Pistorino v Connell
[2010] VSC 511
•12 November 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
No. SCI 2569 of 2010
| AURELIA PISTORINO | Plaintiff |
| v | |
| GIOVANNA GRACE CONNELL | Firstnamed Defendant |
| and | |
| CHRISTOPHER ROY CONNELL | Secondnamed Defendant |
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JUDGE: | CROFT J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 28 October 2010 | |
DATE OF JUDGMENT: | 12 November 2010 | |
CASE MAY BE CITED AS: | Pistorino v Connell & anor | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 511 | |
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COSTS – costs against trustee in breach – failure to take account and transfer to beneficiary - whether conduct delinquent and justifying indemnity costs - calculation of interest payable – whether mercantile rate or trustee rate – Re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 21; Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms C H Sparke | Lawson Hughes Peter Walsh Lawyers |
| For the First and Second Defendant | Mr J O’Bryan | O’Donnell Salzano Lawyers |
HIS HONOUR:
These proceedings were commenced by writ and statement of claim filed on 12 May 2010. In substance, the plaintiff claimed to be entitled to a one-third share in funds held in accounts maintained within a Singapore branch of the Hong Kong and Shanghai Banking Corporation (“the HSBC”).
I made orders on 11 June 2010 which, amongst other things, gave leave to the plaintiff to file and serve an amended statement of claim, and joined Mr Christopher Roy Connell, the husband of the original defendant, Mrs Giovanna Grace Connell, as a defendant. For present purposes I refer to Mrs Connell as the defendant as Mr Connell played no relevant part in events with which the present applications are concerned.
In the context of the present applications it is not necessary to dwell on the underlying facts and circumstances in which this proceeding arose.
The defendant deposed in an affidavit dated 11 June 2010, which was filed in the proceedings on that day, that the money now held in the account with the HSBC in Singapore, the subject of these proceedings, was a gift to the defendant and her children. Further, she deposed that the purpose of the money was to meet the cost of holidays and sundry expenses when the family was overseas. Critically in the present context it is common ground that the beneficial entitlement to this money included the defendant’s one-third interest and also the plaintiff’s one-third interest. Also critical in the present context is that it is common ground that the quantum of the fund as at 11 June 2010 was in the vicinity of $US2.1 million. It should also be noted that in spite of the fact that the evidence given by the defendant for the purposes of the hearing on 11 June 2010 was not accurate with respect to the amount of money she had withdrawn from the fund for her own purposes there is no suggestion or claim that the total amount of money which she did draw from the fund, in the vicinity of $US210,00, was anything but money to which she was beneficially entitled. In other words, this is not a case where a trustee has wrongfully used trust funds for his, her or its own benefit and is, consequently, subject to remedial measures in the exclusive jurisdiction in equity, measures which would be expected to include disgorging actual or notional profits.
The present proceeding was commenced at the same time as a multiplicity of proceedings between the present parties, or some of them, and other members of the same or related families have been progressing through interlocutory, case management and other stages in the Commercial Court. Reference was made in the course of the hearing of this application to the defendant’s evidence that she was concerned to protect the fund the subject of these proceedings from another family member or members as a result of the family disputes or disagreements playing out in these other proceedings. The plaintiff objected to the relevance of this evidence and submitted that the defendant’s obligation as trustee of the fund was to deal with that separate fund as trustee without regard to irrelevant considerations arising out of the broader family disagreements or dispute. As I indicated at the hearing of this matter I am of the view that this is undoubtedly the correct view. This is all the more so in the absence of any evidence to suggest any actual threat to the fund which could not be addressed by the defendant observing the usual standards and duties of a trustee with respect to the fund.
An additional element in the factual situation is that the fund was transferred by the defendant into an account in the name of, and formally controlled by, the second defendant, Mr Connell, her husband. Her explanation for the transfer of the fund to an account in her husband’s name was that she thought this would make the fund more secure, because, in the vernacular, it would be “one step removed” from the family dispute or disagreements with which she is more closely involved. Again, I do not accept that the family situation is relevant in the present context, particularly in the absence of evidence of any threat to the security of the fund, as indicated previously. For present purposes, there is no suggestion that the defendant is not in a position to control the disposition of the fund. Further, there is no evidence that the defendant was not in a position to control disposition of the fund at any relevant time previously. Nevertheless, as the defendant’s husband, Mr Connell, remains a party to these proceedings he is therefore subject to any directions and orders of the Court with respect to the fund should this be necessary.
Applications and orders of 11 June 2010
On 11 June 2010 the plaintiff moved for summary judgment. As a result of this application an order was made enjoining the defendant and her husband, Mr Connell, from dealing with, withdrawing, charging or otherwise encumbering funds held in his name in two specified accounts at the Singapore branch of the HSBC. A further order was made that the defendant and her husband take all necessary steps to ensure and facilitate the transfer of one-third of the balance of monies held in these accounts to the trust account of the plaintiff’s solicitors, namely Lawson Hughes Peter Walsh Lawyers. It was noted that the plaintiff’s share of the two accounts consisted of €EUR284,818.80 and $US342,024.23, respectively.
The evidence of the defendant which was before the Court on 11 June 2010 was that she (or her husband) had withdrawn the sum of $US50,000 from the accounts. Consequently orders were made for the purpose of calculating the amount payable to the plaintiff. These orders required the taking of necessary accounts and enquiries to determine, in summary:
(1)if any further monies had been removed from the accounts beyond the sum of $US50,000 that the defendant estimated she had used from the fund;
(2)what interest had been earned on the funds in these accounts; and
(3)the final balance to which the plaintiff was entitled on the basis of her beneficial ownership of the fund to the extent of a one-third share.
The result of these accounts and enquiries would enable a calculation to be made of the amount of money that needed to be transferred from these accounts to the plaintiff in accordance with the extent of her beneficial interest.
On 15 June 2010 €EUR248,818.08 and $US342,024.23 was paid to the plaintiff in accordance with the orders of 11 June 2010. Johnson Partners, a firm of accountants, prepared interim accounts for the basis of their review of the bank accounts between November 2008 and 8 May 2010. The result of that review was summarised in a letter dated 30 June 2010 from that firm to the defendant. Omitting formal parts, the summary provided was as follows:
· We believe the total amounts removed by either or both of the Defendants since November 2008 from the accounts $US167,469.36;
· No amounts of interest are yet to be credited to the accounts;
· The balance of the accounts were €EUR854,456.42 and $US976,072,72 at 8 May 2010. The accounts were in Mr Connell’s name;
· Interest of €EUR3,094.19 and $US1,411.54 was earned on the funds in the accounts since November 2008;
· Based on total withdrawals of $US167,469.36 from November 2008 to 8 May 2010 and the allowance of $US50,000 already made as part of the Consent Order of 11 June 2010, the balance to be transferred to the plaintiff is $US39,156.45 (being one third of $US117,469.36).
On 30 July 2010 further orders were made providing for the payment of $US39,156.45 by 6 August 2010 and for the production of additional documents, including bank statements. On 3 August 2010 $AUD42,432.72 was paid to the plaintiff.
On 17 August 2010 Johnson Partners prepared a final report in relation to the bank accounts, which showed that the sum of $US53,195.04 was owing to the plaintiffs. That figure did not include an allowance for the equivalent of the $US39,156.45 already paid on 3 August 2010. Accordingly, as at the date of the Johnson Partners Final Report, $US14,038.59 was owing to each plaintiff. On 21 September 2010 this sum was paid to the plaintiff, in the sum of $AUD14,592.62.
Plaintiff’s entitlement to interest
By letter dated 30 September 2009, Brand Partners, the then solicitors for the defendant, acknowledged in an open letter to Lawson Hughes Peter Walsh, solicitors for the plaintiff, the plaintiff’s entitlement as to a one-third beneficial interest in the funds, in the following terms:
“7. The funds remain in the bank account with this HSBC Bank in Singapore and your client remains entitled to one-third of the balance of the funds in that account. We are instructed that the current balance of the accounts is S$3,362,782.59 (Singapore Dollars).
8. We invite your client to nominate a bank account in which she requires her one-third of the funds to be transferred. At the day’s exchange rates, the value in Australian dollars of the funds held in the overseas account is AUD$2,733,982.73. Your client’s share of those funds is AUD$911,327.58.”
The defendants’ evidence that the plaintiff never responded to the request to nominate a bank account into which her one-third share of these funds would be deposited was neither challenged nor explained by the plaintiff. Nonetheless, a further demand was made on behalf of the plaintiff by letter dated 1 April 2010 from her solicitors to the then solicitors for the defendant, Hall & Wilcox Lawyers. That letter made reference to the 30 September 2009 letter referred to above, and nominated an account for deposit of the plaintiff’s share in the trust account within seven days. Presumably as no such deposit was made, a further letter dated 29 April 2010 was sent by and to the same parties. This letter again referred to the 30 September 2009 letter, and stated that the plaintiff had given instructions to commence proceedings if the defendant did not supply various bank statements and account to the plaintiff. No explanation was provided by the plaintiff for the delay in commencing proceedings in spite of no funds having been received after the acknowledge of entitlement in the 30 September 2009 letter on behalf of the defendant. Nevertheless, the plaintiff submitted that she was forced to commence proceedings to obtain payment of these funds, by way of the filing of the writ and the statement of claim, to which reference has already been made, on 12 May 2010.
The plaintiff submitted that even after the proceedings were issued on 12 May 2010 no payment was made and, consequently, a summons was issued on 9 June 2010 for the applications to which reference has been made, which were heard on 11 June 2010.
The plaintiff’s summons for the purposes of the present application was amended to include a claim for interest both pursuant to statue and also under the general jurisdiction in equity to make such an order.
The plaintiff submitted that there are a number of components to interest, namely:
(1)interest by way of equitable damages to the extent monies were withdrawn from the fund by the defendants;
(2)accurate calculations of interest actually accruing on the fund (said to be yet to be determined as a matter of accounting);
(3)interest since the initial demand was made (from 30 September 2009 to 1 April 2010) under s 58 of the Supreme Court Act 1986 (Vic), or in equity by analogy with the provisions of the statute;
(4)interest since judgment.
The plaintiff submitted that the Court has a discretion to award interest where justice demands it,[1] instances of which include where a trustee has been negligent or delayed in making investments[2] or has misappropriated funds.[3] The plaintiff also submitted that equity awards what the defendant is taken to have made on the fund, whether actually made or not,[4] and where a trustee has misapplied money or used it for his or her own benefit the Court “presumes that the party against whom relief is sought has made that amount of profit which persons ordinarily do make in trade…”.[5] Finally, reference was made to Murdocca v Murdocca (no 2)[6] where Campbell J said (at [6]-[8]):
[1]See Hungerfords v Walker (1989) 171 CLR 125 at 148 (Mason CJ and Wilson J).
[2]Duke Group v Pilmer (1999) 73 SASR 64 at 236, reversed on other grounds on appeal.
[3]See Wallersteiner v Mohr (No 2) [1975] 1 QB 373; and see Hungerfords v Walker (1989) 171 CLR 125.
[4]Harrison v Schipp [2001] NSWCA 13 at [129].
[5]Wallersteiner v Mohr (no 2) [1975] 1 QB 373.
[6][2002] NSWSC 505.
“Equity has a broad jurisdiction to order the payment of interest whenever a person who is under an equitable obligation to pay a sum of money and fails to do so. In Hungerfords v Walker (1989) 171 CLR 125, at 148 Mason CJ and Wilson J said:
‘Equity has adopted a broad approach to the award of interest. It has long been accepted that the equitable right to interest exists independently of statute: Wallersteiner v Mohr [No 2] [1975] 1 QB 373. Equity courts have regularly awarded interest, including not only simple interest but also compound interest, when justice so demanded, eg money obtained and retained by fraud and money withheld or misapplied by a trustee or fiduciary: La Pintada [1985] AC 104 at 116’
Some examples of the circumstances in which the equitable jurisdiction to award interest has been exercised has been set out in Mason and Carter Restitution Law in Australia, page 959-964. They include requiring a defaulting fiduciary (including a defaulting trustee) to pay interest, and requiring payment of interest when effecting restitution in integrum when a contract is rescinded. If a mortgagor came to equity to redeem, and had not given adequate notice of intention to redeem, equity would require the payment of interest in lieu of notice (Ashburner’s Principles of Equity, 2nd ed. Page 215). Equity treats and equitable charge on land as bearing interest, even if there is no specific agreement to pay interest (In Re Drax; Savile v Drax [1903] Ch 781). See also Hermann v Charny [1976] 1 NSWLR 261, at 269 per Hutley JA, with whom Glass and Samuels JJA agreed.
If Cosimo had failed to pay the $512,500 through intransigence, or indolence, I would have no doubt that an Equity Court would order interest be payable upon that sum from 29 December 1998 until the date of payment.”
In response the defendant relied upon the decision of Cohen J in the Equity Division of the Supreme Court of New South Wales in Pateman v Heyen[7] and on the decision of the New South Wales Court of Appeal in Alemite Lubrequip Pty Ltd v Adams.[8] In the Court of Appeal, Handley JA (with whom Gleeson CJ and Sheller JA agreed) said:[9]
[7](1993) 33 NSWLR 188.
[8](1996) 41 NSWLR 45.
[9](1997) 41 NSWLR 45 at [46] and [47].
“There were two issues before His Honour. First, the rate of interest which would be awarded and secondly, whether interest should be computed on a simple or compound basis. His Honour held that the lower so-called trustee rate of 8 per cent should be awarded rather than the higher so-called mercantile rate, and that interest should be computed on a simple, rather than a compounding, basis. The appellants have challenged his Honour’s decision as to the rate of interest, but not his decision that compound interest should not be awarded.
The judge summarised the principles which he distilled from the authorities as follows:
‘Where the situation is more analogous to trustee responsibility than a commercial one and the trustees have acted honestly and in good faith but have made a mistake or an error of judgment or been negligent (but not grossly so) and have not
(a)profited from the breach of trust, or
(b)used the moneys for their own purpose;
(c)been guilty of fraud, serious misconduct or gross negligence; or
(d)received compound interest on the moneys in question;
Simple interest at the trustee rate is usually selected.’
…
The liability of trustees for interest was carefully considered by Street J in Re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 21, and by Kearney J in Hagan v Waterhouse (1991) 34 NSWLR 308. In my opinion, the statements by those judges of the principles which are applied in determining the rate at which trustees should be ordered to pay interest on moneys they are bound to recoup to the trust estate are correct and should be followed by this Court.”
In Pateman v Heyen,[10] Cohen J considered a claim by a plaintiff that the defendant was in breach of his duty as trustee of a deceased estate by failing to maintain a policy of fire insurance over a house which formed part of the estate and failed to obtain the best rent available for that house. An order was sought that the defendant compensate the plaintiff for the amount lost as a result of a fire which destroyed the house and also in respect of the additional rent which the plaintiff should have been obtained. In relation to the interest claim, Cohen J said:[11]
“Trustees are liable to pay interest in respect of such a loss but will not be required to do so at what might be regarded as a mercantile rate if the breach arises out of mere negligence or inadvertence: see re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd (1966) 84 WN (Pt 1) (NSW) 399; [1966] 2 NSWR 211. That case referred to what is sometimes called trustee rate of interest as being 4 per cent. This may have been appropriate in earlier days but inflation has required that there be an increase in that rate. This was considered by Kearney J in Hagan v Waterhouse (Kearney J, 28 November 1991, unreported) the relevant passage from which is set out in ‘Interest Payable by Trustees’ (1993) 67 ALJ 471. His Honour referred to recent cases which had applied a rate of 8 per cent as the trustee rate and he adopted that as appropriate.”
[10](1993) 33 NSWLR 188.
[11](1993) 33 NSWLR 188 at [200].
These and other authorities indicate that the purpose of an award of interest against a trustee is to provide compensation for the beneficiaries and not to impose a penalty on the trustee.[12] This position is made particularly clear by Street J in Re Dawson:[13]
“The court’s jurisdiction in selecting the appropriate rate of interest is exercisable solely for compensatory purposes. Although orders for interest may in some cases appear to have the effect of penalizing defaulting trustees, the court does not, in ordering interest and in selecting a rate, attempt in any way to impose a punishment upon the defaulter (Vyse v Foster (1872) 8 Ch App 309. The practice of imposing a higher rate in the second class of case is based upon a requirement that the defaulter compensate the estate at the mercantile rate. The lesser rate of four per cent applied in the first class of case is a special rate which represents some concession in favour of the trustee: the assessment is made by reference to interest considered to be obtainable on authorized trustee investments rather than on the higher mercantile rate.”
There was no evidence provided in relation to an interest rate which might be described as “the higher mercantile rate” as discussed in the authorities to which reference has been made. Evidence was provided by the plaintiff’s solicitor that the interest rate of 4.55% per annum was the rate being earned on the plaintiff’s share of funds received from the defendants which was being held on trust by Lawson Hughes Peter Walsh, the plaintiff’s solicitors, in a controlled monies deposit account with the Westpac Bank. It was not disputed by the defendant that an interest rate of 4.55% per annum could be accepted as the “trustee rate”.[14] In any event, this rate is significantly less than the rate of interest which would be payable under the Penalty Interest Rates Act 1983 (Vic) in the event that s 58 of the Supreme Court Act 1986 (Vic) were applied or, alternatively, it seems, market rates of interest.
[12]See, particularly, Re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd (1996) 84 WN (Pt 1) (NSW) 399 at 408-9 at (Street J) and Hagan v Waterhouse (1991) 34 NSWLR 308 at 391-2 (Kearney J); and see Young, Croft and Smith, OnEquity [16.1570]; and also “Interest payable by trustees” (1993) 67 ALJ 471-2 (PWY).
[13](1966) 84 WN (Pt 1) (NSW) 399 at 409.
[14]The fact that the defendant offered the plaintiff the higher rate of 6%, being an amalgam of something in the nature of the “trustee” and “mercantile” rates in the context of an open offer of settlement does not, in my view, affects this position.
I accept the plaintiff’s submissions that the defendant was in breach of its duty as trustee of the fund in not paying the plaintiff’s one-third share to her as a result of her demand for payment. Nevertheless, as indicated previously, the evidence is that when solicitors acting for the defendant acknowledged the plaintiff’s entitlement they also requested the assistance of the plaintiff in nominating a bank account to enable the plaintiff’s share of the fund to be transferred to her. The plaintiff, however, did not assist by providing bank details and so her conduct then could not be described as helpful or facilitative. The next step taken by the plaintiff was a further demand by letter of 1 April 2010, followed by the commencement of these proceedings.
On the basis of the authorities to which reference has been made, and in the absence of any evidence on behalf of the plaintiff of any loss or damage flowing to her as a result of loss of use of her share of the trust fund in the meantime, I am of the opinion that she is entitled to interest equivalent to something in the nature of a “trustee rate” but not interest at some higher “mercantile” or penalty rate. For present purposes a rate accepted as something in the nature of the “trustee rate” is in my view 4.55% per annum for the reasons previously indicated. In all the circumstances, I am of the view that this rate provides appropriate compensation to the plaintiff for delayed payment of her share of the trust fund to her. Having regard to events between the acknowledgement of her entitlement on behalf of the defendant on 30 September 2009, her inaction in response, and the demand prior to the issue of these proceedings, she is in my view only entitled to be compensated at this rate from the date of demand prior to the issue of these proceedings; which was made by letter dated 1 April 2010. Further, in light of the circumstances to which reference has been made, I am of the view that the plaintiff’s entitlement to interest at this rate shall continue until actual payment. There is no basis to vary the rate or entitlement to payment by reference to the date of judgment in these proceedings.
Costs
It was common ground that the Court has power, in the exercise of its discretion in relation to costs, to award costs on a special basis including on an indemnity basis in appropriate cases.
Special circumstances must be present to justify any departure from the usual order as to costs. In this respect the plaintiff relied upon the decision of the Court in Ugly Tribe Co Pty Ltd v Sikola.[15] The special circumstances of relevance in this respect were set out by Harper J in Ugly Tribe Co Pty Ltd v Sikola[16] as follows:
[15][2001] VSC 189, citing Australian Electoral Commission v Towney (no 2) (1994) 54 FCR 383.
[16][2001] VSC 189.
“7. In seeking costs on an indemnity basis, the first defendant is asking the Court to depart from its usual course: Spencer v Dowling. Special circumstances must be present to justify such a departure: Australian Electoral Commission v Towney (no 2). The include:
(i)The making of an allegation, known to be false, that the opposite party is guilty of fraud: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd. (1988) 81 A.L.R. 3978
(ii)The making of an irrelevant allegation of fraud: Thors v Weekes (1989) 92 A.L.R. 131
(iii)Conduct which causes loss of time to the Court and to other parties: Tetjo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court, French, J., 3 May 1991)
(iv)The commencement of a continuation of proceedings for an ulterior motive: Regata Developments Pty Ltd v Westpac Banking Corporation (unreported, Federal Court, Davies, J., 5 March 1993)
(v)Conduct which amounts to a contempt of court: EMI Records Ltd v Ian Cameron Wallace Ltd [1983] Ch. 59
(vi)The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law: J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (W.A.) Branch (No 2) (1993) 46 I.R. 301
(vii)The failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided, the trial: National Australia Bank v Petit-Breuilh (No 2) (unreported, [1990] VSC 395, 18 October 1999).”
It is also clear that it is the conduct of the party as a litigant that is relevant to the exercise of the discretion to award costs on a special basis.[17]
[17]NMFM Property Pty Ltd v Citibank Ltd (no 2) (2001) 109 FCR 77 at 92 (Lindgren J).
The defendant also made reference to the judgment of Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd[18] where his Honour said (at 401):
“I believe that it is appropriate to consider awarding ‘solicitor and client’ or ‘indemnity’ costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the Court will need to consider how it should exercise its unfettered discretion.”
[18](1988) 81 ALR 397.
The basis upon which a special costs order ought to be granted was the subject of the plaintiff’s submission as follows:[19]
[19]Outline of submissions on behalf of Aurelia Pistorino (26 October 2010), paragraph 11.
“An unusual costs order should apply to Ms Connell given her ‘delinquent conduct’:-
(a)by letter dated 30 September 2009 she acknowledged plaintiff’s entitlement to one third of the fund (exhibit “AP 3” to the plaintiff’s first affidavit). Despite that acknowledgement, no payment was made, even after demand on 1 April 2010 (Connell 11/6/10 aff. para 114).
(b)plaintiff was forced to commence proceedings (12 May 2010). Even after proceedings were issued, still no payment was made. A Summons was issued 9 June 2010.
(c)the defence of the proceedings was delinquent and time-wasting:-
- Mrs Connell was unco-operative in accepting service of the writ (affidavit Bill Palamaras 19 May 2010; Andrew Gunn 26 May 2010:
- She filed a conditional appearance (1 June 2010) and sought adjournment of 4 June 2010 hearing to take a jurisdictional point
- On 11 June 2010 abandoned jurisdictional point and did not contest orders being made (11 June 2010 transcript T17.3, T22)
- On 11 June 2010 she filed substantive affidavit material. For the first time advised that part of the fund had been used (Connell aff 11/6/10), para 112) and the fund transferred to her husband (para 31) in approximately July 2009.
(d)Her conduct of the fund and the proceedings has not been frank but ‘delinquent’:-
- the fund had been shifted to her husband. (11 June 2010 transcript T10.5) It had been shifted apparently without having told her solicitors (given the acknowledgement of the plaintiff’s ownership of a share of the fund without disclosing the fund having been moved).
- she advised the court that USD$50,000 had been used by her and her family. The parties and the Court relied on that in consenting/making orders on 11 June 2010 which included calculations of the amounts to be paid to the parties. That was false information, as an amount of USD$167,469 had (as at 8 May 2010 – prior to hearing) in fact been used by the defendants. (Johnson Partners account 30 June 2010, ‘CRC2’ and ‘JCG2’ Chris Connell and Joanne Connell affs 31/8/10) On further reconciliation an amount of USD$209,585 had in fact been used. (Johnson Partners account 17 August 2010, ‘CRC6’ and ‘JCG6’ Chris Connell and Joanne Connell affs 31/8/10)
- as a result of that difference, further orders were made on 30 July 2010.”
For the reasons indicated in relation to my consideration of the plaintiff’s claim for interest I do not accept that the defendants’ conduct can be described as “delinquent” in terms of the matters set out in paragraphs 11(a) or (b) of the plaintiff’s submissions in support of the claim for a special costs order until the demand of 1 April 2010. The plaintiff did not assist in facilitating the payment of its share of the trust fund in the manner requested by the defendants’ then solicitors in the letter of 30 September 2009, and nor did she pursue that acknowledgement of entitlement until the 1 April 2010 demand prior to the issue of proceedings on 12 May 2010. In my opinion, by the time of the 1 April 2010 demand, it is fair to say that the plaintiff was “forced to commence proceedings” because, even having regard to the previous unexplained failure of the plaintiff to facilitate the transfer of funds, the trustee could not excuse her inaction in failing to pay the funds or taking further steps to effect payment of the funds, following her admission of the plaintiff’s entitlement on 30 September 2009.
In relation to the defence of the proceedings, I do not accept that the evidence establishes that the defendant was significantly uncooperative in accepting service of those proceedings and am inclined to regard the affidavits of the two process servers involved as indicating in the first instance that the defendants was “not at home” and in the second instance there may have simply been a misunderstanding of some kind. In any event, I asked whether there was any correspondence between solicitors prior to steps being taken to effect personal service whereby, as is common practice, one might have expected a request to be made of the defendants’ solicitors to accept service on her behalf. No such letter could be pointed to or produced.
In relation to the abandoned jurisdictional point raised by the defendant, I am inclined to the view that it was unmeritorious, it having been abandoned without explanation and never pleaded. Submissions to the contrary on behalf of the defendant suggested that there may have been issues and difficulties in relation to the transfer of funds from a Singapore bank account which may have raised jurisdictional issues because of the possible need to obtain orders binding the HSBC in Singapore. I am disinclined to accept this as an explanation as, in the absence of any formulation of the jurisdictional point and the provision of any evidence in support, it can only be treated as speculation; and very general speculation at that. As I indicated at the 11 June 2010 hearing when this jurisdictional point was raised, it seemed unlikely that there was any fundamental jurisdictional issue as the defendant was within the jurisdiction and equitable relief was being sought, which was particularly relevant as equity acts in personam. In any event, the defendant never provided any explanation of the basis for any jurisdictional point or any difficulty whatsoever in transferring the funds from Singapore. Subsequent events would appear to indicate that there was no difficulty whatsoever, as funds were transferred to the plaintiff.
Also disturbing in terms of the defendant’s conduct as a litigant was her failure to inform the Court the extent to which she had drawn monies from the trust fund for her own use. As indicated, there is no suggestion that she was not beneficially entitled to the money that she drew from the fund, but there was a very significant disparity in her evidence to the Court on 11 June 2010 when she advised that $US50,000 had been used by her and her family when the true position, later established, was that approximately $US210,000 had been drawn from the fund for her own use. As submitted by the plaintiff, the failure to disclose the true position meant that the reconciliation of the state of the bank accounts in which the fund was held by Johnson Partners was made more difficult than it might otherwise have been. Additionally, I accept that this was something which might be anticipated to have the potential to cause further cost or delay in the course of taking the accounts and enquiries which Johnson Partners undertook in accordance with the orders of 11 June 2010. This failure did in fact necessitate further orders on 30 July 2010 as the figures were, consequently, wrong Admittedly, it must be kept in mind that this significantly incorrect or non-disclosure was by the defendant, as trustee to a court of equity, the jurisdiction of which had been enlivened with respect to that particular trust. It goes without saying that the utmost care and candour would be expected of a trustee in these circumstances.
Having regard to these matters I am of the opinion that the defendant has not facilitated the proceedings and the taking of accounts and the making of enquiries in all the circumstances; particularly having regard to the beneficial entitlement of the plaintiff to a one-third share of the fund. The defendant has also, in my view, both compelled the plaintiff to commence these proceedings, and allowed them to continue unnecessarily, particularly in forcing matters to the orders of 11 June 2010 and 30 July 2010. Further, these matters need to be viewed in the context of a situation where the defendant, as a trustee, was in breach of trust in failing to pay over to the plaintiff, a beneficiary, her share of the trust fund to which she was entitled, as acknowledged on behalf of the defendant as trustee.
For the reasons set out above, I am satisfied that the extent to which special circumstances are established would justify an order for costs against the defendant on an indemnity basis.
The Freezing Order
The defendant applied for an order lifting the “freezing orders” contained in the orders of 11 June 2010. In all the circumstances, particularly having regard to the history of this matter, I am of the view that the defendant will not be prejudiced if the freezing order is maintained until evidence is provided of the final payment of the whole of the one-third share of the fund to which the plaintiff is entitled and also the payment of the plaintiff’s costs as ordered in this proceeding. After this has occurred, the freezing order will be lifted. In this context, I note the defendant’s concession that interest and costs should be paid out of the defendant’s share of the fund (though accepting that the defendant argued that circumstances were not exhibited which would support the granting of a special costs order).
Conclusions and orders
For the preceding reasons I will order that the defendant pay to the plaintiff the unpaid balance of her share of the fund, together with interest on the whole of the plaintiff’s share of the fund at the rate of 4.55% per annum on and from 1 April 2010 until the date of the payment, and that the defendant pay the plaintiff’s costs of this proceeding on an indemnity basis. To the extent that the plaintiff’s share of the fund was paid to her in multiple payments, it follows that interest is to be calculated on the balance of her share of the fund which was unpaid from time to time. I will also make an order lifting the “freezing order” as and when the plaintiff’s share of the fund is paid to her in full, and interest and costs are also paid in full.
I will hear the parties in relation to the form of the orders be made on this basis and reserve the question of the costs of the application heard on 28 October 2010.
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