In the matter of Austec Wagga Wagga Pty Limited (in liquidation)

[2018] NSWSC 1476

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Austec Wagga Wagga Pty Limited (in liquidation) [2018] NSWSC 1476
Hearing dates:	7 November 2017
Date of orders:	03 October 2018
Decision date:	03 October 2018
Jurisdiction:	Equity - Corporations List
Before:	Brereton JA
Decision:	Judicial advice refused
Catchwords:	TRUSTS – applications by trustees – judicial advice – “winding up” of trust – where liquidator of trustee appointed as replacement trustee – where right of indemnity will exhaust trust assets – whether court should declare trust terminated or advise trustee that justified in acting on basis that terminated – whether trustee can retire – whether court should give leave to trustee to retire
Legislation Cited:	(CTH) Corporations Act 2001, s 477(2A), s 477(2B), s 511, s 601EE, s 1337C(1) (NSW) Trustee Act 1925, s 8, s 63, s 70.
Cases Cited:	Austec Wagga Wagga Pty Ltd v Rarebreed Wagga Pty Ltd [2012] NSWSC 343 Austec Wagga Wagga v Cullen [2015] FCA 400 Belar Pty Ltd (In Liq) v Mahaffey [2000] 1 Qd R 477 Chadwick v Heatley (1845) 2 Coll 137; (1845) 63 ER 671 Chief Commissioner of Stamp Duties for New South Wales v Buckle (1998) 192 CLR 226 Commonwealth of Australia v Matthew James Byrnes and Stewart Reed Hewitt in their capacity as joint and several receivers and managers of Amerind Pty Ltd (receivers and managers appointed) (in liquidation) [2018] VSCA 41 Cullen & Cullen [2015] FamCA 567; CAC 200 of 2010 (reported as Cuthbert & Cuthbert) Eggleston, Re [1940] VLR 474 Exhall Coal Co Ltd, Re (1866) 55 ER 970 Fordyce v Ryan [2016] QSC 307 Forshaw v Higginson (1855) 20 Beav 485; 52 ER 690 Gramarker Pty Ltd, In the matter of; Clifford Sanderson (as liquidator of Gramarker Pty Limited) v Simon Kerr [2014] NSWSC 243 Grime Carter & Co Pty Ltd v Whyte’s Furniture (Dubbo) Pty Ltd [1983] 1 NSWLR 158; (1983) 7 ACLR 540 Horwath Corporate Pty Limited v Huie [1999] NSWSC 583 Indopal Pty Ltd, Re (1987) 12 ACLR 54 Irvine v Australian Sharetrading and Underwriting Ltd (1996) 22 ACSR 765 Jennings v Mather [1901] 1 KB 108 Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40 Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344; (2008) 74 NSWLR 550 Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 Moore’s Will, In re; Moore v Willis (1901) 1 SR (NSW) Eq 148 Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 O'Neill, Official Assignee of v O'Neill (1898) 16 NZLR 628 Park & Muller (liquidators of LM Investment Management Ltd) v Whyte (receiver of the LM First Mortgage Investment Fund) [2015] QSC 283 Savage v Union Bank of Australia Ltd [1906] HCA 37; (1906) 3 CLR 1170 Smith, In the Marriage of (No 3) [1986] HCA 36; (1986) 161 CLR 217 Stacks Managed Investments Ltd, In re [2005] NSWSC 753 Suco Gold Pty Ltd (In Liq), Re (1983) 33 SASR 99 Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319 Wales v Wales [2015] VSCA 345
Texts Cited:	Heydon JD and Leeming MJ, Jacobs Law of Trusts in Australia, 8th ed Underhill & Hayton, Law Relating to Trusts and Trustees, 17th ed, [27.2].
Category:	Principal judgment
Parties:	Christopher Mel Chamberlain (P)
Representation:	Counsel: M.J. Dawson (P)   Solicitors: DWF Australia (P)
File Number(s):	2017/297335

Judgment

1. Pursuant to an originating process filed on 3 October 2017, the plaintiff Christopher Mel Chamberlain, who is the liquidator of the company Austec Wagga Wagga Pty Limited and, consequentially, the trustee of the John Cullen Family Trust (“the Trust”), seeks directions in connection with the termination of the Trust and his retirement as such trustee.

Background

2. The company was, before it went into liquidation, the trustee of the Trust, which is a discretionary family trust. Under the trust instrument, Mr John Prosper Cullen is the appointor, and as such has the power to appoint and remove the trustee. The class of eligible beneficiaries is defined by familial relationship to Mr Cullen.

3. In its capacity as trustee of the Trust, the company carried on business, under the name “Australec Switchgear”, as an importer and exporter of electrical switchgear. The business was profitable. Its financial statements and taxation returns for the period from 2001 to 2010 included fictitious research and development expenses and deductions amounting to approximately $8.5 million, with the consequence that the Trust’s true taxation liabilities were not met, and the funds which were available as a result were appropriated by Mr and Mrs Cullen, and used by them to acquire extensive property and investments. By reason that the company did not meet its true taxation liabilities, it was insolvent.

4. From 10 March 1999, when Mr Cullen formally resigned as a director, his wife Mrs Christine Cullen was the sole director of and shareholder in the company, but Mr Cullen remained involved in management on a daily basis. Mr and Mrs Cullen became estranged, and on 25 July 2011, the company resolved that it be wound up and Mr Chamberlain was appointed its liquidator, in a creditors’ voluntary winding up.

5. Shortly prior to the winding up, on 14 July 2011, Mr Cullen in purported exercise of his power as appointor removed the company and appointed Rarebreed Wagga Pty Limited in its place as trustee of the Trust. In Austec Wagga Wagga Pty Ltd v Rarebreed Wagga Pty Ltd, [1] Stevenson J held that that appointment was a fraud on the power, and on 13 April 2012 appointed Mr Chamberlain in its place, pursuant to (NSW) Trustee Act 1925, s 70.

   1. [2012] NSWSC 343.

6. Mr Chamberlain then commenced proceedings in the Federal Court of Australia, to recover assets of the company allegedly misappropriated by Mr and Mrs Cullen, and for compensation for the alleged breach of their duties to the company. The company’s accountant Mr Cummins was also sued, as an accessory. On 15 April 2015, those proceedings were transferred to the Family Court of Australia, where Mr and Mrs Cullen were by then engaged in matrimonial financial proceedings. [2]

   2. Austec Wagga Wagga v Cullen [2015] FCA 400.

7. The proceedings in the Family Court were resolved – as to both the matrimonial and insolvency aspects – by mediation, and on 22 May 2015, the parties (including the Commissioner for Taxation) entered into three deeds of settlement (the John Cullen Deed of Settlement, the Christine Cullen Deed of Settlement and the Peter Cummins Deed of Settlement). On the ex parte application of Mr Chamberlain, Bennett J of the Family Court of Australia on 21 July 2015 made directions under (CTH) Corporations Act 2001, s 511, that in his capacity as liquidator he was justified in entering into the deeds of settlement, gave approvals under s 477(2A) and (2B), and advised (said to be pursuant to (NSW) Trustee Act 1925, s 63), that in his capacity as trustee he was justified in entering into the deeds of settlement. [3] Her Honour gave further judicial advice (again, said to be pursuant to Trustee Act 1925, s 63), including relevantly that: [4]

   3. Cullen & Cullen [2015] FamCA 567; CAC 200 of 2010 (reported as Cuthbert & Cuthbert).

   4. Presumably, the relief under (NSW) Trustee Act, s 63, was granted in the accrued jurisdiction of the Family Court. Although the Family Court is a corporations court, with plenary jurisdiction under the (CTH) Corporations Act 2001 [see Corporations Act, s 1337C(1)], it has no jurisdiction under the (NSW) Trustee Act 1925, and state jurisdiction cannot be cross-vested to federal courts. The application for judicial advice under s 63 was, more than arguably, an aspect of the same “matter” as the application for directions under Corporations Act, s 511, which was also before the Family Court and indisputably within its jurisdiction; subject to one consideration that would support accrued jurisdiction. However, jurisdiction under s 63 is specifically given to “the Court”, defined as “the Supreme Court”, and similar provisions in the former (NSW) Family Provision Act 1982 were considered in Smith, In the Marriage of (No 3) [1986] HCA 36; (1986) 161 CLR 217 to exclude accrued jurisdiction. None of these matters appear to have been drawn to the attention of, or considered by, the Family Court.

1. in his capacity as trustee of the Trust, Mr Chamberlain was justified in winding up the Trust; and

2. in his capacity as trustee of the Trust, Mr Chamberlain was justified in administering the winding up of the trust as follows:

1. first, in payment of the costs and expenses of the second respondent in his capacity as liquidator of the third respondent and trustee of the trust;

2. secondly, in payment of unsecured creditors excluding the Australian Taxation Office;

3. thirdly, in performance of the obligations under the Christine Cullen Deed of Settlement, the John Cullen Deed of Settlement and the Peter Cummins Deed of Settlement; and

4. fourthly, in payment to the Australian Taxation Office.

8. Mr Chamberlain deposes that following the extensive proceedings in this court, in the Federal Court and in the Family Court, over a number of years, to recover substantial funds from the company’s former directors and accountant, he has realised as much of the property of the company and the Trust as can be realised without unnecessarily protracting the administration, and will soon be in a position to lodge final returns, pay a final dividend to the only remaining creditor (the Commissioner of Taxation), and convene a final meeting of creditors. [5] Mr Chamberlain further deposes that he has now completed the winding up and administration of the Trust in accordance with the orders and directions of Bennett J. [6] With the consent of the Commissioner (who accounts for more than 99% of creditors by quantum), he has paid all other creditors 100c in the dollar, and he has paid the Commissioner dividends amounting to 48.21c in the dollar. However, he has not yet paid a final dividend to the Commissioner, and will not be in a position to do so until he has convened a final meeting of creditors and paid outstanding accounting fees (for preparation of the final accounts of the Trust) and legal fees (for the present application). [7]

   5. Affidavit of C.M. Chamberlain of 3 October 2017, [6].

   6. Affidavit of C.M. Chamberlain 3 October 2017, [21]-[25].

   7. Affidavit of C.M. Chamberlain of 2 November 2017, [5].

9. In the originating process, the plaintiff sought “orders and directions for the administration, winding up and termination” of the trust. [8] The confusion which affected the application is apparent from the evolution thereafter of the relief sought. In his supporting affidavit of 3 October 2017, Mr Chamberlain said that his affidavit was sworn in support of his application for directions under Trustee Act, ss 63 and s 71, that amongst other matters he would be justified in exercising the power to declare and appoint the vesting day of the trust and to terminate the trust without the consent of the appointor Mr Cullen. [9] Counsel’s written submissions in support of the application were said to be for orders:

(a) declaring that the Trust has been wound up and administered in accordance with the orders of Bennett J of the Family Court of Australia made on 21 July 2015;

(b) that the Trust be terminated; and

(c) that Mr Chamberlain be released of any duties and powers he may have in respect of the Trust.

8. Originating Process filed 3 October 2017, [1].

9. Affidavit of C.M. Chamberlain of 3 October 2017, [4]. The reference to s 71 seems inapt, as no application was made for any vesting order, nor is it apparent how a vesting order would be relevant.

10. Ultimately, the plaintiff proffered short minutes which proposed:

1. a declaration that the trust has terminated, and

2. a direction that he would be justified in retiring as trustee pursuant to Trustee Act, s 8.

11. An alternative set of short minutes proposed directions that he would be justified in:

1. Treating the trust as having terminated; and

2. Retiring as trustee.

12. Accordingly, there are broadly two issues: (1) termination of the trust, and (2) retirement of Mr Chamberlain as trustee.

Termination

13. In the absence of provision in the trust instrument, a trust cannot be wound up in the same way as a company. A trust is not a legal entity, as a company is. There is no statutory right or power to wind up or terminate a trust, and generally speaking it is unconventional to speak of “winding up” a trust. [10] Moreover, courts do not normally make declarations to resolve hypothetical issues, or in the absence of a contradictor. The application for an order or declaration that the trust be wound up or terminated misconceives the nature of a trust. Counsel was unable to identify any jurisdictional basis for such an order. Moreover, even the notion of a trust being “terminated” is somewhat misleading, as the absence of trust property does not necessarily relieve a trustee of responsibility in respect of antecedent breaches.

    10. Park & Muller (liquidators of LM Investment Management Ltd) v Whyte (receiver of the LM First Mortgage Investment Fund) [2015] QSC 283 at [19]; Fordyce v Ryan [2016] QSC 3017 at [50]. The cases on managed investment schemes are irrelevant, because Corporations Act, s 601EE, makes specific provision for the court to make such orders as it considers appropriate for the winding up of a scheme.

14. There are however circumstances in which a trust will come to an end. The “winding up” of a trust involves the performance of the trusts so as to result in their discharge, and thus the termination of the trust. [11] It has been said that the “winding up” of a trust is “a mechanical process which has to be gone through as a matter of practicality in order to fulfil the aim of the deed, where the deed in itself is silent”, and that it is “really just another instance of the court in its implied powers applying a sort of cy pres scheme of management in order to fulfil the trust”; [12] however, I do not think that any cy pres element is involved: the “winding up” of a trust involves no more and no less than the transfer of the trust property to those beneficially entitled under and in accordance with the trust instrument, which has the consequence that, there being no longer any trust property in the hands of the trustee, the trusts are extinguished.

    11. In re Stacks Managed Investments Ltd [2005] NSWSC 753 at [42]-[44].

    12. Horwath Corporate Pty Limited v Huie [1999] NSWSC 583 at [19].

15. In the present case, clause 10 of the trust instrument makes provision for the “winding up” of the trust:

10 (i)   The trust shall be wound up and terminated on the first to occur of:

(a) the date the trustee with the written consent of the appointor determines; or

(b) 80 years from the date of this deed.

(ii)    Subject to any provisions of this deed which limits or restricts distribution of the capital of the Trust Fund the trustee shall at the determination date:

(a) Pay out or otherwise discharge and satisfy all debts and liabilities in relation to the trust;

(b) Distribute or otherwise deal with the income of the trust in any manner expressly provided by this deed and any income not so dealt with shall form part of the capital of the trust;

(c) Distribute or otherwise deal with the capital of the trust in any manner herein provided;

(d) To the extent to which the capital of the trust shall not have been so distributed or dealt with the trustee shall stand possessed of so much as remains of the trust Fund for the following default beneficiaries as shall then be living and if more than one in equal shares as tenants in common:

aa) any of the issue of John Prosper Cullen; and

bb) in the event of the whole or any part of the Trust Fund failing to vest in any one or more beneficiaries as aforesaid the trustee shall hold the same upon trust for the Rotary Club of Wagga Wagga.

16. It is evident that in that context, the notion of “winding up” means no more than that, upon the vesting date, the trust assets be distributed to those beneficially entitled, in accordance with the trust instrument.

17. The conditions for the operation of clause 10 have not been satisfied: eighty years have not elapsed, and the appointor has not consented to the trustee fixing an earlier vesting date. Although Mr Cullen, the appointor, has indicated that he does not wish to be heard on the application, [13] he has not consented to the winding up of the trust or the acceleration of the vesting date; rather, he has indicated only that he wants nothing more to do with the matter.

    13. Email from Simon Finch (solicitor for Mr Cullen) to Kirsten Farmer (solicitor for liquidator) of 18 October 2017: annexure A to affidavit of K.P. Farmer of 27 October 2017.

18. At least so far as I have been able to ascertain, there is a dearth of authority on the “winding up” of an insolvent trust (other than in the context of managed investment schemes, in respect of which corporate analogies are provided by statute). However, that is unsurprising, because a trust does not have creditors or debtors: the trustee is personally liable to creditors [14] and entitled as against debtors, but has a right of indemnity against trust property to satisfy its liabilities to creditors (and a duty to account to beneficiaries in respect of recoveries from debtors). [15]

    14. As against a third party, a trustee is personally liable for debts and liabilities incurred in its capacity as trustee: Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367; Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550; [2008] NSWSC 1344 at [14]; Commonwealth of Australia v Matthew James Byrnes and Stewart Reed Hewitt in their capacity as joint and several receivers and managers of Amerind Pty Ltd (receivers and managers appointed) (in liquidation) [2018] VSCA 41 at [20]; Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40 (‘Jones’) at [34].

    15. The trustee has a right of indemnity out of the trust assets for expenses or liabilities incurred by the trustee, by recoupment of expenditure and exoneration from liability: Octavo Investments v Knight (at 367); Chief Commissioner of Stamp Duties for New South Wales v Buckle (1998) 192 CLR 226 at 245; Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550; [2008] NSWSC 1344 at [15]. The trustee’s right of indemnity may be sourced in equitable principle, the terms of the trust, and/or statute (in this case, (NSW) Trustee Act 1925, s 58(4)): Jones at [37].

19. As a matter of principle, however, it can be said that, given that the essential elements of a trust of property are (a) a trustee, (b) a beneficiary, (c) trust property, and (d) a personal obligation annexed to that property, then if there is no trust property, there can be no trust. The existence of a trust of property is dependent upon there being trust property. Accordingly, once a trust has been duly emptied of all its assets, there can be no trust. [16] It follows that if the trustee’s right of indemnity exhausts the trust property, then the trusts must thereupon be extinguished, because there is no remaining trust property to which they can be annexed. In other words, if, by reason of the exercise of the trustee’s right of indemnity, there is no remaining trust property, then there can no longer be any trust.

    16. Underhill & Hayton, Law Relating to Trusts and Trustees, 17th ed, [27.2].

20. A trustee’s right to be indemnified from the trust assets in respect of liabilities incurred as trustee is an equitable lien on the trust assets which takes priority over the claims of beneficiaries. [17] Upon liquidation of a trustee company the right of indemnity vests in the liquidator, [18] and upon appointment of a replacement trustee, the lien survives and the new trustee takes subject to the lien of the old trustee – except perhaps in the exceptional case of a bona fide purchaser for value without notice. [19]

    17. Octavo Investments v Knight (at 367, 370); Chief Commissioner of Stamp Duties for New South Wales v Buckle (at 246); Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550; [2008] NSWSC 1344 at [16].

    18. O'Neill, Official Assignee of v O'Neill (1898) 16 NZLR 628; Jennings v Mather [1901] 1 KB 108 at 117; Savage v Union Bank of Australia Ltd (1906) 3 CLR 1170 at 1188, 1196; Octavo Investments v Knight; Re Suco Gold Pty Ltd (In Liq) (1983) 33 SASR 99 at 109; Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550; [2008] NSWSC 1344 at [20].

    19. Belar Pty Ltd (In Liq) v Mahaffey [2000] 1 Qd R 477 at [20]; Octavo Investments v Knight (at 370); Chief Commissioner of Stamp Duties for New South Wales v Buckle (at 246); Re Exhall Coal Co Ltd (1866) 55 ER 970; Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550; [2008] NSWSC 1344 at [21].

16. Thus, in this case, the former trustee (of which Mr Chamberlain is the liquidator) is entitled to be indemnified, by recoupment or exoneration, from the trust assets for its liabilities incurred as trustee, and has a charge over the trust assets securing that right of indemnity. As the company’s sole function was to act as trustee of the Trust, and as it is insolvent, its right of indemnity from the trust assets will necessarily exhaust the trust assets. The trust creditors, other than the Commissioner, have been paid in full. The Commissioner is a party to the settlement in the Family Court, and does not oppose the relief sought by the plaintiff. [20] As the rights of creditors against the company have been modified with the Commissioner’s consent, distribution of trust assets direct to the creditors in accordance with the directions made by Bennett J will effectively implement the satisfaction, by way of exoneration, to the extent that the trust assets permit, of the company’s right of indemnity. Once a final dividend has been paid, there will be no remaining trust property to which the trusts can attach, and thereupon the trusts will be extinguished. Thus, when Mr Chamberlain no longer holds any property in his capacity as trustee, then the Trust will be at an end. That is not the result of any order of the Court or decision of the trustee, but because there will then be no remaining trust property.

    20. Letter from ATO to Kirsten Farmer of 2 November 2017: annexure B to affidavit of C.M. Chamberlain of 2 November 2017.

17. However, at present Mr Chamberlain still retains some trust funds, albeit that they will be paid ultimately to creditors in partial discharge of the former trustee’s right of indemnity. In those circumstances, it cannot yet be said that the trust is at an end, though it will be when there is no longer any trust property. The Trust will be at an end when its remaining assets are paid to the Commissioner in part satisfaction of the former trustee’s tax debt.

Retirement

23. Normally, the right of indemnity of a trustee company which goes into liquidation is enforced in circumstances such as the present by appointment of the liquidator as receiver of the trust property. [21] In such a case, once the objects of the receivership have been achieved, the Court will permit the receiver to retire. In this case, however, Mr Chamberlain was appointed not as a receiver, but as replacement trustee. It has been said that that course may be appropriate in circumstances where the corporate trustee is insolvent, and there is also a deficiency of trust assets against liabilities and no prospect of assets being available for beneficiaries or of any conflict of interest. [22] However, as will appear, this course has the potential to create difficulties and complexities, because once appointed as trustee the liquidator has fiduciary responsibilities to the beneficiaries, and is bound by the terms of the trust instrument and the statutory provisions relating to trustees.

    21. Cf Re Indopal Pty Ltd (1987) 12 ACLR 54; In the matter of Gramarker Pty Ltd; Clifford Sanderson (as liquidator of Gramarker Pty Limited) v Simon Kerr [2014] NSWSC 243

    22. Grime Carter & Co Pty Ltd v Whyte’s Furniture (Dubbo) Pty Ltd [1983] 1 NSWLR 158; (1983) 7 ACLR 540; cf Irvine v Australian Sharetrading and Underwriting Ltd (1996) 22 ACSR 765 at 779.

24. In this context, “retirement” involves a voluntary act of a trustee, in circumstances where the trust continues. A trustee who has accepted the trusts cannot retire except in accordance with the provisions of the trust instrument (if it authorises it), or upon appointment of a new trustee pursuant to a statutory power of appointment, or in accordance with a statutory right to do so, or with the permission of the court. [23]

    23. Heydon JD and Leeming MJ, Jacobs Law of Trusts in Australia, 8th ed [15-76] (‘Jacobs’).

25. Although providing for removal and replacement of the trustee by the appointor, the trust instrument contains no provision for the retirement of the trustee. It is true that clause 6(iv) refers in passing to retirement, in providing that “upon the resignation, retirement or removal of a trustee”, the trustee shall hand to the new trustee all books and records of the trust, but that is not a provision authorising retirement: it merely imposes an obligation consequent upon retirement, where it is otherwise authorised.

26. As to a statutory power, provision for retirement is made by (NSW) Trustee Act 1925, s 8, as follows:

8   Retirement

(1)  A trustee may by registered deed retire from the trust without any new trustee being appointed in the trustee’s place.

(2)  A trustee may not so retire, unless the trustee’s co-trustees and such other person, if any, as is empowered to appoint trustees, consent by the same or other registered deed to the retirement, and there will be left after the retirement at least two continuing trustees, or the NSW Trustee, or a trustee company, to perform the trust.

(3)  Two or more trustees may retire concurrently.

(4)  By the retirement the trustee shall be discharged from the trust, provided that, if in order to vest any part of the trust property in the continuing trustees alone, it is necessary that it should be duly transferred, the retiring trustee shall not be discharged in respect of that part until it is duly transferred.

(5)  At any time after the registration of the deed or deeds of consent and retirement the continuing trustees shall have the same powers authorities and discretions, and may in all respects act as if the retiring trustee were wholly discharged from the trust.

(6)  Any conveyance or thing required for vesting the trust property in the continuing trustees alone shall be executed or done.

(7)  Nothing in this section shall authorise any retirement from the office of an executor or administrator.

(8)  This section applies only if and as far as a contrary intention is not expressed in the instrument, if any, creating the trust, and shall have effect subject to the terms of that instrument and to the provisions therein contained.

(9)  This section applies to trusts created either before or after the commencement of this Act.

27. Under this provision, a trustee may retire without replacement if the minimum prescribed number of trustees remain, with the consent of the appointor (and of the continuing trustees). Mr Chamberlain does not have the consent of the appointor Mr Cullen to retire, as is required by s 8(2). Should he retire, no trustee would be left after his retirement to perform the trust, whereas it is a condition of the entitlement of a trustee to retire under s 8 that at least two should remain. Accordingly, Mr Chamberlain is not authorised to retire under s 8.

28. A trustee who desires to retire and is otherwise unable to do so may apply to the court for leave to do so, and the court has inherent jurisdiction to permit a trustee to retire, and in practice will do so, where the court appoints a new trustee to act, or where there are other continuing trustees, although at least in the absence of good cause the retiring trustee may be required to bear the cost. [24] However, the Court will not allow a trust to be without a trustee. As there is no continuing trustee, and the Court is not asked to appoint a replacement trustee, and Mr Chamberlain intends to administer the remaining trust assets to the point that there will be none and no continuing trust, it is not appropriate to permit Mr Chamberlain to retire.

    24. Jacobs, [15-81]-[15-83]; Forshaw v Higginson (1855) 20 Beav 485 at 487; 52 ER 690 at 691; Re Eggleston [1940] VLR 474; In re Moore’s Will; Moore v Willis (1901) 1 SR (NSW) Eq 148.

29. Retirement is distinct from discharge. Upon completion of a trusteeship, by distribution of the trust property to those beneficially entitled, a trustee is entitled to have its accounts examined and settled – by the beneficiaries if all sui juris – and a formal discharge on settled account given. If the beneficiaries are not all sui juris, or will not give a formal discharge on settled account, then the trustee is entitled to have its account taken by the Court. [25]

    25. Chadwick v Heatley (1845) 2 Coll 137; 63 ER 671; Jacobs, [2130]. See also Wales v Wales [2015] VSCA 345.

30. As it seems to me, Mr Chamberlain may well be entitled to have his accounts taken and passed by the Court – all the more so where he was appointed by the Court. To do so he would have to bring in an account of all his receipts and expenditure in his capacity as trustee, and (as the trust remains a discretionary one) give notice as directed by the Court, which would likely be to Mr and perhaps Mrs Cullen, and/or some other person who might be appointed to represent the class of beneficiaries. The passing of his accounts would provide a measure of closure, but it would not involve a formal release. The material currently before the Court is inadequate to permit any taking and passing of accounts. Whether it would really be of any practical benefit for Mr Chamberlain to have his accounts passed may be doubted.

Judicial advice

31. Although it follows from the foregoing that the declarations and directions sought by Mr Chamberlain should not be granted, I have considered whether he should be given some other advice or relief.

32. It is now well-established that the circumstances in which judicial advice under s 63 may be given to a trustee are not as a matter of jurisdiction confined to particular classes. [26] However, as a matter of discretion, while the Court stands ready to assist a trustee, it should not encourage a proliferation of applications for advice, and the associated cost to the trust estate, where advice is not required.

    26. 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.

33. Here, the trustee is not in truth seeking advice in respect of any proposed course of action. The application is born not of being confronted with a potentially controversial or difficult act or decision, but from confusion. In those circumstances, it is not appropriate to give a professional trustee formal judicial advice, which will neither provide protection of the trustee, nor advance the interests of the trust.

34. While, generally speaking, a trustee is entitled to costs from the trust property for a properly brought application for judicial advice, the right of indemnity is confined to expenses properly incurred. [27] This application was not only unsuccessful, but also unnecessary and misconceived. There is no good reason why the beneficiaries or creditors should have to bear its costs.

    27. Wales v Wales [2015] VSCA 345 at [41]-[42].

Conclusion

35. The Trust has not terminated, but the trusts will be extinguished upon all the trust property being exhausted by exercise of the trustee’s right of indemnity, in conformity with the directions made by Bennett J. There is no basis for permitting the trustee to retire, nor any need to do so in circumstances where the trusts will be extinguished. It is not appropriate to give any judicial advice.

36. Mr Chamberlain may well be entitled to have his accounts taken and passed by the Court. To do so he would have to bring in an account of all his receipts and expenditure in his capacity as trustee, and (as the trust remains a discretionary one) give notice as directed by the Court, which would likely be to Mr and perhaps Mrs Cullen, and/or some other person who might be appointed to represent the class of beneficiaries. Whether it would really be of any practical benefit for Mr Chamberlain to have his accounts passed may be doubted. If he desires to pursue that course, I will make directions for the taking of his accounts. Otherwise, the originating process will be dismissed.

37. Subject to any application for directions for the taking of accounts, I propose to make orders that:

1. The originating process be dismissed;

2. The trustee not be entitled to his costs of the application from the trust property.

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Endnotes

Decision last updated: 03 October 2018