In the Matter of the Trusts Act and Penny

IN THE SUPREME COURT
OF QUEENSLAND
Brisbane
Before Justice Wilson
O.S. No. 10899 of 1998
[In the Matter of the Trusts Act and Penny]

IN THE MATTER of the Trusts Act 1973
- AND-

IN THE MATTER of an application by
RHONDA CAROL PENNY as Trustee for
Directions

CATCHWORDS: TRUSTS - application for directions pursuant to s 96 of the Trusts Act 1973 - trust created in compromise of proceedings - moneys held on trust prior to registration of transfer of land - whether lodgment of caveat was beyond control of the parties - whether a matter for the trustee in the exercise of a fiduciary discretion

Trusts Act 1973 s 96

Counsel: Mr M Amerena for the applicant
Mr B Laverty in person
Mr M Daubney for Mr L Gamble

Solicitors: Rhonda Penny & Associates for the applicant
Deacon & Milani for Mr L Gamble

Hearing date: 19 February 1999
REASONS FOR JUDGMENT - WILSON J.

Delivered the 11th day of June 1999

This is an application by Rhonda Carol Penny as trustee of the sum of $75,000 for directions pursuant to s 96 of the Trusts Act 1973.
The background
On 28 July 1989 a parcel of land in Fiji was transferred to Helen Ruth Stubbings as to two undivided third shares and Maureen Clare Kelly as to one undivided third share. In about February 1991 it was decided to develop the land as a restaurant and accommodation facility for backpackers. A partnership was formed between Stubbings and her husband Bernard Joseph Laverty (known as Brian Laverty) as to two third shares and Kelly as to a one third share.
In 1992 they needed more funds and an American Daniel Patrick Collins invested approximately US$50,000. He acquired “one sixth interest” in the land. The only document evidencing this is a receipt dated 15 March 1992 signed by Stubbings and Kelly. It is in the following terms:
“This paper acknowledges payment received from Daniel Patrick Collins of 302/8755 Shoreham Drive Los Angeles, the amount of US$25,000 this sum being the first of two equal payments in the purchase of a sixth share of Lot 2 DP 6293 on CT 24918 Nananu-I-Ra Fiji.
The shareholding under purchase entitles the purchaser to an undivided one sixth shareholding in the aforementioned land including all improvements which includes restaurant and accommodation.
This paper also advises that this land is unencumbered (ie no mortgages or liens) being held by others than the currently registered owners Helen Ruth Stubbings and Maureen Clare Kelly.
The purchase also includes the already received permission from the government of Fiji by way of planning/construction approval and work permits as issued to Stubbings and Kelly. ”
There is a dispute whether Collins acquired part of Stubbings’ interest in the land only or whether he also acquired part of Kelly’s interest. The moneys were sourced from Pepper Distribution Co., a company controlled by Collins in the United States.
In time the parties fell out amongst themselves. In June 1993 proceedings were issued in the High Court of Fiji in relation to the dissolution of the partnership between Stubbings and Laverty on the one hand and Kelly on the other. In August 1994 proceedings between Laverty and Kelly were commenced in a Magistrates Court in Queensland involving claim and counterclaim of defamation.
The compromise
On 9 March 1995 the partnership and defamation proceedings were compromised. Four documents were executed. They are exhibited to an affidavit of Ms Penny sworn on 22 December 1998.
Ex RCP3: a document signed by Stubbings and Laverty on the one hand and Kelly on the other by which the settlement, of each action is made dependent on settlement of the other, and the terms of settlement of the Magistrates Court action are set out;
Ex RCP4:a deed signed by Stubbings, Laverty and Kelly containing the terms of settlement of the Fijian action;
Ex RCP5:a document signed by Stubbings and Laverty entitled “Authority to Disburse Funds”;
Ex RCP6:a document signed by Ms Penny entitled “Acknowledgement and Undertaking”.
By the deed ex RCP4, Laverty and Stubbings undertook to pay Kelly AUD$75,000 in consideration of the transfer to them of “her legal and any equitable interest claimed by her in the land”. The payment was to be made in two stages: $5,000 by 14 March 1995 and $70,000 on written advice from Inoke (Kelly’s solicitor in Fiji) that the transfer and any other documents necessary to effect transfer of the land were ready for lodgment. (It was contemplated that the transfer should be to Stubbings and/or Laverty or at their direction. In due course they gave a direction that the transfer should be to Nananu Backpackers Pty Ltd, a company controlled by Laverty and Lyall Gamble.) Kelly undertook to cause the documents to be lodged for registration forthwith upon payment of the $70,000.
The moneys came into the trust account of Ms Penny, a Brisbane solicitor, pursuant to clauses 2 and 3 of the deed, which were in the following terms:
“2.That the moneys paid pursuant to Clause 1 hereof shall be invested by Rhonda Penny and Associates in an interest bearing deposit with the Commonwealth Bank of Australia in the name of Rhonda Penny & Associates on trust for Stubbings and/or Laverty until the moneys become either refundable or payable to Kelly pursuant to Clause 4 hereof.
3.That any and all interest earned on the account referred to in paragraph 2 hereof, be the property of Kelly and upon payment out of the principal for whatever reason the interest shall be forthwith payable to Kelly.”
Ms Kelly was obliged to deal with the moneys in accordance with clauses 4, 9 and 10 of the deed which were in the following terms:
“4.That upon written notice from Inoke to John Nagel & Co Solicitors and to Rhonda Penny & Associates that Title in the land has registered in the name of Stubbings and/or Laverty and/or such other person and/or legal entity as directed by them, Stubbings and Laverty irrevocably authorise Rhonda Penny to pay from her trust account the purchase price of AUD$75,000.00 and any interest accrued thereon to Kelly.
9.If the documents referred to in clause 1(b) are not lodged by Kelly or her agent pursuant to clause 1(c) within 14 days of the date of payment in of the moneys referred to in clause 1(b) then the whole of the $75,000.00 becomes refundable to Laverty and Stubbings on written demand by Laverty to Rhonda Penny and Associates, and the parties hereby irrevocably authorise Rhonda Penny and Assoc to pay the said $75,000.00 to Laverty and Stubbings, and this agreement will be at an end upon such payment.
10.If upon payment of the $75,000.00 to the trust account of Rhonda Penny & Associates, and subsequent to lodgment of any and all documents referred to in clause 1(b) hereof, for any reason beyond the control of the parties the title in the land is not registered to Laverty and/or Stubbings and/or at their direction, then the whole of the $75,000.00 becomes refundable to Laverty and Stubbings on written demand by Laverty to Rhonda Penny and Associates, and the parties hereby irrevocably authorise Rhonda Penny & Assoc to pay the said $75,000.00 to Laverty and Stubbings and this agreement will be at an end upon such payment.”
By clause 13 time was made of the essence.
Mr Laverty, who appeared in person to respond to this application for directions, contends that in the circumstances which have arisen the moneys should be refunded to Stubbings and him. On 22 June 1998 he wrote to Ms Penny demanding that this be done (ex RCP35). He pointed to clauses 10 and 13 of the deed and to ex RCP6, which is in the following terms:-
“ACKNOWLEDGEMENT AND UNDERTAKING
I, Rhonda Carol Penny, acknowledge that any moneys paid into my trust account by Brian Laverty in respect of the transfer of land from Maureen Kelly to Brian Laverty and Helen Stubbings on behalf of my client Maureen Clare Kelly shall be held by me on trust for Brian Laverty and Helen Stubbings and where the registration of the Certificate of Title into the name of Brian Laverty and/or Helen Stubbings does not take place I undertake to pay the whole of the monies, except for the interest earned thereon, to the trust account of John Nagel and Company forthwith upon notification by Sosefo Inoke that the transfer has not registered.
(signed) RHONDA CAROL PENNY”
Events since the compromise
On 14 March 1995 the sum of $5,000 was paid into Ms Penny’s trust account. On 14 August 1995 the sum of $70,000 was paid into that trust account. On 25 August 1995 Inoke wrote to Munro Leys & Co (Stubbings and Laverty’s solicitors in Fiji) advising that he had been instructed to arrange the stamping of the transfer and registration and asking when it would be convenient. On 2nd October 1995 Munro Leys & Co took custody of the documents for stamping.
The caveat
In the meantime, on 15 September 1995 Collins had lodged a caveat forbidding registration of any transfer or other instrument affecting the land absolutely or until the caveat was withdrawn by him or by order of the Supreme Court or until it had been removed under s 110(1) of the Land Transfer Act (Fiji) (ex RCP25).
There were some attempts to have the caveat removed. The exact procedure followed is not clear. In paragraphs 28 and 34 of her affidavit Ms Penny deposed as follows:-
“28. I am informed by Mr Inoke and verily believe that in or about December 1995 Ms Stubbings brought an application in the High Court of Fiji to remove Mr Collins’ caveat (Exhibit RCP 25). I am further informed by Mr Inoke and verily believe that that application was dismissed on the 9th February 1996 when Ms Stubbings or her legal representatives failed to appear. At that time Mr Inoke was appearing on behalf of my client Ms Kelly and had instructions to neither oppose nor consent to the application for the removal of the caveat.
...
34. In or about late 1996 Ms. Kelly made application in the High Court of Fiji at Suva in the Collins action to have the Caveat (Exhibit “RCP25") removed. She failed in that application. Now produced and shown to me and marked “RCP31" is, I am informed by Mr. Inoke and verily believe, a true and correct copy of the Reasons for Decision of His Honour Judge Scott in dismissing Ms. Kelly’s application to remove the Caveat.”
Collins commenced proceedings against Stubbings and Kelly in February 1996. He sought (inter alia) a declaration that Stubbings and Kelly held the land and the buildings as constructive trustees for him and themselves in such proportions as the Court might determine and an order for sale. In the amended Statement of Claim in those proceedings delivered on 4 November 1996 (part of ex RCP26) the following allegations were made.
“16. On 15 September 1995, the Plaintiff’s Solicitors lodged a caveat (No. 384813) (“the caveat”) on the title of the Land.
17.Pursuant to the Proposed Transfer by the Defendants [Stubbings and Kelly] to Nananu Backpackers, on or about 2nd October 1995 a transfer document (signed by both Defendants) was lodged with the Registrar of Titles, Suva, Fiji.
18.On the 12 December 1995 the first defendant [Stubbings] made application to the Registrar of Titles under Section. 110 of the Land Transfer Act for the removal of the caveat.
19.On 5 February 1996 the Plaintiff [Collins] applied to this Honourable Court, under Section 110 of the Land Transfer Act, for an extension of time for the removal of the caveat.
20.On 9 February 1996, the Honourable Mr Justice M.D. Scott ordered that until further order:
(a)the time for removal of the Caveat is extended;
(b)the defendants are restrained whether by themselves and/or through their servants, agents or otherwise howsoever from selling, transferring, assigning or in any manner whatsoever disposing of the land.
21.Since 9 February 1996, no further order has been made by this Honourable Court in this action.”
Stubbings and Kelly delivered separate defences to the amended Statement of Claim. They both admitted the allegations in paragraphs 17-21. Apparently nothing further has been done to progress the action in the Fijian Court.
It is common ground that the presence of the caveat is the obstacle to registration of the transfer.
Issues in this application
The issues which arose before me included:
(a) whether the presence of the caveat preventing registration is “any reason beyond the control of the parties”;
(b) whether that is a matter for the trustee to decide in the exercise of a fiduciary discretion; (c) whether it is a matter to be determined by the court which would, of course, give due consideration to the opinion of the trustee.
The trustee’s stance
It was submitted on behalf of Ms Penny that it is a necessary implication that the trustee should be the one to decide whether there is a circumstance beyond the control of the parties. It was submitted that this would be necessary in order to give business efficacy to the document. It was submitted that trust arrangements would inevitably break down if trustees could not exercise discretions of this nature.
Ms Penny’s view is set out in paragraph 44 of her affidavit as follows:-
“44. I have formed the personal view of the matters in dispute that it was the mutual intention of Mr. Collins, Mr. Laverty and Ms. Stubbings and Ms. Kelly that Mr Collins was purchasing a share in the land out of Ms. Stubbings’ legal interest, not out of Ms. Kelly’s legal or equitable interest and that all moneys paid by Mr. Collins to Mr. Laverty, or further or alternatively, to Ms. Stubbings were paid to them personally and not in any respect to Ms. Kelly. At the present time I am therefore satisfied that it is within Mr. Laverty’s and Ms Stubbings’ control and it would be quite just for them to duly acknowledge Mr. Collins’ interest over Ms. Stubbings’ interests in the land, but not Ms. Kelly’s interest in the land, thus causing the Caveat to be removed and permitting the registration of the Transfer to proceed. On the other hand, if the view I presently take is wrong and either Mr. Collins does not have any interest in the land whatsoever, or if he has an interest in the land it is an interest claimable over both Ms. Stubbings’ legal interest and Ms. Kelly’s legal interest, then Mr. Laverty and Ms. Stubbings could have established this by causing the prompt litigation of the Collins’ action. However, they, and for that matter Mr. Collins, appear disinclined to take this course.”
For the Court to decide
I do not accept that it should be presumed that the parties intended that the trustee should determine this issue. It is a common feature of legal documents that parties leave circumstances to be judged objectively. In the absence of an agreement that such judgment should be made by one of the parties or by an independent person, it is a matter for the court. This is a role with which the courts are familiar and which they are well able to fulfil. The present agreement would not be unworkable if the determination of this question were left to the court.
The trustee has acted quite properly in seeking directions from the court, and it is proper that her views be given due consideration.
Whether beyond the control of the parties
Underlying the presence of the caveat is the dispute between Collins on the one hand and Stubbings and Kelly on the other. He has commenced proceedings against both Stubbings and Kelly. That dispute is properly before the Fijian Court, and it is not for me to determine its merits. 22 My attention was directed to indemnities contained in clause 5 of the deed ex RCP4 in the following terms:-
“Upon such payment referred to in clause 4 herein:-
...
(b)Laverty and/or Stubbings shall indemnify Kelly in connection with any debts and/or liabilities owed and/or accruing in relation to the business relationship of the parties conducted in connection with the land, such indemnity to include but not be limited to the following:-
(i)any and all liabilities to Westpac;
(ii)debt to Vinod Patel;
(iii)debt to Flying Prince;
(iv)debt to Dosoo’s;
(v)debt to Telecom; and
(vi)debt to Ragg & Raine Association.
(c)Laverty and Stubbings shall indemnify Kelly against any claim and/or prosecution arising as a result of the transfer of title in the land from Kelly and Stubbings to Stubbings and/or Laverty and/or at their direction.”
The payment referred to in clause 4 is payment of $75,000 from Ms Penny’s trust account to Kelly after notice from Kelly’s solicitor (Inoke) that the transfer has been registered.
Counsel for Ms Penny submitted that the parties intended to resolve once and for all as between Kelly, Stubbings and Laverty all issues touching upon and concerning the failed partnership and its land, and that these indemnities were plainly wide enough to confer on Kelly the benefit of being protected from a claim such as that made by Collins.
Kelly, Stubbings and Laverty all acknowledge that Collins has some interest in the land, and that the real question is the extent of that interest and the extent of the remaining interests of Kelly and Stubbings. By the terms of the deed Laverty and Stubbings have agreed to pay $75,000 for Kelly’s “legal and any equitable interest claimed by her in the land.” It is arguable that if Collins is entitled to part of Kelly’s share in the land, she has an obligation to him which can properly be described as a liability owed or accrued in relation to the business relationship of Kelly, Stubbings and Laverty conducted in connection with the land (indemnity Clause 4(b)). I do not think that Collins’ claim can be described as one arising as a result of the transfer of the title in the land from Kelly and Stubbings to Stubbings and/or Laverty and/or at their direction (indemnity Clause 4(c)), since the claim is clearly one arising before the transfer.
The resolution of Collins’ claim requires involvement by Kelly as well as Stubbings, even if Stubbings and Laverty have to indemnify her against the claim. I am not satisfied that it is beyond the power of the parties (Kelly, Stubbings and Laverty) to have the Fijian proceedings brought to a head or compromised, and so to have the caveat removed. Until this is done, the moneys must remain in the trust account.
Mr Laverty has been critical of Ms Penny’s conduct in relation to the compromises and subsequently. This is not an application to discipline her or to remove her as trustee. Indeed, I would not regard material before me as establishing grounds for doing either. She acted properly in bringing the matter before the court, and there is nothing to suggest that the view she took (which I have found to be wrong) was taken other than in good faith and the conscientious discharge of her duty as she saw it. There is one matter which deserves comment. The caveat was lodged on 15 September 1995. Clearly this was not unexpected by Ms Penny. In her letter to Inoke of 7 August 1995 (ex RCP15) she referred to discussion with Collins’ solicitor concerning lodging a caveat. While she did not write to Stubbings and Laverty’s solicitors (Munro Leys & Co in Fiji or John Nagle & Co in Queensland) in the same terms, Stubbings and Laverty had that separate representation and they ought reasonably to have anticipated this move on Collins’ part. It would hardly have been in the interests of Ms Penny’s client Kelly for the caveat to be lodged: she was to receive $75,000 upon registration of the transfer.
Form of orders
I will hear from counsel for Ms Penny and from Mr Laverty on the form of orders to be made in the light of this decision.
Summons filed by Gamble
There is another summons before me, filed by Lyall Gamble. The $75,000 which Laverty and Stubbings paid into the trust account was sourced from Gamble. Gamble’s counsel asked that the summons be adjourned pending determination of the trustee’s application for directions. His position was that if I determined that the moneys were to stay in Ms Penny’s trust account, he would abide that order and have nothing to say in respect of it; if I were of the contrary view, then he would want to be heard on whether the moneys should be paid to or at the direction of Mr Laverty or whether they should be paid into court.

I will hear from Gamble’s counsel as to the formal orders to be made on his summons.

[1999] QSC 127

11 June 1999