Jeffrey Laurence Herbert as trustee for the Blenkinsop Family Trust as trustee for the Blenkinsop Family Trust No 2 v Blenkinsop [No 2] - [2019] WASC 389

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   JEFFREY LAURENCE HERBERT as trustee for THE BLENKINSOP FAMILY TRUST AS TRUSTEE FOR THE BLENKINSOP FAMILY TRUST NO 2 -v- BLENKINSOP [No 2] [2019] WASC 389
CORAM:   ALLANSON J
HEARD:   25 OCTOBER 2019
DELIVERED          :   1 NOVEMBER 2019
FILE NO/S:   CIV 2825 of 2017
BETWEEN:   JEFFREY LAURENCE HERBERT as trustee for THE BLENKINSOP FAMILY TRUST AS TRUSTEE FOR THE BLENKINSOP FAMILY TRUST NO 2
Applicant
AND
JUDITH ANN BLENKINSOP
First Respondent
KIM ROSINA HOLLAND
Second Respondent
SCOTT FREDERICK BLENKINSOP
Third Respondent
TRACEY ANN JAKOVICH
Fourth Respondent
CHRISTINE MARION THURTELL
Fifth Respondent
ROSS ALEXANDER BLENKINSOP
Sixth Respondent

Catchwords:

Trusts and trustees - Where trustee seeks direction regarding settlement of claims against trust property - Whether full consideration given and proper advice taken

Trusts and trustees - Where trustee seeks advice regarding allocation of settlement sum between two trust funds

Legislation:

Trustees Act 1962 (WA), s 92, s 95

Result:

Advice given

Category: B

Representation:

Counsel:

Applicant	:	S Wong
First Respondent	:	C R Bailey
Second Respondent	:	No appearance
Third Respondent	:	In person
Fourth Respondent	:	No appearance
Fifth Respondent	:	No appearance
Sixth Respondent	:	No appearance

Solicitors:

Applicant	:	HWL Ebsworth Lawyers
First Respondent	:	Williams & Hughes
Second Respondent	:	No appearance
Third Respondent	:	In person
Fourth Respondent	:	No appearance
Fifth Respondent	:	No appearance
Sixth Respondent	:	No appearance

Case(s) referred to in decision(s):

Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247
Australian Executor Trustees Ltd v Attorney General (WA) [2015] WASC 439
Herbert as Trustee for the Blenkinsop Family Trust and as Trustee for the Blenkinsop Family Trust No 2 v Blenkinsop [2018] WASC 369
In Re Beddoe (1893) 1 Ch D 547
Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar; [2008] HCA 42; (2008) 237 CLR 66
Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187
Plan B Trustees Ltd v Maitland Parker [2012] WASC 392
Re Perpetual Trustee Company Limited [2010] NSWSC 1403

ALLANSON J:

Background

Jeffery Laurence Herbert is the trustee of two family trusts: the Blenkinsop Family Trust and the Blenkinsop Family Trust No 2.[1] Mr Herbert seeks advice and direction pursuant to s 92 of the Trustees Act 1962 (WA) as to whether he is justified in settling claims by Judith Ann Blenkinsop against each trust. Judith Blenkinsop is a beneficiary but brings her claims alleging that she is a creditor of the trusts.[2]
[1] I will refer to them as Trust No 1 and Trust No 2.
[2] For clarity in these reasons I will refer to members of the Blenkinsop family by their given name and family name.
The Blenkinsop Family Trusts are discretionary trusts. The six defendants are beneficiaries, but not the only beneficiaries.
Trust No 1 was created in 1973. The primary beneficiaries of Trust No 1 are the children of Judith Blenkinsop and her late husband (Fred), their children and remoter issue, and their respective husbands, wives, widowers and widows for the time being. The general beneficiaries are the primary beneficiaries and Judith Blenkinsop. Trust No 1 vests in 2023.
Trust No 2 was created in 1993. The primary beneficiaries are the children of Judith and Fred Blenkinsop. General beneficiaries include the primary beneficiaries, Judith Blenkinsop, and others. Trust No 2 vests in 2072.
The third defendant, Scott Blenkinsop, is a primary and general beneficiary of both trusts. He is the only beneficiary who appeared on the application. Scott Blenkinsop filed affidavits and submissions.
This is the second time the application has been before me. The application was initially brought by originating summons filed on 26 October 2017. In reasons published on 30 November 2018,[3] I refused to make the directions sought. In summary, I found that the legal advice that had then been obtained by the trustee had been given before the proposed settlement agreement and before the statement of claim had been amended. I was not able to determine whether proper consideration had been given to the claims and the prospects and consequences of defending them, and I could make no finding whether the proposed directions would protect the interests of all beneficiaries.
[3] Herbert as Trustee for the Blenkinsop Family Trust and as Trustee for the Blenkinsop Family Trust No 2 v Blenkinsop [2018] WASC 369.
At the time of delivering the reasons, I told the parties that the application could be renewed.
On 8 August 2019, Mr Herbert filed an amended originating summons for directions pursuant to s 92 of the Trustees Act that:
The Trustee is justified:
(a)in settling the claims the subject of Supreme Court action CIV 1537 of 2014 on the terms contained in the 'Heads of Agreement' and 'Deed of Settlement and Release' attached to the affidavit sworn by Jeffrey Laurence Herbert on 24 October 2017 and marked 'JLH12'; and
(b)in allocating the payment of the 'Settlement Sum' as defined in the 'Heads of Agreement' and 'Deed of Settlement of Release' between the trusts as follows:
(i)in proportion to the book value of the loans as at 30 June 2012 (after an adjustment of Fred's loan account owed by Blenkinsop Family Trust), which means:
(A)$574,252 will be paid by the Blenkinsop Family Trust; and
(B)$1,225,748 will be paid by the Blenkinsop Family Trust No 2,
(ii)or alternatively, divided equally between the Blenkinsop Family Trust and the Blenkinsop Family Trust No 2, which means:
(A)$900,000.00 will be paid by the Blenkinsop Family Trust; and
(B)$900,000.00 will be paid by the Blenkinsop Family Trust No 2,
2.The Trustee may pay the costs of this application from the trust funds.
Mr Herbert relied on the following further material (together with the material filed on the first application):
(a)the affidavit of Jeffrey Laurence Herbert, sworn 5 August 2019;
(b)the affidavit of Keith Roy Thomas, affirmed 6 August 2019;
(c)the affidavit of Jeffrey Laurence Herbert, sworn 8 August 2019;
(d)the opinion of the Hon John Gilmour QC, dated 7 August 2019, and provided to the court on a confidential basis; and
(e)the affidavit of Jeffrey Laurence Herbert, sworn 27 September 2019.
I was also provided with a confidential document described as the position paper on which Judith Blenkinsop's position at mediation was based. I did not read the position paper and do not consider that it would be appropriate to read it. The parties' positions at mediation were, and should remain, privileged.
In his affidavit of 5 August 2019, Mr Herbert referred to the materials to which he has had regard in his role as trustee. He stated that he had reassessed both the claim brought by Judith Blenkinsop in her substituted statement of claim, and foreshadowed claims not yet pleaded, from a commercial, accounting perspective. Mr Herbert stated that in assessing credits to Judith Blenkinsop's loan account he exercised the judgment acquired over his many years of experience as a liquidator, scheme manager, receiver and manager and trustee. He had identified anomalies in the financial records of the trusts, but did not consider the financial records had been fraudulently prepared. He had taken those anomalies into account.
Mr Herbert, on four occasions since he was appointed trustee in 2016, sought assistance and the provision of documents from the directors of the former corporate trustees, who are also trust guardians, and primary and general beneficiaries of the trusts. While he did not seek information from all beneficiaries, he approached each of the children of Judith Blenkinsop whose families were beneficiaries.
Mr Herbert said that he had considered the responses he received and, where appropriate, included the information in the brief to counsel. Where his opinion differed from the views in the responses, he sought legal advice.
On 28 June 2019, Mr Herbert instructed his solicitors to request an opinion from senior counsel. The brief to counsel included documents he received in response to his request for assistance and documents from the directors of the former corporate trustees, and his own updated loan account analysis. Mr Gilmour addressed the amendments to the statement of claim filed on behalf of Judith Blenkinsop, and the claims that had been foreshadowed.
In his affidavit sworn 8 August 2019, Mr Herbert provided updated information on the financial position of the trusts and a forecast financial position to 31 December 2019. He addressed in detail the proposed allocation of the settlement sum according to the book value of the loans, and the potential consequences of an alternative allocation. Mr Herbert also addressed the effect of the apportionment on the beneficiaries and stated that, in his opinion, it was in the interests of the primary beneficiaries of both trusts that the settlement sum be paid in proportion to the loan book values between the two trusts.
After considering counsel's opinion, Mr Herbert remains of the view that apportionment according to the book value of the loans is the appropriate apportionment.
Mr Herbert also outlined events that have occurred since the hearing of the first application on 7 May 2018. They include:
(1)On 16 May 2018, Scott Blenkinsop brought an application to replace Mr Herbert and appoint Equity Trustees Limited as trustee of the trusts. That action is continuing, and Mr Herbert has filed an application seeking directions from the court that he is justified in defending it.
(2)On 13 December 2018, Judith Blenkinsop filed an appeal notice against my decision on the earlier application. Scott Blenkinsop has filed a notice of cross‑appeal. The appeal has been stayed pending further order.
Mr Herbert, understandably, is concerned about the effect of the multiple actions on the diminishing financial resources of the trusts.
Mr Thomas is a legal practitioner. In his affidavit he provided an updated estimate of legal costs if the action by Judith Blenkinsop were to proceed to trial on an expected duration of two weeks. The estimate given by Mr Thomas is reasonable. In short, Mr Herbert would be likely to incur further solicitor and client costs of approximately $490,000; and were Judith Blenkinsop to be successful the party party costs would lie in the range of $290,000 to $390,000.
The third affidavit of Mr Herbert, sworn 27 September, is responsive to matters raised by Scott Blenkinsop.

The defendants

Scott Blenkinsop is the only defendant who appeared to oppose the application.
Before the hearing, orders were made enabling Scott Blenkinsop to inspect the brief to Mr Gilmour, and his opinion, subject to Scott Blenkinsop signing an acknowledgement of confidentiality.
Scott Blenkinsop swore two affidavits in response to the application, and also filed three further affidavits from the second defendant, Kim Rosina Holland, sworn 30 August 2019, and from two of her children who are also beneficiaries: Katie Kim Low and Danelle Gay Brockway, both sworn 29 August 2019.
He also filed written submissions.
Scott Blenkinsop took issue with Mr Herbert's analysis of two significant transactions which are pleaded in the substituted statement of claim.
The first relates to the Ten Pin Bowls Partnership. In substance, Scott Blenkinsop challenged the factual foundation upon which Mr Herbert has conducted his analysis and Mr Gilmour has given his opinion. Scott Blenkinsop submitted that Mr Herbert's case in relation to those transactions cannot stand.
The second relates to Irwin Farm. Scott Blenkinsop submitted that the claim relating to the farm is not pleaded in the substituted statement of claim and does not fall within the directions sought by the Amended Originating Summons. He also challenged factual matters upon which the trustee relied in obtaining advice.
Scott Blenkinsop also raised whether Judith Blenkinsop's claim would be defeated on limitation grounds.
Scott Blenkinsop disputed the allocation between the two trusts proposed by Mr Herbert. He submitted that Mr Herbert should consider counterclaims, and also that there should be a proper accounting between the two trusts.
Finally, Scott Blenkinsop submitted that Mr Herbert is treating the position of 90% of the primary beneficiaries as irrelevant, and in so doing fails to give full consideration to all relevant matters and take proper advice.
The affidavits of Ms Brockway and Ms Low are almost identical, except for personal details. Each denied any knowledge of the Ten Pin Bowls Partnership, each was a child at the time she was recorded as a partner, and each said that she had never received any income or capital as a partner. Ms Brockway said, further, that she understood from Scott Blenkinsop that she was shown as having a beneficiary loan in the 2006 financial statements of the Blenkinsop Family Trust, which was reduced to zero in the statements for the following year.
Ms Holland dealt with similar matters in her affidavit, also denying any knowledge of the Ten Pin Bowls Partnership.
A late affidavit filed by the sixth defendant, Ross Blenkinsop, was in similar terms. Ross Blenkinsop also challenged one of the matters dealt with in the loan accounts.

The loan account analysis and brief to counsel

I will not set out material which is dealt with in the earlier reasons, including:
(1)the claim brought by Judith Blenkinsop;
(2)the terms of the proposed settlement which followed a mediation in August 2017, and which was recorded in Heads of Agreement and subsequently formalised in a Deed of Settlement and Release in September 2017.
It is important to record, however, that the proposed settlement is for a sum of $1.8 million, inclusive of interest and costs. The current statement of claim is for (exclusive of interest and costs):
(a)$1,890,926.77 in relation to Trust No 1; and
(b)$685,675.70 in relation to Trust No 2.
Judith Blenkinsop has foreshadowed substantial further claims.
Because the application relies upon the advice provided to Mr Herbert in a confidential opinion of senior counsel, these reasons cannot be as full as would normally be given. It is proper to set out some factual material relating to the brief to counsel which is not confidential.
Mr Herbert was appointed as trustee on 15 December 2015. The same day he wrote to the former corporate trustees to request delivery of the books and records of the trusts.[4] He also requested any books and records held by solicitors who had previously been appointed by the former trustees.[5] Mr Herbert described the material he received. In short, he received 16 archive boxes of files, electronic files held by lawyers for the former corporate trustees, and various emails.
[4] Affidavit of Jeffrey Laurence Herbert, 5 August 2019 [15].
[5] Affidavit of Jeffrey Laurence Herbert, 5 August 2019 [16].
The documents received included all available financial statements, tax returns, ledgers and other working papers and correspondence for the trusts since their inception, together with some financial statements and other records for bodies related to the trusts (including the Ten Pin Bowling Partnerships). Since 2016, Mr Herbert has obtained copies of documents relating to properties held by or relating to the trusts, all available bank account statements, and all available shareholding information.[6]
[6] Affidavit of Jeffrey Laurence Herbert, 5 August 2019 [18].
On 10 February 2016, Mr Herbert caused his lawyers to write to the directors of the former corporate trustees and guardians of the trusts seeking their assistance and any documents they may have that they considered may assist his review of the loan accounts.[7]
[7] Affidavit of Jeffrey Laurence Herbert, 5 August 2019 [20].
On 16 March 2017, Mr Herbert again had his lawyers write to each of the former directors and guardians with a copy of the Substituted Statement of Claim filed by Judith Blenkinsop and seeking their assistance in providing any documents that may assist him in preparation of a defence to the proceedings.[8]
[8] Affidavit of Jeffrey Laurence Herbert, 5 August 2019 [22].
On 16 May 2019, Mr Herbert again instructed his lawyers to email the former directors and guardians, advising of his intention to renew the current application, and asking if they had any information or documents relevant to proving or disproving any of the transactions in the Substituted Statement of Claim or the loan account analysis.[9]
[9] Affidavit of Jeffrey Laurence Herbert, 5 August 2019 [24].
On each occasion, Scott Blenkinsop responded. On the last occasion, lawyers acting for Judith Blenkinsop replied, and the fourth defendant, Tracy Jakovich, also replied.
The loan account analysis was commenced following the appointment of Mr Herbert. Since October 2017, he has created a new expanded version of the loan account analysis for each trust.[10]
[10] Affidavit of Jeffrey Laurence Herbert, 5 August 2019 [30].
Mr Herbert had taken advice from senior counsel, on which he relied in his earlier application for advice. He took further advice from a different senior counsel for the present application.
Senior counsel was briefed with seven volumes of documents regarding the background to the trusts, the proceedings brought by Judith Blenkinsop, a loan account analysis for each trust, and source documents prepared by Mr Herbert and staff under his supervision. The brief included the responses from Scott Blenkinsop, Judith Blenkinsop (through her lawyers) and Ms Jakovich to Mr Herbert's requests for information.[11] At counsel's request, Mr Herbert provided an analysis of his categorisation of the loan account entries for the claims pleaded by Judith Blenkinsop, and also those which were not pleaded, but which he had assessed could be demonstrated and accepted.[12]
[11] Affidavit of Jeffrey Laurence Herbert, 5 August 2019 [37].
[12] Affidavit of Jeffrey Laurence Herbert, 5 August 2019 [39].
Counsel was asked to consider the prospects of Judith Blenkinsop proving the existence of the loans; the prospects of Mr Herbert establishing the claims were statute barred; and whether the proposed settlement was justified.

Determination

The court has been asked to exercise its jurisdiction under s 92(1) of the Trustees Act, by which:
Any trustee may apply to the Court for directions concerning any property subject to a trust, or respecting the management or administration of that property, or respecting the exercise of any power or discretion vested in the trustee.
The power in s 92 should be exercised for the protection of the property of the trust and the protection of a trustee acting properly and in accordance with the directions of the court.[13] In Australian Executor Trustees Ltd v Attorney General (WA), Martin CJ said of the jurisdiction under s 92:
In exercising its powers, the court will generally endeavour to act in the best interests of the beneficiaries of the relevant trust and, where appropriate, will take account of the views of those beneficiaries. Further, ordinarily the court will not exercise its jurisdiction in such a way as to usurp the roles and responsibilities of trustees in relation to the making of commercial decisions or with respect to the conduct of litigation. Rather, the court will be concerned to ensure that the trustee has taken proper advice and given full consideration to all relevant matters before arriving at a reasoned and appropriate decision. If satisfied of those matters, in appropriate cases the court will give the directions sought and thereby confer protection upon a trustee taking action in accordance with those directions.[14]
[13] Australian Executor Trustees Ltd v Attorney General (WA) [2015] WASC 439 [32] ‑ [33]. See also Plan B Trustees Ltd v Maitland Parker [2012] WASC 392 [45] ‑ [47].
[14] Australian Executor Trustees Ltd v Attorney General (WA) [33]. See also Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247 [80].

Provided the trustee acts in accordance with the advice or direction given on the application under s 92, and provided he has not been guilty of fraud, wilful concealment or misrepresentation,[15] he will be protected against any future claim asserting that he has failed to discharge his duties as trustee.
[15] See Trustees Act s 95(2).
A trustee may bring a judicial advice application to ask whether it is justified in defending an action. There are occasions where a trustee who does not seek advice and unsuccessfully defends an action relating to the trust property does so 'at their own risk', in the sense of being at risk of personal liability for costs improperly incurred.[16] I doubt that is a significant risk in this case. That is, I doubt the costs of a defence to the proceedings brought by Judith Blenkinsop would be held to be improperly incurred.
[16] In Re Beddoe (1893) 1 Ch D 547.
But from my knowledge of this action, and the conduct of some of the parties over several years, I have no doubt that Mr Herbert was prudent to seek the advice of the court.
The duties of a trustee include the duty, in the management of the business of the trust, to exercise 'the same care and skill as an ordinary prudent man of business would exercise in conducting that business as if it were his own'.[17] Mr Herbert has a duty to protect and preserve the trust estates for the benefit of the beneficiaries. In deciding whether it is in the best interest of the beneficiaries to resolve potential disputes on the terms of the proposed settlement, rather than requiring them to be resolved by litigation, he must exercise a commercial judgment regarding the risk to the trust property.
[17] Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187, 235.
The decision whether to compromise a claim relating to the trust property, rather than defend it, raises questions respecting the management or administration of the trust property. The current application is within the power conferred by s 92.[18]
[18] Re Perpetual Trustee Company Limited [2010] NSWSC 1403.
The court is not advising Mr Herbert about whether he should settle Judith Blenkinsop's claim; the question is whether he has taken proper advice and given full consideration to all relevant matters, and would be justified in doing so.
These are not proceedings in which the court can or should determine issues of fact, such as those raised by Scott Blenkinsop. The application for judicial advice is founded upon facts stated to the court by the trustee, untested by adversarial procedure, and assumed by the court to be true for the purpose of the application.[19] The advice is given on that basis. The trustee must fully and fairly disclose the facts known to him to the court. The protection afforded to the trustee by the process for judicial direction is lost should he have been guilty of any fraud or wilful concealment or misrepresentation in obtaining the direction.[20]
[19] Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar; [2008] HCA 42; (2008) 237 CLR 66 [79].
[20] Trustees Act s 95(2).
It is proper, in my opinion, for Mr Herbert to take into account that the claims by Judith Blenkinsop are an impediment to winding up the trusts and avoiding further depletion of the trust funds. Settlement would not guarantee a winding up, but it would remove one significant barrier to that happening.
It is also proper for Mr Herbert to consider the legal and other costs that have already been incurred.
I have considered the affidavits filed on behalf of Scott Blenkinsop and his submissions regarding the loan account analysis and, in particular, the Ten Pin Bowls Partnership. His position and that of the trustee are both untested. It is not my role, in what is in essence a summary procedure, to resolve disputed issues of fact between the trustee and Scott Blenkinsop, or to make findings on the merits of Judith Blenkinsop's claims.
I am satisfied that Mr Herbert and senior counsel have made the necessary inquiries. Mr Herbert requested information and comment from the directors of the former corporate trustees, who are also guardians and beneficiaries, on four occasions. In 2017 and again in 2019, the requests for information or documents specifically related to Judith Blenkinsop's claims and the transactions upon which she relied. I accept that he has given full consideration to necessary matters including the contentions regarding the N Blenkinsop & Son Partnership and the Ten Pin Bowls Partnership,[21] and the ownership of Irwin Farm.[22]
[21] Affidavit of Jeffrey Laurence Herbert, sworn 5 August 2019, [44] - [58].
[22] Affidavit of Jeffrey Laurence Herbert, sworn 5 August 2019, [59] - [75].
I will not disclose the content of the confidential advice. But I note, in particular, that in his discussion of the prospects of the claims succeeding, Mr Gilmour considered in detail the likelihood that they would be defeated on the limitation grounds to which Mr Blenkinsop has referred. Having reviewed the affidavits and the opinion of senior counsel, I am satisfied that Mr Herbert's legal representatives have given detailed consideration to the likely factual and legal issues which arise out of Judith Blenkinsop's claims.
Acting on the opinion of senior counsel, Mr Herbert can properly form the view that the settlement protects the interests of the trusts.
In my opinion, the court should give the advice sought and confer on the trustee the protection of an order that he is justified in entering the settlement on the terms which have been disclosed to the court.

The allocation of the settlement sum

The remaining issue is the allocation of the settlement sum between the two trusts. The deed of settlement and release does not specify or allocate which trust would pay the settlement sum, or the proportion to be paid by each of them.
As trustee, Mr Herbert is under a duty to act impartially between the beneficiaries of each trust in relation to their rights and duties as beneficiaries. He must also treat each trust separately, and not subordinate the interests of the beneficiaries of one trust to the interests of the other.
Mr Herbert submitted that the allocation of the settlement sum should be in accordance with the book value of the loans by Judith Blenkinsop in the loan accounts (subject to disregarding entries that are demonstrably incorrect).[23] The book values represent the highest possible claim that Judith Blenkinsop may have against each of the trusts, which corresponds with the value of the possible claims to be released by the Settlement Deed. Alternatively, he submitted the sum be apportioned equally between the trusts.
[23] Affidavit of Jeffrey Laurence Herbert sworn 8 August 2019 [49].
The effect of allocating the settlement between the trusts by book value of the loan accounts will result in compromising the claim against Trust No 2 for an amount greater than the amount claimed against it in the substituted statement of claim, but would have the effect of releasing loan accounts (and potential liabilities) of greater value.
In his affidavit of 8 August 2019, Mr Herbert discussed the proposed allocation between the trusts in detail. Mr Herbert expressed the opinion that an allocation in proportion to the amounts now claimed in the substituted statement of claim against each trust would be inappropriate because:
(1)the claim against Trust No 1 included the amount of $786,371 (over half the amount claimed) which, in his opinion, was not a valid claim;
(2)the claim against Trust No 2 did not include particular credits including the purchase of two farms acquired for a total sum of $1,286,466;
(3)the substituted statement of claim did not take into account all drawings and debits on the loan accounts.[24]
[24] Affidavit of Jeffrey Laurence Herbert sworn 8 August 2019 [51].
Mr Herbert further deposed:
I consider that it is in the interests of the Primary Beneficiaries of both trusts that the Settlement Sum be paid in proportion to the loan book values between the 2 trusts as:
(a)Trust No 2 has a substantial number of possible claims for large amounts which are not pleaded in the [Substituted Statement of Claim]. Those possible claims total $1,840,781 and those claims are proposed to be released by the Settlement Deed agreed with [Judith Blenkinsop] if the proposed settlement is approved by the Court, I consider that Trust No 2 beneficiaries are benefiting from the settlement reached by obtaining the release; and
(b)[Judith Blenkinsop] has reserved the right to include these possible claims (the majority of which are against Trust No 2) if this matter does not settle. If [Judith Blenkinsop] is successful, these claims (together with interest and cost) would represent virtually the entire assets of Trust No 2.[25]
[25] Affidavit of Jeffrey Laurence Herbert sworn 8 August 2019 [57]. Affidavit of Jeffrey Laurence Herbert, 5 August 2019 [39].
I take into account the opinion expressed by Mr Gilmour regarding the prospect of Judith Blenkinsop recovering the amounts which are not yet pleaded but will be claimed should the actions not settle. Mr Herbert's evidence is that he has considered that advice.
I also take into account that the settlement sum is inclusive of interest and costs.
Finally, I have considered Mr Herbert's comparison of the allocation by loan book value and allocation by equal distribution between the trusts.
I am satisfied that Mr Herbert has properly considered the interests of all beneficiaries, and the separate position of each trust, in the preferred allocation.

The proposed global settlement

Both Mr Herbert and Mr Blenkinsop referred to a proposal by Mr Herbert for a global settlement of all actions and potential actions involving the trusts and to vest the trusts early. The proposal does not currently have unanimous support of the beneficiaries, with only four of six signing a Heads of Agreement.
The merits of the proposed settlement are not the subject of this application. It is relevant as background to the financial position of the trusts, the capital of which is being depleted by both legal fees and trustee's fees.

Conclusion

The following orders should be made on the amended originating summons:
The Trustee is justified:
(a)in settling the claims the subject of Supreme Court action CIV 1537 of 2014 on the terms contained in the 'Heads of Agreement' and 'Deed of Settlement and Release' attached to the affidavit sworn by Jeffrey Laurence Herbert on 24 October 2017 and marked 'JLH12'; and
(b)in allocating the payment of the 'Settlement Sum' as defined in the 'Heads of Agreement' and 'Deed of Settlement of Release' between the trusts as follows:
(i)in proportion to the book value of the loans as at 30 June 2012 (after an adjustment of Fred's loan account owed by Blenkinsop Family Trust), which means:
(A)$574,252 will be paid by the Blenkinsop Family Trust; and
(B)$1,225,748 will be paid by the Blenkinsop Family Trust No 2.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

CG
Associate to the Honourable Justice Allanson

1 NOVEMBER 2019

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: HERBERT as trustee for THE BLENKINSOP FAMILY TRUST AS TRUSTEE FOR THE BLENKINSOP FAMILY TRUST NO 2 -v- BLENKINSOP [No 2] [2019] WASC 389 (S)
CORAM:   ALLANSON J
HEARD:   13 MARCH 2020
DELIVERED          :   24 MARCH 2020
FILE NO/S:   CIV 2825 of 2017
BETWEEN:   JEFFREY LAURENCE HERBERT as trustee for THE BLENKINSOP FAMILY TRUST AS TRUSTEE FOR THE BLENKINSOP FAMILY TRUST NO 2
Applicant
AND
JUDITH ANN BLENKINSOP
First Respondent
KIM ROSINA HOLLAND
Second Respondent
SCOTT FREDERICK BLENKINSOP
Third Respondent
TRACEY ANN JAKOVICH
Fourth Respondent
CHRISTINE MARION THURTELL
Fifth Respondent
ROSS ALEXANDER BLENKINSOP
Sixth Respondent

Catchwords:

Practice and procedure - Costs of application by trustee for advice - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O 66 r 9
Trustees Act 1962 (WA), s 97

Result:

No orders made
Liberty to apply regarding third respondent's disbursements

Category: B

Representation:

Counsel:

Applicant	:	S Wong
First Respondent	:	C R Bailey
Second Respondent	:	No appearance
Third Respondent	:	In person
Fourth Respondent	:	No appearance
Fifth Respondent	:	No appearance
Sixth Respondent	:	No appearance

Solicitors:

Applicant	:	HWL Ebsworth Lawyers
First Respondent	:	Williams & Hughes
Second Respondent	:	No appearance
Third Respondent	:	In person
Fourth Respondent	:	No appearance
Fifth Respondent	:	No appearance
Sixth Respondent	:	No appearance

Case(s) referred to in decision(s):

Blatchford v Laine [2018] WASC 207
Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572
Plimsoll v Drake (No 2) [1995] TASSC 81; (1995) 5 Tas R 334
Plimsoll v Drake [1995] TASSC 51; (1995) 4 Tas R 334
Re Perrot Mill Pty Ltd (No 2) [2013] VSC 428
Tsaknis as Executor and Trustee of the Estate of Geoffrey Douglas Roland Lilburne v Lilburne [2010] WASC 152

ALLANSON J:

Introduction

On 1 November 2019, I delivered judgment on an application by Jeffrey Lawrence Herbert, the trustee of the Blenkinsop Family Trust and the Blenkinsop Family Trust No 2, for advice and directions under s 92 of the Trustees Act 1962 (WA). I ordered, in effect, that Mr Herbert was justified in settling an action which claimed against property the subject of the trusts, and in allocating payment of the settlement sum between the two trusts in the manner he proposed.
The application was the renewal of an earlier application for advice. Reasons were published on each application, and it is unnecessary to outline the facts on this occasion.
Orders programming the application were first made on 8 May 2019; the amended originating summons was filed on 8 August 2019.
Scott Frederick Blenkinsop was the third respondent. He filed evidence and submissions and made oral submissions at the hearing, opposing the application. Mr Blenkinsop was the only respondent who appeared
Mr Herbert and Mr Blenkinsop have both applied for orders as to the costs in respect of the application.

The Trustee's application

On 14 February 2020, Mr Herbert filed a minute of proposed orders:
1.The Third Defendant do pay the Plaintiff's costs of the renewed application occasioned by the Third Defendant on a party party basis, to be taxed if not agreed.
2.The Third Defendant do pay the Plaintiff's costs of the costs application on an indemnity basis, to be taxed if not agreed.
Mr Herbert filed an affidavit of Cassandra Michelle Guy, a solicitor employed by HWL Ebsworth Lawyers, the solicitors for Mr Herbert, and submissions in support of his application.
On 27 February 2020, Mr Herbert filed submissions in response.

Mr Blenkinsop's application

Also on 14 February 2020, Mr Blenkinsop filed a minute of proposed orders in these terms:
1.The plaintiff is to bear his own costs, including disbursements and the costs of this costs application, and it not entitled to be indemnified out of the trust funds in respect of such costs and disbursements.
2.The third defendant is to be paid his reasonable disbursements from the trust funds with the amount to be divided evenly between each trust.
Mr Blenkinsop filed an affidavit and submissions in support of his application.
On 28 February 2020, Mr Blenkinsop filed a further affidavit and submissions.

The discretion to award costs

The court has a broad discretion in awarding costs in any proceedings brought under the Trustees Act. By s 97, the court may order the costs and expenses of and incidental to an application for an order under the Act to be raised and paid out of the trust property, or 'to be borne and paid in such manner and by such persons as the Court thinks fit'. The court's discretion is guided by the authorities and the rules of court.
Two particular matters affect Mr Herbert's application for costs.
First, a trustee who brings before the court a question arising in the course of the administration of the trust is generally entitled to have its costs out of the fund, either on a solicitor and client or an indemnity basis, if their conduct has been honest.[26] The Rules of the Supreme Court 1971 (WA) O 66 r 9(2), provides:
Where a person is or has been a party to any proceedings in the capacity of trustee … he shall, unless the Court otherwise orders, be entitled to the costs of those proceedings, in so far as they are not recovered from or paid by any other person, out of the fund held by the trustee …; and the Court may otherwise order only on the ground that the trustee … has acted unreasonably, or … has in substance acted for his own benefit rather than for the benefit of the fund.
[26] Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572, 578 - 579.
Second, Mr Herbert is entitled to the benefit of cl 13(d) and cl 13(e) in each of the deeds of trust. By cl 13(d) the trustee shall not be personally liable for the consequences of 'any error or forgetfulness whether of law or in fact', or for any breach of duty or trust whatsoever unless it shall be proved to have been committed or made in 'personal conscious fraudulent bad faith'; by cl 13(e) he is entitled to be indemnified out of the assets comprising the trust funds against liabilities incurred in the execution or attempted execution of the trust authorities, powers and discretions.[27]
[27] Affidavit of Jeffrey Laurence Herbert, sworn 24 October 2017, JLH1.

The costs of the trustee

The court is presently concerned only with the costs of the application that was determined on 1 November 2019. That application was directed to two questions, which were clearly defined. The application for advice, both as to the settlement and the allocation of the settlement sum between the two trusts, was properly brought for the reasons given in the primary judgment.
Mr Herbert approached the court for further directions and advice where settlement of Judith Blenkinsop's claim out of trust property was controversial among the beneficiaries. The decision on the first application held that he had power to compromise the claims, but that the legal advice then before the court was not sufficient. Mr Herbert acted reasonably in seeking further direction from the court. Despite the claims made by Mr Blenkinsop, there is no substance in the suggestion that Mr Herbert acted in bad faith or for his own benefit in the application.
Mr Blenkinsop continues to raise the failure of the proposed global settlement. On 19 March 2019, following discussions between the relevant parties, Mr Herbert proposed a heads of agreement which, if executed, would:
(1)settle the claims that Judith Blenkinsop had made against the estate (and which have now been settled following the advice and directions in this application);
(2)distribute the capital of the Blenkinsop Family Trust to each of Judith and her five children, the guardians under the trust, and vest the Blenkinsop Family Trust on or about 31 March 2019;
(3)issue an interim capital distribution of Blenkinsop Family Trust No 2 on or about 31 March 2019;
(4)manage the affairs of Blenkinsop Family Trust No 2 in accordance with the agreement for the duration of an existing claim against Main Road Western Australia;
(5)after the resolution of that claim, issue a final capital distribution of the net assets of Blenkinsop Family Trust No 2 and vest the trust; and
(6)dismiss all legal actions with mutual releases.
The mutual releases included releases in favour of 'Mr Herbert and his principals, employees, professional advisers, consultants and agents' in regards to past and present actions taken in relation to the trusts; and releases by Mr Herbert and the former trustees of each of the Guardians for both past and present actions.

The proposed global settlement failed because it did not have the unanimous support of the beneficiaries. Mr Blenkinsop argued that the reason was the inclusion of the mutual releases, which he argued were unnecessary.
Without a global settlement, it was proper for Mr Herbert to proceed with the application for judicial advice regarding the specific settlement with Judith Blenkinsop. In the application for judicial advice, the proposed global settlement was relevant as background to the financial position of the trusts. But its merits, and why it did not proceed, were not the subject of the application before the court. The attribution of blame for the failure of the proposed settlement to proceed is immaterial to the question of costs on the application for advice.
Because of the extent to which Mr Blenkinsop relied on the failure of the global settlement, I make the following additional comments and findings.
I do not accept the allegation that, in insisting on the mutual releases, Mr Herbert failed to act in the best interests of the beneficiaries, and was concerned only to benefit himself and other members of the 'Herbert group'.
The present case is clearly distinguishable from Plimsoll v Drake (No 2),[28] on which Mr Blenkinsop relied. The principle replied upon in that case is well established: a personal representative or trustee is not entitled as a matter of right to costs out of the estate in an application in which they merely seek to obtain a personal benefit.
[28] Plimsoll v Drake (No 2) [1995] TASSC 81; (1995) 5 Tas R 334.
Regard should be had to the primary decision to establish the circumstances before Zeeman J.[29] The court was considering an application to replace the personal representative of a deceased estate who had largely completed the administration of the estate, but refused to complete the administration and distribute the undistributed portion of the estate unless and until the residuary beneficiaries executed a deed of release. Zeeman J held that the matters relied upon by the personal representative did not constitute variations of, or departures from, the trusts created by the will, and he had no entitlement to a release under seal.[30] His Honour contrasted that with a trustee who is asked to act otherwise than in accordance with the trusts upon which he holds trust property, in circumstances where he may but is not required to accede to the request[31] - a situation more aligned to that now before me. The decision does not assist Mr Blenkinsop.
[29] Plimsoll v Drake [1995] TASSC 51; (1995) 4 Tas R 334.
[30] Plimsoll v Drake [17], [19].
[31] Plimsoll v Drake [12].
Mr Blenkinsop also relied on Re Perrot Mill Pty Ltd (No 2)[32] to argue that the application was only necessary due to the failure of Mr Herbert to put all proper materials before the court on the first hearing. The present case differs from Re Perrot. Mr Herbert and his advisers did not, on the first application, fail to put complete information before the court on all immediately or potentially relevant issues. The renewed application was the result of the court's opinion that further advice was required from counsel.
[32] Re Perrot Mill Pty Ltd (No 2) [2013] VSC 428.
Mr Blenkinsop's wider allegations about Mr Herbert's conduct are the subject of another action, and are not presently relevant. There is no reason to depart from the usual rule, and Mr Herbert should have his costs of the application, in so far as they are not recovered from another person, out of the fund, with those costs on a solicitor and client basis.

Should Mr Blenkinsop pay costs?

With respect to the application that Mr Blenkinsop pay costs, I refer to the observations of Vaughan J in Blatchford v Laine.[33] Mr Blenkinsop was properly joined as a party to the application, and acted as a contradictor raising matters, at least some of which were proper for consideration by the court. To that extent the cost occasioned by his participation were properly incurred.
[33] Blatchford v Laine [2018] WASC 207 [157]; see also Tsaknis as Executor and Trustee of the Estate of Geoffrey Douglas Roland Lilburne v Lilburne [2010] WASC 152 [83] - [84], [89].
The issue raised is whether his participation went substantially beyond what was reasonable and was, in effect, negative.
Mr Herbert submitted that, although the application related to a question arising in the course of administration of the trust, Mr Blenkinsop's contribution cannot be regarded as having been incurred for the benefit of the trusts, and that he raised 'misconceived and irrelevant matters' resulting in wasted costs. Mr Herbert submitted that it is unfair that the trusts bear the burden of the increased costs caused by the conduct of Mr Blenkinsop.
Mr Herbert referred specifically to seven matters, as 'examples' of conduct which was not for the benefit of the trusts and which resulted in the proceedings consuming far more resources than they should have. Several of those examples were matters which fell away at the smallest resistance - an irrelevant affidavit which was removed from the file, an application to re-open which was foreshadowed but not brought, and an application for discovery from the first respondent. He also referred to conduct in which Mr Blenkinsop seemed determined to delve into irrelevant detail regarding the failure of global settlement discussions, and to dispute factual issues in the brief to independent counsel.
The difficulty is separating what additional cost was occasioned by Mr Blenkinsop's approach to the hearing. Even if the application had not been opposed, the hearing had to proceed. The court needed to consider the opinion of counsel to ensure that Mr Herbert's legal representatives had given detailed consideration to the likely factual and legal issues which arose out of Judith Blenkinsop's claims. There is no bright line in this case between proper conduct of a beneficiary raising whether factual and legal issues have been adequately considered, and unnecessarily occasioning the trustee to incur costs.
I accept that it would be within the discretion of the court to make an order of the kind sought by Mr Herbert. Counsel for Mr Herbert submitted that quantifying those costs would be a matter for the taxing officer. I am not satisfied that it could or should all be left to the taxing officer. I also do not believe that all of Mr Blenkinsop's contribution to the application can properly be characterised as negative. Before exercising my discretion to make the order, I would need to be satisfied that costs were unreasonably incurred and on what occasions.
The process of determining those costs unnecessarily incurred is likely to entail more resources than is warranted by the amounts in issue.

Mr Blenkinsop's disbursements

Mr Blenkinsop has asked for an order that he be paid his disbursements. The application for disbursements was not in any way particularised. When asked in the course of his submissions, Mr Blenkinsop referred to 'library fees', which he quantified at about $700. When pressed for whether there were any further disbursements, he said he had taken an opinion from counsel. I doubt that counsel's opinion could properly be allowed as a disbursement, but it is not necessary that I decide the question. It is for the taxing officer to determine what disbursements should be allowed.
Mr Blenkinsop may be entitled to disbursements reasonably incurred, to be paid from the trust property and satisfied equally by each trust.
Because the information before the court about the disbursements claimed is unsatisfactory, I will not make an order for payment of disbursements, but will give both parties liberty to apply regarding this order.

Who should pay the costs of the costs application

The last issue concerns the costs of the costs application. Mr Herbert seeks those costs on an indemnity basis, based upon a Calderbank letter in which Mr Herbert offered, to avoid incurring further costs, that both parties walk away from their applications and there be no further order as to costs.
The two primary issues argued on the costs application were whether the court should order that Mr Herbert was not entitled to his costs out of the trust funds, and whether Mr Blenkinsop should pay costs unreasonably incurred.
Neither party has been completely successful. Although I am conscious of the burden imposed on the trust by legal costs, I am not satisfied that in the circumstances of this application an order between the parties is appropriate.
Mr Herbert's costs will be paid from the trust funds in accordance with his general right of indemnity and the contractual right of indemnity to which I earlier referred. It is unnecessary for me to make any further orders.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

CG
Associate to the Honourable Justice Allanson

24 MARCH 2020