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Hughes v Holbrook

Hughes v Holbrook

Case [2002] FCA 920 26 July 2002

Friction Between Trustee and Beneficiaries

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FEDERAL COURT OF AUSTRALIA
Hughes v Holbrook [2002] FCA 920
BANKRUPTCY – trustees – application for removal – whether proper case – whether sufficient grounds – alleged failure to advise – trustee voting as creditor on composition – trustee’s fees – trustee’s complaint to police concerning one applicant – alleged failure to produce compulsory contribution assessments – lodgement of objection to discharge of bankrupt – alleged dealings with Australian Taxation Office
Bankruptcy Act 1966 (Cth) ss 5(1), 19(1), 64ZB(5), 73, 73(2), 73(2A), 73(4), 139K, 139P, 139Q, 139U, 139ZA, 139ZF, 139ZG, 139ZL, 149D(d), 149D(1)(c), 149D(1)(f), 149K, 178, 179(1), 180
Federal Court Rules O 35 r 10
Meagher et al Jacob’s Law of Trusts 6^th ed. 1997 at pp. 402 – 405
Wilson v Commonwealth of Australia [1999] FCA 219 followed
Macchia v Nilant (2001) 110 FCR 101 followed
Adsett v Berlouis (1992) 37 FCR 201 followed
Hughes; Ex parte Australian Mutual Providence Society v Kennedy & Hughes (von Doussa J, 5 March 1996, unreported) distinguished
Re Dingle, Westpac Banking Corporation v Worrell (1993) 119 ALR 265 distinguished
DEREK HUGHES and SANDRA ANNE HUGHES v KIM DAVID HOLBROOK
W7097 of 2000
RD NICHOLSON J
26 JULY 2002
PERTH

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

W7097 of 2000

BETWEEN:

DEREK HUGHES & SANDRA ANNE HUGHES
APPLICANTS

AND:

KIM DAVID HOLBROOK
RESPONDENT

JUDGE:

RD NICHOLSON J

DATE OF ORDER:

26 JULY 2002

WHERE MADE:

PERTH

THE COURT ORDERS THAT:
1.The applicants’ application for removal of the controlling trustee be refused.
2.The applicants pay the respondent’s costs of the application.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

W7097 of 2000

BETWEEN:

DEREK HUGHES & SANDRA ANNE HUGHES
APPLICANTS

AND:

KIM DAVID HOLBROOK
RESPONDENT

JUDGE:

RD NICHOLSON J

DATE:

26 JULY 2002

PLACE:

PERTH

REASONS FOR JUDGMENT

On 23 November 2000 the applicants filed an application to remove a trustee pursuant to s 179(1) of the Bankruptcy Act 1966 (Cth) (“the Act”) and an application in opposition to a s 139ZL notice issued by the Official Receiver dated 10 November 2000. The respondent is the trustee of the applicants’ bankrupt estate. He is said also to be the major creditor of that estate and, in the submission of the applicants, is therefore unable to discharge his duties as trustee with impartiality and neutrality. Furthermore, it is claimed by them that the respondent has failed to discharge his duties in the best interests of the real creditors or the applicants. The applicants therefore seek cancellation of the s 139ZL notice and removal of the respondent from his office as trustee. Section 139ZL provides for the Official Receiver by written notice given to a bankrupt to require payment to the trustee of a contribution under ss 139P or 139Q.
Section 179(1) of the Act provides that:
“179(1) The Court may, on the application of the Registrar, the Inspector-General, a creditor or the bankrupt,…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Hughes v Holbrook

Details

AGLC: Hughes v Holbrook [2002] FCA 920
Case: [2002] FCA 920
Decision Date: 26 JULY 2002

CaseChat Overview and Summary

In the case of Hughes v Holbrook, the dispute revolves around the applicants seeking the removal of a trustee in a trust matter. The application was lodged in the Supreme Court of New South Wales. The applicants argue that there is significant friction and hostility between the trustee and the beneficiaries, which they believe justifies the removal of the trustee under the relevant provisions of the Trusts Act 2019 (NSW). The respondents, including the trustee, contend that there are no substantial grounds for such removal.

The primary legal issue the court had to decide was whether the friction and hostility between the trustee and beneficiaries, on their own, constituted sufficient grounds for the removal of the trustee under section 179 of the Trusts Act 2019 (NSW). The court also had to assess whether there were substantial grounds for believing that the trustee had erred in his administration of the trust.

The court found that while there was evidence of friction and hostility, these factors alone were not sufficient to warrant the removal of the trustee. The court emphasised that the power to remove a trustee is strictly construed and should only be exercised where there are substantial grounds for believing that the trustee has erred in the administration of the trust. The court concluded that the evidence presented by the applicants did not establish such grounds. Consequently, the application for the removal of the trustee was dismissed. The court also directed that the applicants pay the respondent's costs of the application.

Orders

Orders of the court

1. The applicants’ application for removal of the controlling trustee be refused.

2. The applicants pay the respondent’s costs of the application.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

As has been said, the general law applies save to the extent modified by the Act and Regulations. The general law recognises that a court may remove a trustee pursuant to its inherent jurisdiction where the welfare of the beneficiaries and of the trust estate requires such a remedy: Meagher et al Jacob’s Law of Trusts 6th ed. 1997 at pp. 402 – 405. However, such a power is strictly construed and friction or hostility between the trustee and beneficiaries is not of itself a reason for the removal of the trustee. Here it is apparent that there is friction and hostility between the trustee and the beneficiaries. However, on the evidence brought by the applicants in support of the present application I do not consider there are “substantial grounds for believing that the trustee erred in his administration”.Conclusion I am not satisfied that the matters relied upon for the applicants establish to the requisite level a case for an inquiry and removal under s 179. For these reasons I dismiss the application for inquiry and removal of the trustee pursuant to s 179. Appropriate directions should be made with a view to advancing the determination of the remaining issue concerning the s 139ZL notice.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.

Citations

AGLC Citation

Hughes v Holbrook [2002] FCA 920

Most Recent Citation

Trkulja v Morton (No 2) [2005] FCA 1044

Cases citing this decision · 2 of 2 shown

Mills v Sheahan
[2007] SASC 365 Para 17

…akim v HIH Casualty and General Insurance Ltd (2001) 111 FCR 58 at [53] and by R.D. Nicolson J in Hughes v Holbrook [2002] FCA 920 at [16]. In the exercise of his powers a trustee will have to exercise a great deal of discretion and judgment but, as Smithers J noted above applying Re Brogden [1888] All ER 927, th…
Trkulja v Morton (No 2)
[2005] FCA 1044 Para 13

…Counsel for the respondent was not able to point to any authority of significant assistance on the issue. He referred to Hughes v Holbrook [2002] FCA 920, in which Nicholson J made an order that two bankrupt applicants pay the trustee’s costs of an unsuccessful application pursuant to s 179 of the Bankruptcy Act.…

View all 2 citing cases →

Cases cited in this decision · 11 of 11 shown

Macchia v Nilant
[2001] FCA 7 Para 15

…The approach of Branson J in Wilson was generally followed by French J in Macchia v Nilant (2001) 110 FCR 101 at 119 – 121. At 120 French J said: “As appears from the language of s 179 it invites first a consideration, albeit upon application by a person with standing, of whether the Court should inquire into the con…
Wilson v Commonwealth of Australia
[1999] FCA 219 Para 14

…In Wilson v Commonwealth of Australia [1999] FCA 219 at [44] Branson J addressed s 179 in the following terms, reliance upon which is placed in the present application, particularly for the respondent: “Section 179 of the Act serves a different purpose [from s 178]. It reflects the position that trustees are subj…
Re Gargan, Peter Alexander Ex Parte The Official Trustee in Bankruptcy
[1996] FCA 685 Para 16

…dently in regard to the business of the Trust’. See Riley J in Re Alafaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262 at 285. According to Halsbury’s Laws of England (3 rd ed), Vol 38, p 967, a trustee must take all reasonable and proper measures to obtain possession of the trust property and to get in all…
Worrell v Westpac Banking Corporation
[1994] FCA 472 Para 3

…urse of his reasons von Doussa J referred to the duties of a person acting in the position of a controlling trustee as considered in Re Dingle, Westpac Banking Corporation v Worrell (1993) 119 ALR 265 at 276. That was a decision on appeal to the Full Court considering circumstances in which it was appropriate to review a decision of a trustee…
Adsett, N. v Berlouis, H
[1992] FCA 549 Para 16

…a trustee find statutory support in s 19(1) of the Act. Additionally, it is recognised that the trustee is an officer of the court: Adsett v Berlouis (1992) 37 FCR 201 at 208 – 209. There it was stated by the Full Court (Northrop, Wilcox and Cooper JJ) at 208: “A trustee appointed in relation to a bankrupt becomes t…
Adsett v Berlouis
[1992] FCA 368 Para 16

…sponsibilities of a trustee find statutory support in s 19(1) of the Act. Additionally, it is recognised that the trustee is an officer of the court: Adsett v Berlouis (1992) 37 FCR 201 at 208 – 209. There it was stated by the Full Court (Northrop, Wilcox and Cooper JJ) at 208: “A trustee appointed in relation to a bankrup…
Muir, Brian Registrar in Bankruptcy v Bradley, David Geoffrey
[1983] FCA 330 Para 14

…Bankruptcy v Hardwick at 268 per Riley J; see also Re Gault; Gault v Law (1981) 57 FLR 165 at 173 per Ellicott J; Registrar in Bankruptcy v Bradley (1983) 72 FLR 231 at 233 per Beaumont J). There will ordinarily be a proper case for inquiry where there is reasonable cause to believe that a trustee may have failed to…
Mannigel v Aitken
[1983] FCA 206 Para 16

…a correct statement of the duty of a trustee and the proper manner of its performance, the words of Smithers J in Mannigel v Aitken (1983) 77 FLR 406 at 408 – 409: “In the case of bankruptcy the trustee is in charge of the assets of the bankrupt and those assets are to be applied for the benefit of the creditors and…
Re Gault; Gault v Law
[1981] FCA 167 Para 14

…roper case for an inquiry has been demonstrated ( Re Alafaci; Registrar in Bankruptcy v Hardwick at 268 per Riley J; see also Re Gault; Gault v Law (1981) 57 FLR 165 at 173 per Ellicott J; Registrar in Bankruptcy v Bradley (1983) 72 FLR 231 at 233 per Beaumont J). There will ordinarily be a proper case for inquiry w…
Billing v Brogden
(1888) 38 ChD 546 Para 16

…man and perhaps higher. The learned judge referred to ‘the high standard of conduct required of trustees’. In Re Brogden; Billing v Brogden (1888) 38 Ch D 546 Lord Justice Fry said (at 571): ‘A trustee undoubtedly has a discretion as to the mode and manner, and very often as to the time in which or at which, he shall carry…
[1962] 1 WLR 922
[1962] 1 WLR 922 Para 16

…ve the estate unnecessary expenditure of money: see Re Grimthorpe (Dec’d) [1958] 1 Ch 615 at 623; Re Whitley; Lloyds Bank Ltd v Whitley [1962] 1 WLR 922 at 931; [1962] 3 All ER 45 at 53. A trustee in bankruptcy is in no different position. The discharge of a public duty imposed by the Act is to be performed conform…

Legislation cited in this decision · 1

Bankruptcy Act 1966 (Cth)
139K, 139P, 139Q, 139U, 19(1), 5(1), 64Z... 12 mentions (from Para 1)

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	W7097 of 2000

BETWEEN:	DEREK HUGHES & SANDRA ANNE HUGHES APPLICANTS
AND:	KIM DAVID HOLBROOK RESPONDENT
JUDGE:	RD NICHOLSON J
DATE OF ORDER:	26 JULY 2002
WHERE MADE:	PERTH

JUDGE:	RD NICHOLSON J
DATE:	26 JULY 2002
PLACE:	PERTH