Lee v Ling
[2022] VSC 471
•19 August 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S CI 2018 01465
| LEE, BEE BENG | Plaintiff (Defendant by Counterclaim) |
| v | |
| LING, NGOOT KIEW | First Defendant (First Plaintiff by Counterclaim) |
| LEE, TAT HING | Second Defendant (Second Plaintiff by Counterclaim) |
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JUDGE: | McDonald J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 27–29 April, 3, 5–6 May 2021 |
DATE OF JUDGMENT: | 19 August 2022 |
CASE MAY BE CITED AS: | Lee v Ling & Anor |
MEDIUM NEUTRAL CITATION: | [2022] VSC 471 |
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PRACTICE AND PROCEDURE – Supreme Court (General Civil Procedure) Rules 2015 – Report of special referee – Where filing of report delayed due to COVID-19 lockdowns – Where plaintiff objects to the Court wholly adopting special referee’s report – Interests of justice require adoption of the special referee’s report in part – rr 50.01, 50.04.
TRUSTS AND TRUSTEES – Breach of trust – Trustee’s duty to account – Trustee’s duty to keep records – Where trustees have not provided records of trust’s accounts and expenses – Whether transactions unsupported by documentation should be resolved against the trustees personally.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A Panna QC | MNG Lawyers |
| For the Defendants | Dr P Bender | Canaan Lawyers |
HIS HONOUR:
This case concerns the management of the Lee and Lim (No. 2) Family Trust (‘the No. 2 Trust’). The plaintiff Bee Beng Lee is the daughter of first defendant Ngoot Kiew Ling and second defendant Tat Hing Lee. By correspondence dated 18 November 2021, the Court was informed that the second defendant had passed away on 30 September 2021. By the deed of settlement dated 2 December 1992,[1] the plaintiff and first defendant were named as joint trustees and the second defendant was named as the appointor of the No. 2 Trust. By the deed of appointment and variation dated 23 March 2008,[2] the second defendant was named as trustee jointly with the plaintiff and the first defendant and the plaintiff was named as joint appointor.[3] The No. 2 Trust is a discretionary trust for the benefit of beneficiaries including a class of Specified Beneficiaries,[4] to which the plaintiff and the first and second defendants belong.[5]
[1]CB151, Deed of Settlement of the Lee and Lim (No. 2) Family Trust dated 2 December 1992.
[2]CB181, Deed of Appointment and Variation of the Lee and Lim (No. 2) Family Trust dated 23 March 2008.
[3]Ibid CB183–4.
[4]CB152, 173, Deed of Settlement of the Lee and Lim (No. 2) Family Trust dated 2 December 1992.
[5]Ibid CB173.
Shortly after the declaration of the No. 2 Trust in December 1992, the plaintiff and first defendant jointly acquired a commercial property at 309 Swan Street, Richmond, Victoria (Certificate of Title Volume 03948 Folio 413) (‘the Swan Street property’).[6] On 6 August 2004, the first defendant acquired a commercial property at 389 Bridge Road, Richmond, Victoria (Certificate of Title Volume 5442 Folio 362) (‘the Bridge Road property’).[7] Both properties are held on trust for the No. 2 Trust.
[6]CB174, Declaration of The Lee & Lim (No.2) Family Trust of Ngoot Kiew Ling and Bee Beng re 209 Swan Street, Richmond dated 1994.
[7]CB178, Declaration of Trust of Ngoot Kiew Ling (No.2) re 389 Bridge Road, Richmond dated 6 August 2004.
The plaintiff alleges that in January 2018, without her consent or authority and in breach of the defendants’ fiduciary duties, the defendants withdrew funds from a Bank of Queensland account (account no. 20752336) which held funds of the No. 2 Trust (‘Old Bank Account’). The plaintiff alleges that the defendants had purported to resolve that the Old Bank Account be closed, with any balance to be paid into a new Bank of Queensland account (account no. 22697594) (‘New Bank Account’) of which the sole signatories were the defendants. Funds were allegedly withdrawn from the New Bank Account in breach of trust and of the defendant’s fiduciary duties.[8]
[8]See generally from CB2641, Amended Statement of Claim dated 9 April 2021. See also from CB11, Defendants’ Amended Defence and Counterclaim dated 10 July 2018.
The trial of this matter commenced on 28 April 2021. The matter was referred to mediation on 30 April 2021, with settlement negotiations continuing on 3 May 2021. By the third day of trial on 5 May 2021, the parties had reached general agreement that the Court should wind up the No. 2 Trust and the outstanding issues had been considerably narrowed.
On 6 May 2021, the Court made orders pursuant to minutes of consent.[9] The 6 May 2021 orders facilitate the preparation of final accounts to enable the No. 2 Trust to be vested and wound up.[10] Pursuant to the 6 May 2021 orders, remaining trust funds (including the proceeds of the sales of the Swan Street and Bridge Road properties) are to be paid into Court.[11] After expenses and liabilities of the No. 2 Trust are paid out, the parties shall seek orders from the Court to pay out those funds.[12] Order 19(c) sets out the following adjustments that were to be made:
[9]Order of McDonald J dated 6 May 2021.
[10]Ibid order 14.
[11]Ibid orders 15–18.
[12]Ibid order 19.
(c) To divide any remaining proceeds of the Funds in Court into three equal shares for each of the Plaintiff and the Defendants and then for those shares:
i. to be increased or decreased by the Adjustments determined by the Court;
ii. the Defendants’ shares to each be reduced by $350,000 (a total of $700,000 for both Defendants) relating to the First and Second Westpac Loans and the No 3 Loan, and the Plaintiff’s share to be correspondingly increased by a total of $700,000 (the Loan Adjustment);
iii. the Defendants shares to be reduced equally by any amount that has been paid out of the assets of the No 2 Trust to pay the Defendants’ legal costs of this proceeding and the Plaintiff’s share to be correspondingly increase by that amount (the Legal Expenses Adjustment).
(together the Final Payouts).
(d) To pay out the Final Payouts to the Plaintiff and the Defendants.
Whilst the parties reached agreement as to the Loan Adjustment, no agreement was reached as to the quantum of the Adjustments and the Legal Expenses Adjustment. Prior to making a determination for the winding up of the No. 2 Trust, the Court must decide on the Adjustments and the Legal Expenses Adjustment to be made.
In order to determine the quantum of the Adjustments, the Court made orders for the nomination of a special referee pursuant to r 50.01(1)(a) of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’). By order 3 of the 6 May 2021 orders, the Court put the following questions to the special referee for determination:
(a) have the following transactions been properly accounted for in the accounts of the Lee and Lim (No. 2) Family Trust (No 2 Trust):
(i) The payments that were made from the Bank of Queensland account number 20752336 (Old Bank Account):
· $2,286 on 2 March 2009;
· $3,800 on 14 April 2009;
· $10,000 on 21 May 2009;
· $10,000 on 15 July 2009;
· $10,000 on 20 August 2009;
(b) for the period 1 July 2012 to the date of this order, consider each of the payments made from the Old Bank Account and from the Bank of Queensland account number 22697594 (New Bank Account) and identify:
(i) to whom and for what identifiable purpose or reason was each such payment made; and
(ii) whether each such payment has been properly accounted for in the No 2 Trust’s financial accounts for the said period.
(c) following from the answer to (a) and (b), what, if any, adjustments (the Adjustments) need to be made to the accounts of the No 2 Trust and/or to the amounts currently owed by the No 2 Trust to the Plaintiff and the Defendants.
The 6 May 2021 orders expressly exclude from the special referee’s examination questions as to the validity of certain other transactions previously in issue: loans of $540,000 and $360,486.32 from Westpac, the refinancing of those two loans, and an ensuing loan of $900,754 disclosed as owing by the Lee and Lim (No. 3) Family Trust (‘No. 3 Family Trust’).[13] The Court’s decision on Adjustments shall not include any Adjustments in respect of these transactions, in accordance with the terms of the 6 May 2021 orders.
[13]Ibid order 11.
The Special Referee’s Report
On 24 May 2021, the Court appointed Ms Claire Chang of Chang Accounting Advisory (‘Referee’) as special referee in accordance with the 6 May 2021 orders. The report was to be filed by August 2021.[14] Due to practical difficulties presented by COVID-19 lockdowns in accessing financial documents held by the first defendant, the parties sought an extension of the date upon which the report was to be filed.[15] On 14 December 2021, the Court made orders pursuant to minutes of consent which extended the filing date for the report until 22 March 2022.[16] Due to further delays in obtaining documents required by the Referee,[17] orders dated 1 June 2022 extended the filing date for the report until 6 July 2022.[18] Pursuant to the 6 May 2021 orders, the Referee provided the Court with her report on 6 July 2022 (‘Report’).
[14]Ibid order 6.
[15]Correspondence from Jamila Xiong dated 18 November 2021; Correspondence from Jamila Xiong dated 14 December 2021. See also, Order of McDonald J dated 6 May 2021, order 9.
[16]Order of McDonald J dated 14 December 2021.
[17]Transcript of Proceedings, T 2 L 7 – T 3 L 2 (26 May 2022).
[18]Order of McDonald J dated 1 June 2022.
In respect of the five transactions identified in order 3(a)(i) of the 6 May 2021 orders, the Referee found that no adjustments needed to be made to the accounts, as the transactions were properly accounted for as loans to the first and second defendants:
For the above five transactions, these drawings have been recorded as loans to Mrs Ngoot Kiew Ling and Mr Tat Hing Lee equally. If these drawings are solely related to Mrs Ngoot Kiew Ling and Mr Tat Hing Lee’ activities, then no adjustment is required for the loan accounts. The loan amounts to Mrs Ngoot Kiew Ling and Mr Tat Hing Lee offset trust distributions to each individual.[19]
[19]Report of Special Referee dated 6 July 2022, 6.
In the second part of the Report, the Referee examined all outgoing transactions from the Old and New Bank Accounts. Pursuant to the 6 May 2021 order, the Referee reviewed a total of 188 transactions between 1 July 2012 and 6 May 2021. The outgoing transactions were sequentially numbered, starting from the earliest transaction which was labelled ‘T1’. I adopt the numbering used by the Referee in the Report.
The parties were given the opportunity to file submissions as to whether the Report should be adopted in whole or in part by the Court. By correspondence dated 8 August 2022, the defendants notified the Court that they did not raise issue with nor object to the contents of the Report. The plaintiff filed a short submission objecting to the Court wholly adopting the Report, noting a number of transactions which she submitted should be adjusted against the defendants’ accounts.
Principles
Rule 50.04 of the Rules provides that, upon receipt of a report from a special referee:
The Court may as the interests of justice require adopt the report of a special referee or decline to adopt the report in whole or in part, and make such order or give such judgement as it thinks fit.
In Wenco Industrial Pty Ltd v W W Industries Pty Ltd,[20] Redlich and Bongiorno JJA and Beach AJA comprehensively stated the principles relating to the adoption of a special referee’s report under r 50.04:
[20][2009] VSCA 191.
Adopting the report: the principles to be applied
The approach to be taken in considering whether to adopt the report of a referee has been the subject of extensive consideration by courts in different jurisdictions. Although the underlying rules are not always the same, the following propositions can be extracted from the cases. They provide a general guide as to how the question of the adoption of a referee’s report should be approached:
… (b) Secondly, the purpose of rr 50.01 and 50.04 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation. Further, that purpose would be frustrated if the reference were to be treated as ‘some kind of warm-up for the real contest’.
… (d) Fourthly, where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for inquiry and report.
(e) Fifthly, if the referee’s report reveals some error of principle, absence or excess of jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact-finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than ‘unsafe and unsatisfactory’.
(f) Sixthly, generally, the referee’s findings of fact should not be re-agitated in the court. The court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence.
(g) Seventhly, the purpose of r 50.01 and r 50.04 would be frustrated if the court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was material on which the conclusions could be based.
… (i) Ninthly, even if it were shown that the court might have reached a different conclusion in some respect from that of the referee, it would not ordinarily be (in the absence of any of the matters referred to in subpara (e) above) a proper exercise of the discretion conferred by r 50.04 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report.[21]
[21]Ibid [17] (citations omitted).
Adjustments
Adjustments pursuant to order 19(c)(i) of the 6 May 2021 orders
With respect to five transactions (T1, T3, T9, T10 and T18) the Referee made findings that, in the absence of documentation verifying the purpose for which the transactions were made, the transactions should be adjusted against the defendants’ beneficiary loan accounts. The plaintiff agreed with the Referee’s findings.[22] The defendants did not object to these findings.
[22]Plaintiff’s Submissions on the Special Referee’s Report dated 8 August 2022, [3].
The plaintiff submitted that the Referee should have made similar findings with respect to seven further transactions that lacked supporting documentation. These transactions were:
(a) T136, T142 and T173 – ‘uncategorised’ or ‘sundry’ expenses;
(b) T 163 – the cheque paid to Fitzroys; and,
(c) T32, T148 and T167 – the legal costs transactions.
The plaintiff submits that ‘[t]he Report states that the proper accounting practice is to record such costs against beneficiary loan accounts when no supporting documentation supports the transactions, but the Report does not specifically state that such adjustments should occur’.[23] On this basis, the plaintiff submits that the Referee should have made adjustments against the defendants’ accounts with respect to the above transactions. The plaintiff submits that as only the defendants had access to the New Bank Account, and in the absence of documents demonstrating these transactions to be trust expenses, they should be adjusted against the defendants’ beneficiary loan accounts.[24]
[23]Ibid [5].
[24]Ibid [6].
Transactions without supporting documents
The plaintiff’s submissions in respect of the above transactions rely on the proposition that transactions should not be treated as trust expenses in the absence of supporting documents.
In Byrnes v Kendle,[25] Gummow and Hayne JJ (French CJ agreeing) stated:
The references to accounting by Mr Kendle as trustee indicate the several senses in which the term ‘duty to account’ may be used, namely, (i) a duty to keep records, (ii) a duty to report to the beneficiaries or to the court concerning the administration of the trust, and (iii) a duty to pay amounts the trustee is obliged to pay to the beneficiaries.
With respect to (i) and (ii), and as a matter of first principle, a trustee should gain no advantage by failure to keep proper records and the court will resolve doubts against a trustee who fails to do so.[26]
[25](2011) 243 CLR 253.
[26]Ibid 270–1 [42]–[43], cited with approval by Kyrou, McLeish JJA and Ginnane AJA in Wales v Wales [2015] VSCA 345 [58].
Their Honours cite Scott and Ascher on Trusts,[27] which states:
A trustee is under a duty to keep clear and accurate accounts. These accounts should show exactly what the trustee has received and spent. They should show all investment gains and losses. If, as is usually the case, the trust is for successive beneficiaries, the accounts must also allocate all of the receipts and expenditures between income and principal.
The courts will resolve all doubts against a trustee who fails to keep proper accounts. The trustee alone is in a position to know all of the facts concerning the administration of the trust and should gain no advantage from failing to keep proper records. Any expenses and costs that arise as a result of the trustee’s failure to keep proper accounts are chargeable against the trustee personally, rather than against the trust estate.[28]
[27]Austin Wakeman Scott and William Franklin Fratcher, Scott and Ascher on Trusts (Aspen Publishers, 5th ed, 2006).
[28]Ibid Vol 3, 1186-7, §17.4 (citations omitted).
Furthermore, the Report itself notes:
Usually, [the] accountant should have some supporting documents for the transaction recorded. If there are no supporting invoices, then usually [the] accountant records it as loan accounts to beneficiaries to avoid increasing expense, decreasing trust profit and tax liabilities, which is the prudence approach.[29]
The Referee provides this above explanation in relation to a number of the transactions which are unsupported by documentation.[30]
[29]Report of Special Referee dated 6 July 2022, 9.
[30]See the Special Referee’s analysis of T1, T3, T9, T10, T18, T20, T25, T26, T30, T136 and T142.
The Report is ambivalent as to whether T136, T142, T173 and T163 have been properly accounted for. The Referee states that she is unable to determine whether the purpose of these transactions is as an expense or a loan.[31] In each instance, the reason underlying the Referee’s inability to definitively account for these transactions is the absence of relevant invoices.
[31]Report of Special Referee dated 6 July 2022, 79, 82, 95.
T136, T142, T173 and T163 were issued from the New Bank Account to which only the defendants had access. The defendants are in sole possession of the relevant information concerning the administration of the trust. Therefore, in the absence of supporting documents I find that T136, T142, T173 and T163 have not been properly accounted for as trust expenses. The proper approach is to adjust these transactions against the defendants’ beneficiary loan accounts.
T148 and T167 comprise two payments to Kensington Lawyers. The Referee did not refer to any supporting documentation to substantiate the purpose of these payments beyond the account’s bank statement, general ledger and cheque book. The plaintiff submits that in the absence of invoices issued by Kensington Lawyers, it is unclear whether the payments were made for the benefit of the No. 2 Trust. I accept the plaintiff’s submission that these amounts should be adjusted against the defendants’ beneficiary loan accounts. However, I do not accept the plaintiff’s submission that the adjustment for these transactions should be made pursuant to order 19(c)(iii) of the 6 May 2021 (the ‘Legal Expenses Adjustment’).[32] Unlike the Legal Expenses Adjustments discussed below, it is not clear that T148 and T167 comprise payments relating to the defendants’ legal costs of this proceeding. The adjustment should be made pursuant to order 19(c)(i) of the 6 May 2021 orders.
[32]Plaintiff’s Submissions on the Special Referee’s Report dated 8 August 2022, [13]–[14].
The position differs with respect to T32. T32 comprised a $693 payment to Lincoln Lawyers. The transaction was issued on 10 July 2013 from the Old Bank Account. At that time, the plaintiff was a signatory to the Old Bank Account and would herself have been subject to the duty to account discussed above. I do not consider, in those circumstances, that any ambiguities in the accounting of this transaction should be resolved in favour of the plaintiff. No adjustments to the defendants’ accounts should be made owing to a lack of supporting documentation.
Adjustments pursuant to order 19(c)(ii) of the 6 May 2021 orders
The Referee found that all five transactions identified in order 3(a)(i) of the 6 May 2021 orders were correctly accounted for. The parties made no objection to these findings. I adopt the Report’s conclusions that the five transactions have been properly accounted for as loans and can be kept without adjustment.
Adjustments pursuant to order 19(c)(iii) of the 6 May 2021 orders
With respect to Legal Expenses Adjustment the plaintiff submits that eight transactions (T83, T85, T89, T90, T93, T96, T183 and T187) should be adjusted against the defendants pursuant to order 19(c)(iii) of the 6 May 2021 order, which required:
the Defendants shares to be reduced equally by any amount that has been paid out of the assets of the No 2 Trust to pay the Defendants’ legal costs of this proceeding and the Plaintiff’s share to be correspondingly increased by that amount (the Legal Expenses Adjustment).
T83, T85, T89, T90, T93, T96, T183 and T187 are recorded variously as payments to Donald Trumble Chambers Lawyers (‘DTCH’) and to Dr Philip Bender. DTCH and Dr Bender acted for the defendants in this proceeding. T85 is a payment to Kim Tay & Associates, an accounting firm who were previously retained as accountants for the trust. The purpose of the transaction is recorded as ‘Kim Tay & Associates Accountants and Advisors bill for liaising with DTCH Lawyers’. I accept the plaintiff’s submission that these transactions fall within the scope of order 19(c)(iii) of the 6 May 2021 orders and should be adjusted against the defendants’ accounts accordingly.
Other transactions
The Referee noted a number of accounting errors in respect of five transactions. T69 recorded an overpayment in income tax for financial year 2015 of $129.35. The Referee’s comments regarding T80, T82 and T145 concern various errors in the accounting of GST. While these transactions record errors in the accounting of the No. 2 Trust, I do not consider them to warrant any adjustments to the accounts of the parties to this proceeding.
Conclusion
I consider it to be in the interests of justice to adopt the Report in part, in accordance with the findings I have made above. The following adjustments are to be made against the defendants’ beneficiary loan accounts:
(a) For the Adjustments comprised of T136 ($500), T142 ($600), T173 ($300), T163 ($2,660.63), T148 ($2,090), T167 ($1,100), a total of $7,250.63;
(b) For the Loan Adjustment, a total of $700,000;
(c) For the Legal Expenses Adjustment comprised of T83 ($3,184), T89 ($4,455), T93 ($4,158), T183 ($2,920.50), T187 ($17,681.90), T90 ($2,816), T96 ($1,654.40), a total of $36,869.80.
The defendants’ shares are each to be reduced by $372,060.22 (a total of $744,120.43 for both defendants). The plaintiff’s share is to be correspondingly increased by a total of $744,120.43. In light of the death of the second defendant on 30 September 2021, the Court anticipates that the second defendant’s share will be distributed in accordance with the terms of the 2 December 1992 deed of settlement.
In accordance with the 6 May 2021 orders, within 14 days of this determination the parties are to mutually agree upon a real estate agent to be appointed to sell the Bridge Road and Swan Street properties. If the parties cannot mutually agree upon a real estate agent, within 14 days of this determination the parties may each provide the names of two real estate agents and their charges to the Court to facilitate the appointment of a real estate agent by the Court.[33] The chosen real estate agent shall deduct from any proceeds of sale of the No. 2 Trust’s properties any selling costs and any outstanding liabilities relating to the properties, including land tax, and shall pay any remaining amount into Court to be held until further order (‘Funds in Court’).[34] Thereafter, in accordance with the 6 May 2021 order, it will be necessary for the parties to seek further orders from the Court for payment out of the Funds in Court.
[33]Order of McDonald J dated 6 May 2021, orders 15–16.
[34]Ibid order 18.
Each party bears their own costs of this proceeding, including any reserved costs. Neither party is entitled to an indemnity for those costs out of the assets of the No. 2 Trust.[35]
[35]Ibid order 23.
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