Re T and the Protected Estates Act
[2000] NSWSC 1022
•31 October 2000
CITATION: Re T and the Protected Estates Act [2000] NSWSC 1022 CURRENT JURISDICTION: Equity Division
Protective ListFILE NUMBER(S): SC G304/2000 HEARING DATE(S): 31/10/2000 JUDGMENT DATE: 31 October 2000 PARTIES :
The names of the parties are suppressed in cases in the Protective List.JUDGMENT OF: Young J
COUNSEL : The proceedings were heard in Chambers without representation. SOLICITORS: CATCHWORDS: EQUITY [135]- Trustee- Conflict- Whether trustee should appoint self to be a director of company controlled by trust MENTAL HEALTH [8]- Administration of property- Whether manager should be appointed director of incapable person's company. LEGISLATION CITED: Corporations Law, ss 180-182
Protected Estates Act 1983, s 12CASES CITED: Bartlett v Barclays Bank Trust Co Ltd [1980] Ch 515
Re Gee [1948] Ch 284
Guazzini v Pateson (1918) 18 SR (NSW) 275
In re Macadam [1946] Ch 73
Mordecai v Mordecai (1988) 12 NSWLR 58
Re Orwell's Will Trusts [1982] 1WLR 1337
Princess Ann of Hesse v Field (1962) 80 WN (NSW) 66
Re Sharp [1945] VLR 31
Re Taylor [1950] VLR 476DECISION: See para 15.
THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
PROTECTIVE LIST
YOUNG J
TUESDAY 31 OCTOBER 2000
G304/2000 - RE T AND THE PROTECTED ESTATES ACT
REASONS FOR DIRECTIONS
1 HIS HONOUR: Directions are sought pursuant to s 12 of the Protected Estates Act 1983 as to whether the manager of an incapable person should be empowered to appoint himself and another person as directors of a company controlled by the incapable person before her disability. Because the matters that arise for consideration on this application have general application, I have been asked to give detailed reasons.
2 T, the incapable person, is now 91 years of age. She is widowed and has no children. Her assets are estimated to amount to approximately $22,000,000, the bulk of which are held within a private company, L Pty Ltd. At the date of this application for directions, T was the sole director of L Pty Ltd.
3 The current state of affairs came about by chance. Until his sudden death on 28 January 2000, T’s accountant, K, was in control of all T’s affairs. He was a director of L Pty Ltd and was a signatory on T’s cheque account. K paid all T’s bills including household expenses. K had for many years been a partner in a well known Sydney firm of chartered accountants. After K’s death, R, another former partner of that firm and now a consultant to it, de facto managed T’s affairs as far as he could. On 9 May 2000, the Guardianship Tribunal appointed R as T’s manager under the Protected Estates Act 1983.
4 The direction sought is that R requisition a meeting of shareholders of L Pty Ltd at which R and a present partner in the firm of accountants will be appointed directors. Whilst I was considering this application, an urgent need for directors to be appointed for L Pty Ltd arose and I gave an authorisation to deal with that emergency. I now deal with the application on a final basis.
5 The question of principle that arises is whether a manager should be the director of an incapable person’s companies or whether he or she should appoint a third person as director.
6 There does not seem to be any precedent that would govern the answer to this question. Although this matter was considered in chambers without representation, the Equity Division researcher spent some time considering what precedent might assist. Neither her research, nor mine, has absolved me from approaching the problem from first principles.
7 The same problem arises where a trustee may appoint himself or herself as a director of companies controlled by the trust.
8 Scott on Trusts 4th ed (Boston, 1987) at [170.22] says:
“It not infrequently happens that a trustee holding shares of a corporation as a part of the trust estate is or becomes an officer or director of the corporation. In such a case the question arises whether he is accountable to the trust for the salary he receives from the corporation. In some cases he has been held accountable.”
The principal authority for that proposition is In re Macadam [1946] Ch 73.
9 Scott thus considers that in principle there is nothing to prevent a trustee appointing himself a director, but there may be problems with respect to breach of fiduciary duty by personally receiving remuneration as such director. This latter point has been expounded in later cases such as Re Gee [1948] Ch 284 and Re Orwell’s Will Trusts [1982] 1 WLR 1337. See also the Australian cases Guazzini v Pateson (1918) 18 SR (NSW) 275; Re Sharp [1945] VLR 31; Re Taylor [1950] VLR 476; Princess Ann of Hesse v Field (1962) 80 WN (NSW) 66 and Mordecai v Mordecai (1988) 12 NSWLR 58. The subject is well reviewed in Jacobs Law of Trusts, 6th ed (Butterworths, Sydney, 1997) at para [1749] and Parker and Mellows, The Modern Law of Trusts, 6th ed (Sweet & Maxwell, London) at pp 536-8. There is no need to analyse these cases as whatever their import, it is clear that the Court may, by order, put the matter beyond dispute.
10 Apart from fiduciary duties, a director owes certain duties of skill and care: see Corporations Law ss 180-182. An illustration of how this duty may become relevant in circumstances like the present is afforded by Bartlett v Barclays Bank Trust Co Ltd [1980] Ch 515.
11 Ordinarily, it would seem to me that it is unwise for the beneficiaries of a trust to consent to the trustee personally being appointed as director as if this occurs, there will be no-one to watch for breaches of fiduciary duties or duties of care. A fortiori this applies when the beneficiary is an incapable person.
12 However, whilst this must be the general rule to be applied in these types of cases, one must be careful to give justice in each individual case.
13 One must always balance the strict law with the exigencies of each case. Where there is only a small estate, the cost of an extra person acting as a director may be disproportionate to the risk being avoided by such an appointment. This is particularly so when it is remembered that the Protective Court never gets too upset if the carer for a protected person obtains collateral benefits such as rent free accommodation.
14 In the present case, the affairs of L Pty Ltd are, from a commercial viewpoint, an integral part of the management of the estate. The persons proposed to be appointed directors are skilled accountants of the firm in whom the incapable person has put her trust, apparently without complaint, for 40 years. It is proposed that two accountants be appointed thus producing the situation where one can keep watch on the other.
15 Thus, on the basis that the manager does not charge for his time as a director on any greater basis than he charges for his ordinary time as manager, and that the co-director is remunerated on a time basis at proper rates, I will, in this case, give the direction sought. If what has occurred since the application was lodged means that the direction should be amended, I will sign any appropriate amendment in chambers.
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