the balance that then remaining in equal shares to Sealey and Sean.
The Terms of Settlement also relevantly provide the following:
…
Releases
24.Subject to, and conditionally upon, the transactions and distributions set out above all being carried out as specified -
(a)Sean and Sealey each agree to accept the distributions referred to in full satisfaction and settlement of –
(i)all of their past, present or future rights to receive any further distribution from the estate of the deceased;
(ii)all of their past, present or future rights to receive any further distribution from the Trust;
(iii)all other past, present or future entitlements actions claims (including claims for costs and claims pursuant to any statutory entitlement including but not limited to Part IV of the Administration and Probate Act) suits liabilities and demands which they or either of them had, then had, or might in the future have, against the estate or the Trust; and
(iv)they release and forever discharge the estate and the Trust, and the KGC and DJH, from all actions claims suits and demands which they or either of them had, now have, or may have in the future against the estate or the Trust, and which are referred to in sub para (iii) hereof.
Administration of the Trust subsequent to the Terms of Settlement
Following the execution of the Terms of Settlement, the plaintiff deposes that he collected the assets of the Trust, ascertained its liabilities, and in May 2017, sold the two residential units, being the properties located at 7A 381 Toorak Road South Yarra and 7D 381 Toorak Road, South Yarra.[11] The proceeds of sale of the two residential units are held in the trust account of law firm Lawson Hughes Peter Walsh, and the plaintiff has resolved to distribute these funds in equal shares between the defendant and Sealey.[12]
[11]Ibid, [20].
[12]Ibid.
The plaintiff deposes that on 15 December 2017, he made the following resolution (‘the 2017 resolution’):
(a) to set aside the income of the Trust for financial years 2015, 2016, 2017 and 2018 for the benefit of the defendant and Sealey in equal shares to:
(i) make a capital distribution of $414,476.20 to Sealey;[13]
[13]Ibid, [21(b)(i)].
(ii) vest the Trust on a date to be nominated;[14] and
(iii) after payment of costs and disbursements, and subject to the payment of $14,476.20 to William Murray Lawyers being adjusted so that the burden would be borne by the defendant, to distribute the net residue of the capital to the defendant and Sealey as tenants in common in equal shares.[15]
[14]Ibid, [21(b)(ii)].
[15]Ibid, [21(b)(iii)].
Subsequently, the plaintiff made the following resolutions, all of which set aside the income of the Trust for the benefit of the defendant and Sealey as tenants in common in equal shares:
(a) 28 June 2019;[16]
[16]Ibid, [22]; Exhibit DJH-1 to the Hughes affidavit, 52.
(b) 30 June 2020;[17]
[17]Ibid, [23]; Exhibit DJH-1 to the Hughes affidavit, 53.
(c) 28 June 2021;[18]
(d) 30 June 2022;[19] and
(e) 28 June 2023.[20]
[18]Ibid, [24]; Exhibit DJH-1 to the Hughes affidavit, 54.
[19]Affidavit of Louise O’Riordan sworn on 10 August 2023 (the ‘first O’Riordan affidavit’), [4]; Exhibit LOR-1 to the first O’Riordan affidavit, 4.
[20]Ibid, [5]; Exhibit LOR-1 to the first O’Riordan affidavit, 5.
Following these resolutions, the plaintiff deposes:
Notwithstanding those resolutions, I was unable to distribute the corpus and income of the Trust. I received a stream of emails from the Defendant and various lawyers from time to time engaged by him or proposed to be engaged by him (including Hone Legal in 2019; Michael Carr in 2020; Shaun Miller Lawyers in 2020-21; Michael Brady in 2022 and Jacobus Spamer in 2022). Copies of those emails are located at pages 59 to 391 of DJH-l. I do not refer to each individual email in this affidavit but insofar as the Defendant’s sentiments can be condensed into something manageable, the essence of them was that he believed his mother wanted him to have the entire benefit of the Trust. The foundation for this appeared to be that Janice Brandt’s Will dated 10 August 2006 (which was not her last Will) gave her shares in Vici Vittoria Pty Ltd to the Defendant, to the intent that he receive the benefit of the properties held by the Trustee. The Defendant said that his sister had received property and funds from their mother over the years, and he asked me to act on those wishes and instructions which he said were given by his mother.[21]
[21]Hughes affidavit, [25].
The plaintiff deposes that between 2019 and 2022, he received many emails from the defendant and various solicitors on behalf of the defendant. It is unnecessary to address all the email correspondence, save to say that it contains inflammatory allegations and threats directed towards the plaintiff and Sealey, and queries concerning the deceased estate and the trust.[22]
[22]Hughes affidavit, [26]-[47]; Exhibit DJH-1 to the Hughes affidavit, 59-391.
The corpus of the Trust, including undistributed income, is currently $661,952.64.[23]
[23]Ibid, [6].
Originating motion and summons
By originating motion filed on 22 June 2022 and summons filed on 16 June 2023, the plaintiff seeks the following relief and indemnity costs to be paid or retained out of the distribution to be paid to the defendant.
(a) A declaration that distribution of the corpus and undistributed income of the Vittoria Trust (the ‘Trust’) equally between Sealey Brandt and the defendant:
(iv) is a proper step to be taken in the administration of the Trust;
(v) will complete the Plaintiff’s duties as the trustee of the Trust; and
(vi) will bring the Trust to an end.
(b) An order that the Plaintiff’s accounts of his administration of the Trust, be passed and entered.
(c) An order for the taking of any other accounts or the making of any inquiries which may be appropriate.
Submissions
The parties each made written and oral submissions.[24] It is unnecessary to reiterate them. The key submissions are considered below.
[24]Plaintiff’s written submissions filed on 29 November 2023; defendant’s written submissions filed on 26 October 2023.
Does the Court have jurisdiction to make the orders sought by the plaintiff?
The plaintiff is understandably concerned about the potential for future legal action against him given the communications he has received from the defendant. Reading the defendant’s emails in evidence, they may be characterised as confused and belligerent. Two examples suffice. First, he is confused about the trust and deceased estate. As an example, on 1 May 2020, the defendant sent the following email to the plaintiff’s solicitor:
Dear Fiona,
Please answer my questions in detail and by end business today.
Why won’t David Hughes communicate with me when he is trustee?
Why did you say to me (in words to this effect) that I was a bad person when I met you for the first time?
How did David Hughes become trustee?
Why is there now a 14 day deadline for me to agree to David Hughes terms?
What happens if I don’t agree with David Hughes terms?
Why is David Hughes not respecting my mothers wishes as per her wills since 1990 that I inherit the trust assets?
When did you become involved in this matter?
How much money has been given to Sealey Brandt?
On what dates did Sealey Brandt receive money?
Why has it taken this long to inform me that David Hughes is not respecting my mothers wishes to her lawyers since 1990?
Why won’t David Hughes respect my mothers wishes?
Why was my mother ‘locked up ‘against her wishes?
Why was my mother starved to death?
Who sanctioned my mother to be starved to death?
Did my mother have legal capacity when she was starved to death?
Who refused my mother to be allowed to go a hospital?
Please let me know anything l should be aware of?
Regards,
Sean Brandt[25]
[25]Email correspondence dated 1 May 2020 contained at Exhibit DJH-1 to the Hughes affidavit, 73.
Second, the emails also contain threats by the defendant to lodge a complaint against the plaintiff with the Victorian Legal Services Board and Commissioner, and scandalous accusations such as the plaintiff ‘aiding and abetting a criminal’ and ‘rewarding Sealey for killing her mother’.[26]
[26]Email correspondence dated 3 May 2019 contained at Exhibit DJH-1 to the Hughes affidavit, 59, 74.
The defendant has repeatedly asserted that the plaintiff must not act in accordance with the 2017 resolution and should distribute entirely to him. The plaintiff says this is the core reason for his application and demonstrates the need for approval of the Court. Whilst I am sympathetic to the circumstances that the plaintiff finds himself in, I disagree that the defendant’s assertions require the trustee to obtain the Court’s imprimatur.
The defendant says the Court does not have jurisdiction to make the orders sought by the plaintiff. I reject that submission. The Court has inherent jurisdiction over trusts.
Turning first to the Court’s advisory jurisdiction.
Writing extra-curially, Chief Justice Kiefel outlines the advisory jurisdiction of the courts, citing the seminal High Court authority Macedonian Orthodox Church.[27] The purpose of the advisory jurisdiction is as follows:
The statutory provisions and court procedures relating to advice given by the courts to trustees have as their aim efficiency in the administration of the estate and reduction of costs. It was said in Macedonian Orthodox Church that there are two purposes of the power or jurisdiction exercised by the courts in this regard. The first accords with the purpose of a general administration suit, namely the protection of the trust and its interests. This has always been the concern of courts of equity. The second is the protection of the trustee. It recognises ‘the fact that a trustee is [usually] entitled to an indemnity for all costs and expenses properly incurred’.
It has also been said that an essential aim of the supervisory jurisdiction of the courts is that trusts be performed, because the courts early recognised the importance of trusts.
The principal two purposes referred to are interconnected. The interests of the trust are protected by removing the concern of a trustee about his or her exposure beyond his or her indemnity. It was explained in Macedonian Orthodox Church that judicial advice, there about litigation, protects both the trustee and the trust by ensuring that ‘the interests of the trust will not be subordinated to the trustee’s fear of personal liability for costs’.
(Citations omitted).[28]
[27]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 (‘Macedonian Orthodox Church’).
[28]Chief Justice Susan Kiefel, ‘Judicial Advice to Trustees: Its Origin, Purposes and Nature’ (2019) 42(3) Melbourne University Law Review 1, 6.
There are limits to judicial advice.[29] Such proceedings “afford a facility for private advice for the personal protection of the trustee”.[30] In Macedonian Orthodox Church, the plurality observed that judicial advice (given in the context of s 63 of the Trustees Act 1925 (NSW)) was an exception to the Court’s ordinary function of deciding adversarial disputes. It offered a facility for the giving of ‘private advice’ ’because its function is to give personal protection to the trustee’.[31]
[29]Ibid, 7-11.
[30]Ibid, 8.
[31]Macedonian Orthodox Church, [64].
Here, the plaintiff seeks orders to obtain the protection of the Court before he distributes and winds up the trust. As the plaintiff says, it was a matter for him as to whether he wished to take into account the Terms of Settlement. He resolved to undertake the distributions in accordance with the Terms of Settlement, and says it is within his power to do so. On the other hand, the defendant says it would be ‘grotesquely unreasonable’ to make such distributions.[32] He says the proposed distributions are not in accordance with the wishes of his mother, the effective settlor of the trust. Further, the defendant says that he has great financial need whereas Sealey does not and she has already received benefits from the deceased estate of their mother.
[32]The defendant relies on Marsella v Wareham (No 2) [2019] VSC 65; Wareham v Marsella (2020) 61 VR 262.
There is a dispute between the plaintiff trustee and defendant beneficiary regarding the Terms of Settlement and the 2017 resolution.
The plaintiff says he is not seeking a declaration that the 2017 resolution was properly made. Rather, he seeks approval to pass accounts, distribute, and wind up the trust. He wishes the Court to approve that the distribution is in accordance with his duties as a trustee and in accordance with the Terms of Settlement. As he concedes, seeking legal advice in the ordinary course of making distributions is unnecessary. However, he says he is entitled to seek advice where there is confusion. I understand that he is referring to the beneficiary being confused. The plaintiff is not seeking judicial advice.
There is no confusion from the plaintiff about the proper course of action. This is evident because he has already made the 2017 resolution and seeks approval to act upon it. As already outlined, the trust deed gives the plaintiff discretion to make distributions and wind up the trust. The consent of the beneficiaries is not required. However, for reasons discussed further below, I am satisfied that the trustee that a declaration should be made to quell the controversy between trustee and beneficiary.
Turning next to the Court’s inherent jurisdiction concerning general administration. This proceeding was not commenced by writ. It was commenced by originating motion per r 52.01 of the Rules. However, the interventionist aspects of the relief sought have aspects of a general administration suit and the plaintiff relies upon the Court’s inherent jurisdiction. General administration suits have been rare for more than 100 years. Writing extra-curially, Chief Justice Kiefel explains:
In 1862, a commentator observed that the jurisdiction of the Court of Chancery over trusts
has always, both in principle and in fact, implied, and been accompanied by, an administrative practice and procedure … which seems to flow, at once and of necessity, from any assumption at all by the Court, of a power to establish or enforce the fiduciary obligation.
The administrative jurisdiction of which this author speaks is defined as ‘that branch of the jurisdiction which has to adjust and execute doubtful or recognised rights, rather than to decide between directly hostile litigants’.
By this time, however, the administration action had become a cumbersome and expensive exercise which required all interested persons to be brought before the court and the taking of accounts and enquiries. Charles Dickens’ description of the suit Jarndyce v Jarndyce is indicative of how it had come to be viewed. His description in Bleak House was true for 1827, the year the book was ostensibly set; but by the time it was published in 1852–3, there had been substantial reforms.
Moreover, much of what was involved in the supervised performance of a trust by the court was unnecessary where all that was in question was the construction of the trust instrument or what should be done in the management and administration of the trust assets in the particular circumstances. But to obtain practical advice of this kind a trustee would have to commence an administration suit, raise the particular point in the pleadings, obtain a direction or advice on it and then stay further proceedings in the action.
(Citations omitted).[33]
[33]Kiefel (n 26) 3-4.
As the learned author of The Supervisory Jurisdiction over Trust Administration writes:
For reasons of expediency, the procedural rules adopt an explicit bias against general administration of trusts, such that the Court ‘will only make an administration order if it considers that the issues between the parties cannot properly be resolved in any other way’.
…
Although rare, administration orders can still be made by the Court, but only in exceptional circumstances in which the circumstances defy an expedient solution. Orders for general administration may be made, for example, where trust administration is in a parlous state and in need of very close supervision by the Court to right the ship, as it were.[34]
[34]Daniel Clarry, The Supervisory Jurisdiction over Trust Administration (Oxford University Press, 2018), [4.05], [4.11].
In McLean v Burns Philp Trustee Co Pty Ltd,[35] the plaintiff commenced an application for leave to proceed against a company in provisional liquidation. The company was the manager of two trusts. The plaintiff sought general administration of two trusts. Young J ordered the proceeding continue with pleadings. In determining whether or not to grant leave to proceeding, Young J considered the Court’s inherent jurisdiction regarding applications for general administration. His Honour recounted the history of the law of trusts and thought it necessary when considering whether to make an order for general administration because “the order emphasises just how closely this Court controls trusts”.[36] His Honour stated “it is always open for a beneficiary to come to this Court and say: ‘This trust has not been properly administered. Please make sure the legal owner of the property who has assumed these obligations [the trustee] carries them out.’”[37] Young J further stated:
The present position is summed-up in the 13th ed (1979) of Underhill (at 699) where the learned author says that a general administration order will be made only in three categories of cases:
“(1) where the trustees cannot pull together, or,
(2) the circumstances of the estate give rise to ever recurring difficulties requiring the frequent direction of the court, or,
(3) where a prima facie doubt is thrown on the bona fides or the discretion of one or more of the trustees.”
I think that summary is close to the mark, but if it is, then in the second and third categories the court takes a relatively benign view and might act on relatively weak evidence because if the plaintiff himself puts forward a case which seems to require the court's investigation, and it turns out not to be a proper case, the court will visit on the plaintiff the costs of the proceedings. This heavy potential burden of costs seems to have been a prime weapon for controlling administration suits and keeping them within proper bounds …[38]
[35](1985) NSWLR 623 (‘McLean’).
[36]Ibid, 633.
[37]Ibid.
[38]Ibid, 635.
In recounting the history of trusts and general administration orders, Young J referred to the changes in the 19th century and legislative reform. His Honour states:
Whatever the position was before 1900, two factors now clearly govern the exercise of the court's discretion as to whether it will make an administration decree in cases where a specific order is not appropriate. First, the court does not make such an order if the only possible result would be that the whole trust fund would be spent in costs or where there would not be likely to be any benefit to the beneficiaries: see Re Customs and Excise Officers’ Mutual Guarantee Fund; Robson v Attorney-General [1917] 2 Ch 18 at 26-27 and Meredith v Davis (1933) 33 SR (NSW) 334; 50 WN 127. Secondly, where the trustee has been given a discretion by the trust instrument, he should be permitted to exercise that discretion and the court will not usually exercise it for him: see eg Tempest v Camoys (Lord) (1882) 21 Ch D 571. However, it should be noted in cases of great difficulty with disputed valuations of the trust property, the court may consider it appropriate to intervene by general administration without any slur on the trustee: see Hyman v Permanent Trustee Co. I think it comes down to this. A beneficiary, if he complains to the court about the administration of a trust is, as a matter of course, entitled to the appropriate order, either to answer his question as to the construction of a trust instrument, or to settle a dispute as to the administration of the trust in whole or in part under the authority of the court, unless the court is satisfied that there is no question which requires its decision. Suspicion of irregularities on very scanty material with respect to mal-administration may be sufficient because the sanction is if, on the court's further inquiry, its initial order is made wrongly, then it will be discharged and the plaintiff must pay the costs of the inquiry. A fortiori, if the affairs of the trust are in great confusion or there have been significant breaches of trust.
(Citations omitted).[39]
[39]Ibid, 635-636.
Turning now to the Rules.
Quite correctly, the plaintiff did not rely upon r 54 of the Rules as a basis for this application. Rule 54 provides a summary procedure for judicial advice. The orders and declarations sought by the plaintiff, including approval for the passing of accounts and winding up, would fall outside r 54.
The plaintiff cited r 52.01 in the originating motion. On its face, r 52.01 does not provide a basis for the relief sought in this proceeding. It provides:
Account or inquiry at any stage
(1)Except as provided in paragraph (3), the Court may at any stage of proceeding make an order for—
(a) the taking of any account; or
(b)the making of any inquiry.
(2)Where the Court makes an order for the taking of an account, it may order payment of any amount found to be due on taking the account.
(3) The Court shall not order that an account be taken—
(a)as against a defendant who has not filed an appearance unless the defendant is in default of appearance; or
(b)if it appears that there is some preliminary question to be tried.
(4)Every direction for the taking of an account or the making of an inquiry shall be numbered in the judgment or order so that, as far as possible, each distinct account and inquiry is designated by a number.
Should the Court pass accounts?
Even if the plaintiff had commenced this proceeding by writ, say by way of a general administration suit, I would not be inclined to grant the order passing accounts. This is because the plaintiff has not established a proper basis for the Court to intervene in the administration of the trust. As trustee, he has duties and discretionary powers per the trust deed to pass accounts. He does not require the Court’s approval to exercise his powers. In this case, there is no basis for the Court to intervene. There is no controversy regarding the construction of the trust deed, nor any issue of propriety concerning the trustee’s actions, or any inability for the trustee to take actions per the trust deed. Whilst there are circumstances where a court will intervene, such as a deadlock between trustees, or where the trustee has a conflict of interest, that is not the case here.
There is no propriety issue regarding the administration of the trust. This is not a case where there are allegations of bad faith or irregularity concerning the trust accounts. Aside from the controversy about the distributions, the only other substantive complaint was about the delay in distributions. The plaintiff’s counsel explained this was due to the defendant’s lack of co-operation, the time taken to sell properties, and the plaintiff’s health over Christmas 2018. I accept this explanation.
The plaintiff says the accounts ledger is entirely usual and precise. He gave evidence that the transactions are proper, and says there is no evidence to suggest otherwise. The plaintiff says that therefore the accounts should be passed.
The plaintiff made no specific submission about the application of r 52 save to say that the Court should pass and enter the trust accounts after making any enquiries it wishes. The plaintiff has not established any reason for the Court to take accounts or make inquiries per r 52.01.
Should the Court make declarations?
The defendant has placed the plaintiff in an invidious position. He alleges that the 2017 resolution is ‘grotesquely unreasonable’. If the plaintiff makes the distributions in accordance with the 2017 resolution and the defendant subsequently commences legal proceedings against the plaintiff, the plaintiff will no longer have any trust funds to indemnify himself for all proper expenses of defending such a claim, as is his right. Accordingly, the plaintiff is now in an invidious position and seeks that the Court make the declarations sought to enable the trust to be properly administered.
In Ainsworth v Criminal Justice Commission[40], the High Court stated the following in relation to the Court’s power to grant declaratory relief:
It is now accepted that superior courts have inherent power to grant declaratory relief. It is a discretionary power which “it is neither possible nor desirable to fetter ... by laying down rules as to the manner of its exercise”. However, it is confined by the considerations which mark out the boundaries of judicial power. Hence, declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions. The person seeking relief must have “a real interest” and relief will not be granted if the question “is purely hypothetical”, if relief is “claimed in relation to circumstances that [have] not occurred and might never happen” or if “the court’s declaration will produce no foreseeable consequences for the parties”.
(Citations omitted).
[40](1992) 175 CLR 564, 581-582 (Mason CJ, Dawson, Toohey and Gaudron JJ).
Before exercising my discretion to grant declaratory relief, I ought be satisfied that:
(a) there is a real legal controversy;
(b) the plaintiff has a real interest in that controversy; and
(c) the controversy can be quelled by a declaration.
Is there a real legal controversy?
The validity of the 2017 resolution is not hypothetical or abstract. The capital distribution of $414,476.20 made to Sealey has been made in reliance on it. The remaining trust funds are held for each of the beneficiaries, pending the nomination of a date for payment. The plaintiff seeks a declaration to this effect and the defendant strongly opposes this course of action, labelling the 2017 resolution grotesquely unreasonable. There is a clear legal controversy to be adjudicated upon.
Does the plaintiff have a real interest in the controversy?
The plaintiff’s personal interest in the controversy has already been noted. The plaintiff seeks, amongst other things, protection in the form of a declaration from the Court to distribute the corpus and undistributed income of the trust in accordance with the 2017 resolution. Further, both the defendant and Sealey, as beneficiaries of the trust, also benefit from that protection. It is manifestly not in either the defendant or Sealey’s interest that their vested interests in the trust remain in a state of uncertainty. The plaintiff has an interest in protecting the beneficiaries. Indeed, this is a key duty of any trustee.
Will the declaration quell the controversy?
Declaratory relief will enable the trustee to distribute the remaining funds and wind up the trust with the protection of the Court. The granting of declaratory relief will ultimately quell the longstanding impasse between the plaintiff and the defendant regarding distributions.
Exercise of discretion
The trust deed is to be construed consistently with the principles that apply to the construction of contracts.[41] As previously outlined, the trust was established as a discretionary trust. Clauses 4 and 5 of the trust deed allow the trustee to distribute the trust's income and capital to any beneficiary. Clause 8 sets out the broad powers of the trustee with respect to the trust fund. Crucially, clause 9.1 of the trust deed gives the trustee absolute and uncontrolled power to exercise every discretion vested in it.
[41]Byrnes v Kendle (2011) 243 CLR 253 at [59] per Gummow J and Hayne J at [102]-[105].
The defendant submitted, with reliance upon Marsella v Wareham (No 2) (‘Marsella’)[42], that the 2017 resolution would produce a ‘grotesquely unreasonable’ outcome. In Marsella, McMillan J stated the following in relation to when an outcome of a trustee’s exercise of discretion may be regarded as being grotesquely unreasonable:
While it is not the Court’s role to consider the fairness or reasonableness of the outcome of the exercise of discretion and usurp the role of the trustee, the outcome itself, particularly where the result is ‘grotesquely unreasonable’, may form evidence that the discretion was never properly exercised, or was exercised in bad faith. In the circumstances of this proceeding, the outcome of the defendants’ exercise of discretion, that is, the distribution of the entire proceeds of the fund to the first defendant, supports the conclusion that there was a lack of real and genuine consideration.
Relevant factors for consideration include, but are not necessarily limited to, the intention of the deceased as the settlor of the fund, the relationship between the deceased and the dependant, and the financial circumstances and needs of the dependants …[43]
[42][2019] VSC 65.
[43]Ibid, [51]-[52].
Marsella is distinguishable from the circumstances here. Marsella concerned a sole ‘surviving’ trustee of a deceased self-managed superannuation fund who appointed her husband as co-trustee. Together, they resolved to pay the entire death benefit in the fund to her, without giving proper consideration to ‘the possible interests of all dependents of the deceased’, as was required under the fund deed. Although the trustee was afforded broad discretionary powers pursuant to the fund deed in administering the trust and exercising powers and obligations under the trust, McMillan J ultimately held the following:
On balance, the inference to be drawn from the evidence is that the [trustee] acted arbitrarily in distributing the fund, with ignorance of, or insolence toward, her duties. She acted in the context of uncertainty, misapprehensions as to the identity of a beneficiary, her duties as trustee, and her position of conflict. As such, she was not in a position to give real and genuine consideration to the interests of the dependants. This conclusion is supported by the outcome of the exercise of discretion.
The ill-informed arbitrariness with which the [trustee] approached her duties also amounts to bad faith. The dismissive tenor of the correspondence from Hill Legal, the willingness to proceed with the appointment and distribution in the context of uncertainties and significant conflict and the lack of specialist advice despite the recommendation of Mr Hayes, all support the conclusions that her conduct was beyond ‘mere carelessness’ or ‘honest blundering’. This conclusion is reached without reference to the lack of evidence deposed by the defendants personally.[44]
[44]Ibid, [56]-[57]; the decision of McMillan J in Marsella was upheld by the Court of Appeal in Wareham v Marsella [2020] VSCA 92.
The circumstances here must be distinguished. There is absolutely no evidence to suggest the trustee has acted in a similar vein to the trustee in Marsella. I reject the defendant’s submission that the 2017 resolution will produce a grotesquely unreasonable outcome. I find that the 2017 resolution is not grotesquely unreasonable for the following reasons.
First, as I have already outlined, the plaintiff has, pursuant to the trust deed, absolute discretion to make the 2017 resolution. The defendant says the 2017 resolution does not reflect the settlor’s intentions. In effect, the defendant is saying that the settlor wished him to receive all distributions of the trust. There is no proper evidence of this. Certainly it is not reflected in the trust deed. He is not the sole beneficiary. The assertions made by the defendant regarding the settlor's intentions do not override the trust deed. The 2017 resolution is valid according to the trust deed. Relatedly, I reject the defendant’s submission that because he was initially the trustee, the current trustee must consider the settlor’s wishes that the defendant should have control of the trust and that somehow means that he is entitled to receive all the distributions of the trust. There is no question that the current trustee is validly appointed.
Second, the defendant has submitted that he has greater need for the trust funds compared to Sealey, and gave evidence of his impecuniosity. However, there is no proper evidence of Sealey’s financial position. He believes, amongst other things, that ‘Sealey has substantial wealth in her own right’ and says that he was ‘told by a real estate agent who is familiar with Sealey that she has assets to the value of $20 million’.[45] Moreover, the plaintiff has the absolute discretion to distribute the Trust’s income and capital to any beneficiary as he sees fit, pursuant to the trust deed.
[45]Defendant’s written submissions filed on 26 October 2023, [20(m)]; second Brandt affidavit, [29].
Third, it was within the trustee’s discretion to have regard to the Terms of Settlement, and he did. The defendant submitted that the trustee had inappropriately fettered himself by treating himself as bound by the Terms of Settlement and refers to the 2017 resolution mirroring the trust deed. That submission must be rejected. It is inconsistent with clause 2 of the Terms of Settlement. As outlined above, clause 2 refers to the trustee not being bound, but having discretion to take the Terms of Settlement into account. Exercising that discretion, the trustee made the 2017 resolution. It was in the trustee’s discretion for it to mirror the Terms of Settlement.
I reject the defendant’s submission that the trustee did not actively consider his exercise of discretion by making inquiries to inform himself of the beneficiary’s financial position and take all relevant matters into account. There was evidently an erratic stream of correspondence from the defendant to the trustee. As already discussed, the trustee could consider the Terms of Settlement. Contrary to the defendant’s submission, the trustee was not required to put on evidence in this hearing as to Sealey’s financial position in order to prove that he had acted properly. It was simply not required. Moreover, given the wild accusations made in the defendant’s emails, it is understandable why the trustee would act prudently in relation to any information about Sealey’s financial position.
Fourth, I am satisfied that the defendant did sign the Terms of Settlement and that he was legally represented at the time. I accept the evidence in the second O’Riordan affidavit and rely upon the exhibited Terms of Settlement containing the defendant’s counterpart signatures on each page.[46]
[46]Affidavit of Louise O’Riordan sworn on 22 November 2023 (‘second O’Riordan affidavit’), [9]; Exhibit DJH-1 to the Hughes affidavit, 43-50.
Where there is inconsistency between the evidence of the plaintiff and evidence of the defendant, I prefer the evidence of the plaintiff. There were aspects of the defendant’s evidence that were not credible. For instance:
(a) the defendant says that he has no memory of signing the Terms of Settlement in circumstances where he was facing ‘a very high level of stress’ and further says that he would not have signed ‘a document that did not honour my mother’s express wishes for me to receive the benefit of the properties held by the Trust’.[47] I reject the defendant’s evidence that he did not sign the Terms of Settlement. It is contrary to his signature on the document (on each page) and the evidence given by the plaintiff regarding the circumstances in which the Terms of Settlement were executed. Moreover, in an email to the plaintiff on 3 May 2019, the defendant acknowledges signing the Terms of Settlement – ‘lawyers making me sign a document prepared by your barrister knowing I was not in sound mind….’[48]
(b) the defendant further says that he had told the plaintiff that he had ‘not read nor would agree to any terms that were not in accordance with my mother’s wills and Deed of Family Settlement’ and that in response, the plaintiff ‘told me there was a court deadline of 5pm and that this would bankrupt me and take my home if I did not agree to the terms’.[49] The plaintiff denies saying this to the defendant and says in reply that the plaintiff’s file note of the meeting records a comment made by the defendant that he has not read the draft Terms of Settlement but also a later comment made by the defendant that ‘Sealey can have the $400,000’ and a subsequent comment by Edward Skilton [the defendant’s solicitor at the time] noting that the defendant recalled the Terms.[50] I reject the defendant’s evidence. The plaintiff’s evidence is more plausible and is corroborated by the contemporaneous file note. Moreover, the second O’Riordan affidavit shows that the defendant was represented at the mediation on 28 November 2016 that lead to the Terms of Settlement. His legal representatives were Dr Ian Freckelton KC and Mr Skilton of Sladen Legal. They continued to represent the defendant after the mediation and were acting for him at the time he signed the Terms of Settlement more than two months later, on 2 February 2017. Dr Freckleton KC appeared for the defendant at the hearing on 3 February 2017 when final orders were made in one of the proceedings referred to in the Terms of Settlement. In addition, the chronology in the second O’Brien affidavit suggests that the defendant had ample time to consider the Terms of Settlement as they were provided to him by Mr Skilton on 8 December 2017; and
(c) an email was sent from the defendant’s personal email account but purporting to be an email from the defendant’s solicitor. It included the solicitor’s name and signature block.[51] This appears to be fraudulent. In oral submissions, the defendant’s counsel denied this on his behalf.[52] However, there was no explanation given by the defendant for the email. Nor did he deny sending the email. It may be inferred that he did send the email.
[47]Second Brandt affidavit, [53].
[48]Email correspondence dated 3 May 2019 contained at Exhibit DJH-1 to the Hughes affidavit, 59.
[49]Ibid.
[50]Affidavit of Louise O’Riordan sworn on 22 November 2023, [17(a)-(b)].
[51]Email correspondence dated 15 December 2020 contained at Exhibit DJH-1 to the Hughes affidavit, 164.
[52]Transcript of proceedings on 5 December 2023, 40.
Fifth, I reject the defendant’s suggestion that the defendant’s delay in making distributions means that there would now be a grotesquely unreasonable outcome if the distributions were made. The 2017 resolution was made more than six years ago, and since then the defendant has made accusations against the plaintiff. However, despite having engaged different legal practitioners over this time, he has not issued any legal proceedings challenging the validity of the 2017 resolution. As I have explained, the plaintiff has been placed in an invidious position by the defendant.
In all the circumstances, the declaration sought, namely that the distribution of the corpus and undistributed income of the Trust equally between Sealey and the defendant is a proper step to be taken in the administration of the trust, is necessary to quell the legal controversy and the longstanding impasse between the plaintiff and the defendant in this proceeding.
Conclusion
Accordingly, a declaration will be made in the form sought in paragraph 1(a) of the plaintiff’s originating motion and summons.
By clause 24 of the Terms of Settlement, as outlined above, the defendant releases the trustee (and the trust) from all claims once the specified transactions and distributions have been made.
Notwithstanding clause 24, and although I consider any action regarding the validity of the 2017 resolution to be statute-barred, I will give the defendant an opportunity to issue any legal proceedings against the trustee within 60 days of the declaration being made. If he does not, I will make the orders sought in paragraphs 1(b) and (c) of originating motion and summons upon receiving an affidavit from the trustee or his legal representative deposing that they have not been served with any such proceedings.
In respect of the order sought for passing of accounts pursuant to paragraph 2 of the originating motion and summons, for the reasons outlined above, I would not make this order. The trustee clearly has the power to pass accounts and given there is no real legal controversy regarding the accounts, I anticipate the trustee will do so in due course.
0
5
0