Redvers Maclaine Morrison v Russo and Ors
[2012] VSC 372
•31 August 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST C
No. SCI 2011 6772
BETWEEN
| IAN REDVERS MACLAINE MORRISON (WHO SUES IN THE CAPACITY OF TRUSTEE OF THE NORMAN RUSSO FAMILY TRUST) | Plaintiff |
| and | |
| JOHN JOSEPH RUSSO | First Defendant |
| and | |
| NANCY RUSSO | Second Defendant |
| and | |
| KENDALL TOWER PTY LTD | Third Defendant |
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JUDGE: | SIFRIS J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 23 August 2012 | |
DATE OF JUDGMENT: | 31 August 2012 | |
CASE MAY BE CITED AS: | Redvers Maclaine Morrison v Russo & Ors | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 372 | |
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TRUSTS AND TRUSTEES – Application by Trustee for approval of compromise – Supreme Court (General Civil Procedure Rules 2005 (Vic) rr 16.02 and 54.02.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr. J.D Merralls QC and Mr. S. Wotherspoon | H.M Hearn |
| For the first and third Defendants | Mr. G.R Ritter QC and Mr. P.H Clarke | Harwood Andrews Lawyers |
| For the second Defendant | Mr. R. Macaw QC and Mr S. McNab | Cornwall Stodart |
| For Nancy, Rose and Patricia Russo | Mr. W. Alstergren | McKean Park Lawyers |
HIS HONOUR:
The plaintiff is trustee of the Norman Russo Family Trust (“the Trust”).
In his capacity as trustee of the Trust, the plaintiff has commenced this proceeding against the defendants. In the statement of claim, the plaintiff alleges that the defendants in effect diverted funds from the Trust into their own names. It is unnecessary to set out in detail the nature and factual basis of each claim. It is sufficient to say that the funds allegedly diverted from the Trust comprise the following amounts:
a) $2,742,678 (14 May 2003);
b) $503,449 (5 September 2007);
c) $50,000 (3 December 2008); and
d) $87, 642 (25 May 2010).
The Plaintiff has traced a large part of these funds into an account in the name of the second defendant (“Mrs Russo”). Other claims are also made and together with interest, the claim made by the plaintiff is in the many millions of dollars.
The proceeding was fixed for trial on 21 August 2012. Prior to the commencement of the trial, the parties announced that the proceeding had settled subject to the approval of the Court. In substance the settlement was to the effect that the defendants would jointly make payment to the plaintiff of the sum of $3.25 million. As between the defendants, it was agreed that Mrs Russo would contribute the sum of $2,000,000 and the first and third defendants would contribute the sum of $1.2 million.
In my opinion, the compromise between the plaintiff and the defendants was desirable and appropriate and in the interests of all parties. The compromise was approved by the Court on Tuesday 21 August 2012 and orders were made on that day.
The compromise between the plaintiff and the defendants was reached after each party obtained legal advice from senior counsel. The dispute was, and to some extent remains ,acrimonious and it was most desirable that it be resolved in order to obviate the need for a reasonably long, expensive and emotional trial.
The plaintiff received written advice from both senior and junior counsel to the effect that the settlement was in the best interests of the Trust and that the trustee would be acting properly in accepting the compromise. Based on that advice, the trustee was justified in entering into the compromise.
The defendants also received advice from senior counsel. The advice obtained by Mrs Russo was not in writing but is deposed to with sufficient precision by Peter Jeffrey Macnish in an affidavit sworn 20 August 2012 (“the Macnish Affidavit”). I accept that based on this advice and advice received by the first and third defendants from senior counsel, the defendants were properly justified in entering into the compromise in order to avoid the complications, uncertainty and costs of a complex trial and potentially adverse findings against them.
In light of all of the relevant parties having agreed to the compromise based on advice from senior counsel, the court should have little hesitation in approving the compromise. Nevertheless, having read the pleadings and advice of senior and junior counsel for the plaintiff and having considered the matter including the length and complexity of the trial and associated costs and risks, I am of the opinion that the compromise is reasonable and desirable and should be approved by the Court so that it is binding on all parties.
Mrs Russo is concerned that in making payment of $2,000,000 to the plaintiff – which she otherwise considers desirable and appropriate – she will be open to attack for diminishing the fund or trust arising out of the mutual wills of Mrs Russo and her late husband Norman Russo (“the Wills Trust”). Conscious of the obligation to preserve the Wills Trust on behalf of the beneficiaries, she seeks approval as trustee for the payment which she has committed to and desires to make and in respect of which she has a joint obligation. Further, the approval sought extends to approval in respect of her portion – that is between defendants – of the settlement amount, namely $2,000,000.
The application is made under Rule 16.01 and/or Rule 54.02 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) and the inherent jurisdiction of the Court. Further, s 63 and s 63A of the Trustee Act may also be relevant. In any event, Mr Alstergren who appeared for the three daughters of Mrs Russo (the beneficiaries of the Wills Trust), did not contend that the Court did not have jurisdiction to make the orders proposed by Mrs Russo.
Although I have some reservations about the applicability of rule 16.01, I am of the opinion that rule 54.02 and the inherent jurisdiction of the Court permits the making of the orders sought by Mrs Russo. In particular, rule 54.02 provides a statutory basis for a person in the position of Mrs Russo to seek advice and directions from the Court. The jurisdiction extends to approving the entering into or performance by a trustee of any transaction or obligation.[1]
[1]Hornsby v Playoust (No 2) [2005] VSC 125 at [10] per Mandie J referring to Re Green (dec’d) [1972] VR 848; Templeton v Leviathan Pty Ltd [1922] VLR 90; Re Atkinson (dec’d) [1971] VR 612.
In my opinion the approval sought is necessary and desirable.
The approval means that no claim may be made against Mrs Russo as trustee of the Wills Trust on the basis of the diminution in assets of the Wills Trust associated with the compromise of this proceeding, namely the sum of $2,000,000.[2] The approval goes no wider than this.
[2]The principal amount claimed was $3,383,769. With compound interest over many years (see paragraph 2), the amount on a rough calculation, even at a rate of 6%, would well exceed $5 million.
It is desirable and necessary that approval be given for a number of reasons.
There is a real question as to whether the Wills Trust, of which Mrs Russo is trustee, includes substantial funds apparently diverted from the Trust, the entity entitled to the funds. These diverted funds have been traced directly into an account in the name of Mrs Russo. This is what the proceeding was all about. Although Mrs Russo raised a number of defences, she was exposed to a substantial judgment in the event of the plaintiff succeeding. The amount was potentially far in excess of $2,000,000. In such event she would have been liable for costs and this would no doubt have had a severe impact on (if not deplete) the Wills Trust.
In order to avoid any risk she was advised to compromise the proceeding. The advice from senior counsel was, with respect, appropriate and sensible. She is entitled to and perhaps even obliged, to act on this advice. There was always a real risk that the Wills Trust did not include substantial funds. As trustee, Mrs Russo was not obliged to run the case in order that the matter be determined one way or another by the Court. She was entitled and as pointed out, obliged to consider the matter and obtain advice. She did so and indeed may have saved or preserved part of the Wills Trust. Having acted appropriately, she comes to this Court seeking approval. I propose to give it. As pointed out the approval is restricted to her portion of the compromise, namely the sum of $2,000,000.
Although the daughters of Mrs Russo opposed the application, no grounds of any real legal substance have been provided. The fact that the Wills Trust will be reduced by $2,000,000 (the Wills Trust will not be depleted) is not a valid reason. As pointed out, in accepting the compromise and her share of it, the trustee has acted properly and in the interests of the beneficiaries although they may not think so.
If the Court declined to approve the relief sought by Mrs Russo, there is very little that the beneficiaries could do in any event. To this extent, approval on one view is unnecessary. The beneficiaries could hardly sue Mrs Russo for breach of trust in circumstances where the Wills Trust comprises the entire estate of Mrs Russo and her late husband and Mrs Russo does not possess assets falling outside of the trust. In such event, any judgment obtained by the beneficiaries would simply reduce the amount available to them in any event. It would be a self defeating exercise.
Further and in any event, they would be met by a defence that the compromise was necessary and desirable and in entering into it, based on advice, Mrs Russo was not in breach of trust but rather acted responsibly as trustee in the circumstances. Nevertheless, in my opinion, given the history and unfortunate relationship between the parties, it is desirable and appropriate to make the orders sought in order to bring about, from a legal standpoint, a finality to the heretofore acrimonious proceeding.
Mr Alstergren submitted that notwithstanding advice received from senior counsel in relation to the suitability of the proportions to be paid to the plaintiff, such inequality in their respective proportions was artificial given the nature of the causes of action alleged by the plaintiff against the defendants. It was submitted that the matter was approached without a proper consideration of either the assets of the first and third defendants or the legal consequences of a finding against them and in particular any finding that may equate their respective liabilities with those of Mrs Russo.
So far as the respective contributions is concerned, senior counsel and experienced solicitors have considered the matter and advised that the proposed contributions – as between defendants – are appropriate in the circumstances. The reasons are set out with sufficient specificity in Macnish Affidavit.
In all of the circumstances, it is in my opinion desirable to make orders permitting Mrs Russo to comply with her obligation to the plaintiff and in particular her share as agreed with the remaining defendants.
I do not propose to make any order in relation to costs. Mr Macaw QC submitted that the daughters, who were given leave to appear and make submissions, should pay the plaintiff’s costs as the day in Court was effectively wasted. He sought costs on a solicitor/client basis. Mr Alstergren submitted that the nature and extent of the application made by Mrs Russo was not sufficiently articulated in the plaintiff’s letter of 17 August 2012 and that neither he nor his clients had sufficient opportunity to consider the full extent and ramifications of the application. I agree. In my opinion it was entirely appropriate to give Mr Alstergren some time to consider the nature and effect of the application made by Mrs Russo particularly in light of the family dynamics and history of the proceeding. He was entitled to consider the matter and obtain full instructions. In all of the circumstances and in the exercise of my discretion, it is appropriate that no order as to costs be made.
Prior to making the order sought by Mr Macaw QC, I permitted one of the daughters to read a short statement to the Court. Although the statement was not relevant to the legal and technical matters before the Court, Mrs Rose Russo was most anxious to ensure that the statement was read to the Court. This has been a long, complex, acrimonious and emotionally draining family dispute. Perhaps appreciating and conscious of the fact that the proposed orders would end the case, the daughters of Mrs Russo were very anxious to communicate their feelings to the Court and others. I permitted this to be done and trust that this was of some benefit.
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