Seoud v Fortythird Garland Pty Ltd
[2019] VSC 192
•26 March 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY & PROBATE LIST
S CI 2017 01072
| CHRISTIAN BRIAN SEOUD, a minor (by RUSANNE JOURDAN, his litigation guardian) | Plaintiff |
| -and- | |
| FORTYTHIRD GARLAND PTY LTD (ACN 064 743 291) as Trustee of the Seoud Family Trust | Defendant |
| -and- | |
| THE PRACTICE PTY LTD (ACN 081 017 174) | Third Party |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 29 August 2018 |
DATE OF JUDGMENT: | 26 March 2019 |
CASE MAY BE CITED AS: | Seoud v Fortythird Garland Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2019] VSC 192 |
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PRACTICE AND PROCEDURE — Statutory interest on sum recovered in proceeding — Where consent orders provide for trustee to pay an amount into Court as part of terms of compromise between the trustee and beneficiary — Whether beneficiary is a ‘creditor’ of the trustee — Dimos v Willetts (2000) 2 VR 170 — Whether entries of drawings in financial statements of trust constitute an admission or acknowledgment of debt by trustee — Chianti Pty Ltd v Leume Pty Ltd (2007) 35 WAR 488 — Whether a judgment is required for an amount to be ‘recovered’ — Consideration of at which ‘date of time certain’ the sums were payable — Whether a ‘good cause’ for reducing entitlement to interest — Supreme Court Act 1986, s 58.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C Simpson with Ms R Grayson Morison | Somerville Laundry Lomax |
| For the Defendant | Mr P Pascoe | Pearce Webster Dugdales |
| For the Third Party | No appearance | Moray & Agnew |
HER HONOUR:
Introduction
The Seoud Family Trust (‘the trust’) was established in 1976. The trust was utilised for the business interests of Nassim Seoud (‘Mr Seoud’) and Zarife Seoud (‘Mrs Seoud’), both of whom are now deceased. The trustee of the trust for all relevant periods was Fortythird Garland Pty Ltd (‘the trustee’).
The plaintiff is the grandson of Mr Seoud and a beneficiary of the trust. He is a minor and his litigation guardian is his mother, Ms Rusanne Jourdan.
A dispute arose between the plaintiff and the trustee in relation to the plaintiff’s share of the income of the trust for the financial years 2009 to 2014, with the plaintiff claiming he had not been paid the amounts to which he was entitled.
Pursuant to a compromise, certain amounts were paid by the trustee to the Senior Master Funds in Court to be invested for the plaintiff’s benefit until further order. An amount of $194,913.50 was paid into Court in respect of the resolution of the 2009 to 2011 and 2013 financial years. Subsequently, a further amount of $100,000 was paid into Court in respect of the resolution of the 2012 and 2014 financial years (collectively, ‘the principal sums’). The parties reserved their positions in relation to the plaintiff’s entitlement to interest on the principal sums.
The plaintiff now seeks an order for interest on the principal sums, pursuant to s 58 of the Supreme Court Act 1986 (‘the Act’) or, alternatively, the inherent equitable jurisdiction of the Court to award compensation in the nature of interest.
Factual background
The trust was established by deed of settlement made on 19 October 1976. In or about 1982, the trust commenced to hold 51 of 100 units in the Cobar Unit Trust, of which Cobar Hotels Pty Ltd was the trustee (‘Cobar’). In about 1984, the trust acquired the remaining units in the Cobar Unit Trust.
The Cobar Unit Trust owned and leased a property in South Yarra upon which it operated a wedding reception business known as ‘Nine Darling Street’ (‘the business’) and also owned a separate property in South Yarra.
Financial activity in the relevant financial years
In the 2009 financial year, Cobar sold the business. It received a part deposit of $425,000 during that financial year and a further part deposit of $925,000 in the 2010 financial year. The final settlement of the sale occurred in the 2012 financial year.
According to the financial statements of the trust during the relevant years, the only source of income for the trust was distributions from the Cobar Unit Trust. Further, with the exception of minor accounting expenses in the 2009 financial year, the profit and loss statements of the trust during the relevant years record no expenses.
Directors’ resolutions in the relevant financial years
For each of the financial years 2009 to 2013, a memorandum dated in June in each relevant financial year was signed by Mr Seoud and records the resolutions of the directors of the trustee in respect of the net income of the trust. The general form of each memorandum was as follows:
MEMORANDUM OF THE RESOLUTIONS OF DIRECTORS OF FOURTY [sic] THIRD GARLAND PTY LTD A.C.N. 064 743 291 TRUSTEE FOR SEOUD FAMILY TRUST
RESOLVED- That the Trustee under Deed of settlement deals with the income of Seoud Family Trust for the year ending 30th June [of the relevant financial year] as follows:-
The net income for the year ended 30th June [of the relevant financial year] be appropriated, set aside and applied for the benefit of the beneficiaries pursuant to the trust Deed as follows namely:
[The memorandum then set out the allocation of the entitlement to the net income to particular beneficiaries, which included the plaintiff for each of the relevant financial years.]
By setting the sums aside and by crediting the sums to them in the books of the Trust and such sums shall upon being so credited vest in and become the absolute property of them and shall be held for them as separate Trust Funds.
AND THAT necessary book entries to give effect to the forgoing be made as soon as practicable.
An equivalent memorandum for the 2014 financial year dated 19 June 2014, but not signed by Mr Seoud, was produced by the trustee in the course of this proceeding. The unsigned memorandum provides that $100,000 of the net income of the trust for the 2014 financial year was to be appropriated, set aside and applied for the benefit of the plaintiff (‘the 2014 resolution’). The distribution of $100,000 was supported by the distributions recorded in the trust’s financial statements for the 2014 financial year. The trust’s tax return for the 2014 income year likewise records that the plaintiff’s share of income of the trust estate was $100,000, however, for tax purposes, the amount has been treated as an accumulation, not a distribution.
Despite compromises in relation to the plaintiff’s entitlement in the 2014 financial year, the effect of the 2014 resolution remains in dispute for the purposes of any entitlement of the plaintiff to interest.
The memoranda for the 2009 to 2014 financial years (‘the resolutions’) provides that the plaintiff was entitled to the following shares of the net income of the trust:
Year Entitlement 2009 The balance of net Income ($25,677) 2010 $35,000 2011 $80,000 2012 $15,000 2013 The balance of net Income ($74,760) 2014 (unsigned) $100,000 Total $330,437 Financial statements in the relevant financial years
The original financial statements for the trust for the 2009 to 2014 financial years were prepared by an accounting firm named ‘The Practice’. Amended financial statements for the 2012 financial year were subsequently prepared by another accounting firm. The financial statements for each of the relevant financial years included a balance sheet, profit and loss statement and a trust distribution statement.
At no time during the relevant financial years did the trust operate any bank accounts. The financial statements for each financial year only record cash on hand of $50, which reflects the settlement sum for the trust.
The trust distribution statement for each financial year describes the balance of distributions owing to each beneficiary of the trust as at the end of the financial year, and the composition of any increase or decrease to that balance throughout that financial year.
The movements in the plaintiff’s trust distribution balance for each relevant financial year were basic. For each financial year, the share of profit distributed to the plaintiff under the financial statements mirrors the amounts of net income to which he was entitled under the resolutions. The trust distribution statement then records a corresponding amount as ‘drawings’. Accordingly, the plaintiff’s trust distribution balance at the end of each financial year was nil. The following table summarises the movements in the plaintiff’s trust distribution balance throughout the relevant financial years:
Financial year Share of Profit Drawings 2009 $25,677 ($25,677) 2010 $35,000 ($35,000) 2011 $80,000 ($80,000) 2012 (Original) $2,899,763 ($2,899,763) 2012 (Amended) $15,000 ($15,000) 2013 $74,760 ($74,760) 2014 $100,000 ($100,000) Total (Amended) $330,437 ($330,437)
Consistent with the exhaustive drawings recorded in the trust distribution statements, the balance sheet for the trust for each relevant financial year does not record any liability corresponding to any amount continuing to be held for the plaintiff’s benefit. This stands in contrast to the ‘Unpaid Trust Distributions’ liability recorded in the balance sheet for each financial year in respect of distributions owing to Mr and Mrs Seoud.
As noted, the original financial statements for the 2012 financial year records a share of profit and corresponding withdrawn amount of $2,899,763. The financial statements and the trust’s tax return for the 2012 financial year were subsequently amended in late 2016 to reflect the amended amount of share of profit and corresponding drawings of $15,000.
Deaths of Mr and Mrs Seoud
Mrs Seoud and Mr Seoud died on 4 August 2015 and 8 November 2015 respectively. Mr David Sonenberg (‘Mr Sonenberg’) obtained grants of letters of administration for the estates of Mr Seoud and Mrs Seoud on 13 April 2016 and 8 June 2016 respectively. As administrator of the estates, Mr Sonenberg was appointed as sole director of the trustee on 15 April 2016.
Reconstructed deed
During the course of subsequent events in 2016, Mr Sonenberg conducted searches for the original or a copy of the deed of settlement of the trust but was unable to locate it. He commenced a proceeding seeking reconstruction of the deed and, on 15 December 2016, an order was made for a reconstituted deed in the form sought by Mr Sonenberg and the trustee (’the trust deed’). The Court declared that the trust deed was duly executed on or about 19 October 1976 by Grange Nominees Pty Ltd (ACN 005 178 496) as trustee and William Maddison Carroll as settlor.
The trust deed relevantly provides that the beneficiaries of the trust included Mr Seoud, any children of Mr Seoud, and any of his or their spouses, widows, widowers or descendants alive from time to time. As the grandson of Mr Seoud, the plaintiff is a beneficiary under the trust deed.
The trust deed is a discretionary trust whereby the entitlements of the beneficiaries to the income or capital of the trust are not fixed by the settlor, but rather determined at the discretion of the trustee.[1] Relevantly, clause 2.1 of the trust deed addresses the means by which the trustee could apply, set aside or pay the net income earned by the trust during each financial year. It broadly provides that the trustee may deal with the whole or part of the net income of the trust for the benefit of the beneficiaries in such proportions as the trustee thinks fit, but in prescribed ways. Broadly, this includes either: applying, setting aside or paying an amount to a beneficiary; paying an amount to the parent or guardian of a beneficiary for the beneficiary’s maintenance, education, advancement or benefit; or investing an amount on behalf of an infant beneficiary.
Dispute regarding the plaintiff’s entitlements
[1]See generally Jessica Palmer and Charles Rickett, ‘The revolution and legacy of the discretionary trust’ (2017) 11 Journal of Equity 157, 158.
Throughout 2016 and 2017, the plaintiff’s solicitors corresponded with the trustee’s solicitors. The correspondence concerned the plaintiff’s claim for unpaid distributions owing under the trust, which at the time only related to the 2009 to 2013 financial years. The plaintiff’s claims to unpaid distributions were based on the amounts in the financial statements that then existed prior to the amendment of the financial statements for the 2012 financial year. The aggregate amount then claimed by the plaintiff for the 2009 to 2013 financial years was $3,115,200.
Towards the end of 2016, the solicitors for the trustee raised the discrepancy between the share of net income to which the plaintiff was entitled under the directors’ resolution for the 2012 financial year, being $15,000, and the amount of the distribution that the plaintiff was allocated according to the financial statements for that financial year, being $2,899,763.
On 22 March 2017, the plaintiff, by his litigation guardian, commenced this proceeding seeking an order that the trustee pay to him the alleged unpaid entitlements of $3,115,200. The trustee argued that the amount of $2,899,763 had been erroneously credited to the plaintiff in the financial statements of the trust for the 2012 financial year.
Partial compromises of the plaintiff’s unpaid entitlements
At various intervals during 2018, the parties reached partial compromises in relation to the plaintiff’s unpaid entitlements.
On 16 March 2018, consent orders were made that the trustee pay the sum of $194,913.50 to the Senior Master, Funds in Court, to be invested for the benefit of the plaintiff until further order. While the only order made was in respect of the payment into court, the recitals to the order provided:
B. Subject to and conditional upon the approval by the Court, pursuant to r 15.08 of the Rules, of any compromise of the whole of the plaintiff’s claim, the parties agree that:
(a)the plaintiff’s claim for unpaid distributions from the [trust] for the 2009, 2010, 2011 and 2013 financial years (but not the 2012 financial year) shall be satisfied in full as to the principal, but not interest, by a payment of $194,913.50 (‘the partial settlement sum’);
(b)an amount of $15,000 is included in the partial settlement sum in respect of the 2012 financial year, but the plaintiff continues to claim, and [the trustee] denies, an additional unpaid trust distribution in the sum on [sic] $2,884,763 in respect of that year; …
On 8 June 2018, the Court ordered by consent that the trustee pay the sum of $100,000 to the Senior Master, Funds in Court, to be invested for the benefit of the plaintiff until further order. While the only orders made were in respect of the payment into court and the costs of the proceeding, the order also recited the following:
B. Subject to and conditional upon the approval of the Court of any compromise of the whole of the plaintiff’s claim, pursuant to r 15.08 of the Rules, the parties agree that:
(a)the plaintiff’s claim for an alleged unpaid distribution of $2,884,763 from the [trust] for the 2012 financial year; and
(b)the plaintiff’s foreshadowed claim for an alleged unpaid distribution of $100,000 in respect of the 2014 financial year,
shall be satisfied in full as to principal, but not as to any further claim for interest or such other relief as the plaintiff may be advised to seek … by payment of the sum of $100,000 …
Consistent with the terms of the partial compromises, the parties maintained their dispute in relation the plaintiff’s entitlement to interest on the principal sums.
Bases of claims for entitlement to interest
The plaintiff submits that he is entitled to interest as follows:
(a) pursuant to s 58 of the Act as a ‘creditor’ of the trustee for the purposes of the section;[2]
(b) alternatively, the Court’s inherent equitable jurisdiction.[3] The plaintiff’s entitlement to interest was framed as flowing from either the trustee’s breach of the trust deed by retaining the income to which he was entitled, or alternatively, the trustee’s failure to invest the funds for the plaintiff’s benefit.[4]
[2]Citing, in particular, Anchen v Mendes Da Costa [2005] VSC 191, [16]–[17] (Ashley J); AJ Lucas Drilling Pty Ltd v McDonnell Dowell Constructions (Aust) Pty Ltd [2009] VSCA 310, [171] (Redlich and Dodds-Streeton JJA and Beach AJA); Fischer v Nemeske Pty Ltd (2016) 257 CLR 615, 627 [16] (French CJ and BellJ), 646 [82] (Kiefel J), 653 [105] (Gageler J).
[3]Citing Hungerfords v Walker (1989) 171 CLR 125, 148 (Mason CJ and Wilson J, Brennan and Deane JJ agreeing); Talacko v Talacko [2009] VSC 579, [10] (Kyrou J).
[4]Citing, in particular, Wharton v Masterman [1895] AC 186; Byrnes v Kendle (2011) 243 CLR 253, 291–292 [119] (Heydon and Crennan JJ).
The trustee submits that the plaintiff is not entitled to interest under s 58 of the Act for two reasons. First, the plaintiff, as a beneficiary of the trust, is not a ‘creditor’ for the purposes of the section.[5] Secondly, the lengthy delays prior to issuing this proceeding caused by erroneous requests by the plaintiff’s solicitors, constitute ‘good cause’ within the meaning of the section for the Court to refuse to grant interest.
[5]Citing Dimos v Willetts (2000) 2 VR 170, 208–210 [106]–[108] (Batt JA).
Alternatively, the trustee submits that there is no relevant breach of the trust deed by the trustee to found the plaintiff’s claim for interest under the Court’s inherent equitable jurisdiction. Specifically, there was no duty on the trustee as to the timing of the payment of unpaid trust income distributions and there was no duty on the trustee requiring such distributions to be invested pending payment to the plaintiff.
However, the trustee accepts that the plaintiff is entitled to interest under s 60 of the Act. This provision broadly provides a right to damages in the nature of interest as from the commencement of the proceeding to the date of judgment. Unlike s 58, it does not apply from the point in time when a debt was payable. The plaintiff peripherally raised s 60 as a source of an entitlement to interest but primarily noted that an entitlement under s 60 is subsidiary to an entitlement under s 58.[6]
Section 58 of the Supreme Court Act 1986
[6]Citing Supreme Court Act 1986, s 60(2)(e)–(f).
Section 58 of the Act provides the Court with the statutory power, in certain circumstances, to make an award of interest in favour of a party that has successfully recovered ‘a debt or sum certain’ in a proceeding. This provision, along with other provisions of the Act,[7] has the purpose of compensating a party for having to commence and undertake litigation to recover an amount of money which, in the absence of that litigation, could have otherwise been used by the party.[8] In doing so, the provision also encourages the early resolution of litigation.[9]
[7]See ibid ss 59–60.
[8]Victorian WorkCover Authority v Esso Australia Ltd (2001) 207 CLR 520, 546 [69] (Kirby J); Clarke v Foodland Stores Pty Ltd [1993] 2 VR 382, 396 (Fullagar, Marks and JD Phillips JJ); Hodgson v Amcor (No 9) [2012] VSC 205, [12]–[14] (Vickery J).
[9]Sutherland v Globe Real Estate Pty Ltd [2018] VSC 408, [36] n 41 (Derham AsJ).
The relevant terms of s 58 provide as follows:
Interest to be allowed when debts or sums certain recovered
(1) If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor on the debt or sum at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 or, in respect of any bill of exchange or promissory note, at 2% per annum more than that rate from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made.
There is no dispute that the payment by the trustee of the principal sums constituted the recovery of a sum certain, or a series of sums certain, for the purpose of s 58. The trustee contended that s 58 was inapplicable on other bases.
Beneficiary as a ‘creditor’
The trustee first submitted that s 58 was inapplicable as the plaintiff, as a beneficiary of the trust is not a ‘creditor’ for the purposes of that provision.[10] Conversely, the plaintiff contended that the statutory concept of ‘creditor’ was wide enough in certain circumstances to include a beneficiary in respect of an amount owed by the trustee, such as in his case.
[10]Citing Dimos v Willetts (2000) 2 VR 170, 208–210 [106]–[108] (Batt JA).
The trustee principally relied upon Dimos v Willetts[11] (‘Dimos’) in support of the proposition that a person is not a ‘creditor’ for the purposes of s 58 of the Act if the recovery is in the capacity of a beneficiary under a trust.[12] The decision in Dimos was summarised succinctly in Maher v Millennium Markets Pty Ltd as follows:
In Dimos a solicitor lent money to a husband and wife secured by an unregistered mortgage and an unregistrable charge over land comprised in two separate titles. Caveats were lodged in respect of the securities but only on one of the titles. Subsequently another solicitor, Willetts, lent money to the couple secured by a mortgage registered against both titles. When Willetts came to sell the mortgaged property pursuant to his power of sale Dimos asserted his interest. He claimed not to have received notice of the proposed registration of the Willetts mortgage and that his caveats had not lapsed. Willetts brought proceedings for removal of the caveats. The caveats were removed pursuant to an interim agreement to permit settlement of the sale and $20,000 of the sale proceeds was held by Willetts in trust by court order, pending the outcome of the priority dispute. Smith J held that the caveats had lapsed and Willetts was entitled to the $20,000 held in trust.[13]
[11](2000) 2 VR 170.
[12]Eg, LexisNexis Australia, Civil Procedure Victoria (online at November 2018) [670.25].
[13]Maher v Millennium Markets Pty Ltd [2004] VSC 195, [7] (Osborn J).
In Dimos the trial judge separately ordered that Mr Dimos pay interest to Mr Willetts pursuant to s 58 of the Act. That order was overturned by the Court of Appeal, which held that Mr Willetts was not entitled to an award of interest under s 58 because, although the $20,000 was ‘recovered’ by Mr Willetts, he was not a ‘creditor’ of Mr Dimos. Tadgell JA and Batt JA, with whom Ormiston JA agreed, followed different paths in holding that Mr Willetts was not a ‘creditor’.
After tracing the legislative history of s 58,[14] Tadgell JA centred on the capacity in which the purported creditor makes a demand and concluded that:
interest is awardable under [s 58 of the Act], as it always was under its predecessors, in favour of a party who recovers in a proceeding, against that party’s debtor, a debt or sum certain. Leaving aside again the cases specifically identified, an award of interest runs “from the time when demand of payment was made”; and I think that naturally refers to a demand of payment made by a creditor in that capacity upon a debtor in that capacity. I am further of opinion that s 58(1) contemplates that a debt or sum certain is recovered from a debtor of the creditor who recovers it.[15]
[14]Dimos v Willetts (2000) 2 VR 170, 173-174 [6]-[9] (Tadgell JA).
[15]Ibid 174 [10].
Tadgell JA determined that no such demand was made on the facts. His Honour considered the initial order of Gobbo J under which the $20,000 was to be held by Mr Willetts on trust pending the resolution of the remaining disputes between the parties. Based on the nature of the relationship between Mr Dimos and Mr Willetts arising from that order, his Honour concluded that the latter could not be characterised as a creditor of Mr Dimos:
The order made by Gobbo J provided that the sum of $20,000 retained from the proceeds of the sale by Mr Willetts as mortgagee be held by him “on trust pending further order of the Court”. No doubt Mr Willetts was thereby required to act in some respects as a trustee and was in a sense constituted and appropriately described as a trustee. He was, however, in effect a stakeholder with an obligation to preserve the money pending further order of the court. … Whether Mr Willetts is correctly to be regarded in all respects as a trustee or as akin to a kind of stakeholder, I am not able to see how he can by any stretch be characterised as a creditor of Mr Dimos in respect of the $20,000 from the time it was set aside pursuant to the order made by Gobbo J.[16]
[16]Ibid 175 [13] (citations omitted).
Consistent with this characterisation, Tadgell JA made the further point that ‘there could be no period during which interest was awardable if no party became a creditor until judgment was pronounced’.[17]
[17]Ibid.
Although Tadgell JA emphasised the importance of identifying the capacity in which a party makes a demand for payment, a demand for payment is but one manner in which to identify the time from which interest will start accruing under the terms of s 58. The alternative point in time for interest to start accruing is from the ‘date or time certain’ pursuant to ‘some written instrument’. That is the basis on which the plaintiff rests his entitlement to interest.
The reasons of Batt JA focussed on the meaning of the word ‘creditor’ in s 58. Mr Willetts contended for a broad construction of the term and his Honour’s response to that submission was as follows:
I accept that the word “creditor” is flexible in its meaning and varies according to its context. However, the cases show that in the ordinary acceptation of the term a beneficiary is not a creditor of his or her trustee: Ex parte Taylor; Re Goldsmid [(1886) 18 QBD 295, 301 (Lindley LJ), 302 (Lopes LJ)] and Burns & Geroff v Leda Holdings Pty Ltd [[1988] 1 Qd R 214, 229–33 (Dowsett J)]. …
Counsel for Mr Willetts contended that the word “creditor” should be given a broad meaning in the context of s 58 and was simply a shorthand method for denoting a successful plaintiff or someone who recovers a sum certain. If that be so, one may ask why the word “plaintiff” or “claimant” was not used instead of the somewhat more specific word “creditor”. The use of the word “plaintiff” in the passage cited from Clarke v Foodland Stores Pty Ltd [[1993] 2 VR 382, 396 (Fullagar, Marks and J.D. Phillips JJ)] did not, and could not, mean that every plaintiff was within s 58(1): the court was of course speaking in general terms, without reference to the present point. Further, if there is a creditor there must, it seems incontrovertible, be a debtor. On one view, supported by the source of the moneys in question, the debtors were Mr and Mrs Konstantellos, the holding of the money on trust simply being a temporary mechanism while the rival claims to the proceeds of sale of the mortgaged property were determined. If one concentrates, however, on the trust mechanism employed, the person liable to make payment to Mr Willetts was the trustee of the fund, namely, Mr Willetts himself. But it was against Mr Dimos that his Honour made the award of interest. If the moneys had been held by a third party, could that person, it may be asked rhetorically, have been ordered to pay interest? If not, on what basis could Mr Dimos in that case have been so ordered? Again, a person entitled to a debt or sum certain is able to sue the person liable to pay the debt or sum certain, the debtor or obligor. But Mr Willetts could not and did not sue Mr Dimos for the sum, which he already held. To the foregoing must be added the fact that ordinarily at the very least a beneficiary is not a creditor of his trustee. No case was cited, and I have found none, applying “creditor” to the present facts. It is true that the expression “the creditor” must here have a meaning apt to “sum certain” as well as to “debt”, but the whole context of the section points to amounts which defendants are liable to pay (and, as I will shortly show, liable from at least the commencement of the proceeding).[18]
[18]Ibid 209–210 [107]–[108] (Batt JA) (citations otherwise omitted).
As is evident from the reasons of Batt JA, it would be stretching the term ‘creditor’ beyond what the statute could bear for it to apply to the facts in Dimos, and certain features of that case made it untenable to characterise the relationship of Mr Dimos and Mr Willetts as one of debtor and creditor. One feature was the fact that Mr Willetts himself was holding on to the $20,000, albeit on trust, while the proceeding with Mr Dimos was being resolved. An additional feature is that Mr Dimos was not liable to pay any ‘debt or sum certain’ as at the commencement of the proceeding. Neither of those features apply to the facts in this proceeding.
In respect of the general principles discussed in Dimos, the extracted passages of Tagdell JA and Batt JA do not support the proposition that a beneficiary may never be a creditor of his or her trustee. As stated by Batt JA, the principle accepted was that a beneficiary is ordinarily not a creditor of his or her trustee.
The effect of Dimos was subsequently considered by Osborn J in Maher v Millennium Markets Pty Ltd (‘Maher’).[19] The facts and result of the substantive decision[20] leading to Maher were later summarised as follows:
[T]he plaintiffs sold certain properties to the first three defendants. They did so in order to generate funds to repay a bank. Their solicitor, the fourth defendant, introduced the purchasers. He was paid a commission of $150,000 by one of the purchasers. He told the plaintiffs that he was to receive it. There was dispute about the detail of what he told them. A series of disputes arose out of the sales. Osborn J relevantly concluded that the solicitor defendant had breached the fiduciary duty which he owed his clients. In circumstances where there was a real potential for conflict between vendors and purchasers, and where it was in the solicitor’s interest that the sale be consummated, the plaintiffs had not given a fully informed consent to the solicitor receiving the $150,000 commission. Moreover, at the times when the solicitor was paid the commission, there was actual conflict of interest between vendors and purchasers, and a consequential conflict of interest between the interests of the solicitor and the vendor plaintiffs. His Honour ordered that the solicitor pay the amount of $150,000 to the plaintiffs.[21]
[19][2004] VSC 195.
[20]Maher v Millennium Markets Pty Ltd [2004] VSC 174 (Osborn J).
[21]Anchen v Mendes Da Costa [2005] VSC 191, [14] (Ashley J).
The plaintiffs in Maher later sought an order for, amongst other things, interest against the solicitor, pursuant to s 58 of the Act. After considering the reasons of Tadgell JA and Batt JA in Dimos,[22] Osborn J turned to the facts in Maher:
It can be seen that the judgments [in Dimos] were concerned with a situation which was markedly different on the facts from the situation which I must consider. I am inclined to the view that because the plaintiffs were entitled to recover the instalments of the [$150,000] received by [the solicitor] immediately upon their receipt, that the plaintiffs are properly characterised as creditors.[23]
[22]Maher v Millennium Markets Pty Ltd [2004] VSC 195, [9]–[12] (Osborn J).
[23]Ibid [13].
Notwithstanding the characterisation of the plaintiffs in Maher as creditors for the purposes of s 58, Osborn J nonetheless refused to make an order for interest under s 58 as the sums certain of $150,000 were not ‘payable by virtue of some written instrument and at a date or time certain’ and there was no evidence of any alternative demand for payment made prior to the commencement of the proceeding.[24]
[24]Ibid [14]–[15].
Osborn J evidently considered that the warnings in Dimos regarding the limited scope of the meaning of ‘creditor’ did not extend to the facts in Maher. Based on the passage above, where a solicitor receiving funds in breach of his or her fiduciary duty, and the solicitor is thereby rendered a constructive trustee in respect of those funds, the client is a ‘creditor’ for the purposes of s 58.
The effect of Maher was followed by Ashley J in Anchen v Mendes Da Costa (‘Anchen’).[25] In the substantive decision leading to Anchen[26], Ashley J held that the defendant had improperly retained proceeds of a sale of property and ordered that the defendant was constructive trustee in respect of those proceeds.
[25][2005] VSC 191.
[26]Anchen v Mendes Da Costa [2005] VSC 155 (Ashley J).
Ashley J considered Dimos and Maher before concluding as follows:
In my opinion the authorities to which I have referred support a conclusion that interest may be ordered under s.58(1) where a Court impresses property with a constructive trust and orders its disgorgement. It cannot be said, only because it requires an act of the Court to impress the trust and make such an order, that the defendant had not been liable to disgorge the property to the plaintiff at an antecedent time.[27]
[27]Anchen v Mendes Da Costa [2005] VSC 191, [16] (Ashley J).
Like Osborn J in Maher, Ashley J was comfortable distinguishing Dimos on its facts:
Dimos v Willetts was surely a strange case on the facts. That said, it provides authority for the proposition that, at least ordinarily, a beneficiary is not the creditor of his or her trustee, in which circumstances s. 58(1) could not apply.[28]
[28]Ibid [9] (citations omitted).
Applicable principles
Consistent with the judgment of Batt JA in Dimos, the term ‘creditor’ in s 58 of the Act is not ‘simply a shorthand method for denoting a successful plaintiff or someone who recovers a sum certain’.[29] Furthermore, Dimos may be taken, as it was in Achen,[30] as supporting the proposition that ordinarily a beneficiary is not a creditor of his or trustee for the purposes of s 58 of the Act.
[29]Dimos v Willetts (2000) 2 VR 170, 209 [108] (Batt JA).
[30]Anchen v Mendes Da Costa [2005] VSC 191, [9] (Ashley J).
Although the relationship of trustee and beneficiary has differences in character to that of the relationship of debtor and creditor,[31] those forms of relationship are not mutually incompatible.[32] A trustee can become liable as a debtor to a beneficiary of the relevant trust in certain circumstances. Where the trustee acknowledges to a beneficiary that the trustee holds an amount of money to which that beneficiary is immediately and unconditionally entitled to payment, the trustee will become a debtor to the beneficiary in respect of that amount.[33] The amount to which the beneficiary is entitled may be recovered by the beneficiary at common law as money had and received.[34] Thus, there is an overlay of the equitable relationship of trustee and beneficiary and the legal relationship of debtor and creditor.[35]
[31]See generally Jacobs’ Law of Trusts in Australia (LexisNexis, 8th ed, 2016) 11–12 [2-13]; Thomas Reuters, Westlaw, The Law of Trusts: Ford & Lee (online at November 2018) [1.3310]–[1.4530].
[32]‘A debt and a trust obligation are not mutually exclusive concepts’: Coshott v Learoyd [2001] FCA 88, [42] (Wilcox J).
[33]Turner v New South Wales Mont de Piete Deposit and Investment Co Ltd (1910) 10 CLR 539, 545–546 (Griffith CJ); Corporate Initiatives Pty Ltd v Federal Commissioner of Taxation (2005) 142 FCR 279, 284 [22] (Spender, Heerey and Lander JJ); Tindon Pty Ltd v Adams [2006] VSC 172, [50]–[52] (Hargrave J); cf Commissioner of Inland Revenue v Ward (1969) 69 ATC 6050, 6071 (McCarthy J); Euroasian Holdings Pty Ltd v Ron Diamond Plumbing Pty Ltd (in Liq) (1996) 64 FCR 147, 150 (Heerey J).
[34]R v Brown (1912) 14 CLR 17, 25 (Griffith CJ); Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516, 541 (Gummow J); Chianti Pty Ltd v Leume Pty Ltd (2007) 35 WAR 488, 510–511 [70] (Buss JA, Martin CJ and Pullin JA agreeing); Gusote Pty Ltd v Ashley (2011) 193 FCR 227, 254–256 [121]–[129] (Foster J); Fischer v Nemeske Pty Ltd (2016) 257 CLR 615, 653 [105], 654 [109] (Gageler J, French CJ and Bell J agreeing), see also 646 [82] (Kiefel J dissenting on the facts), but cf 673 [187]–[189] (Gordon J).
[35]Fischer v Nemeske Pty Ltd (2016) 257 CLR 615, 653 [105] (Gageler J).
The terms of s 58 do not preclude a beneficiary recovering a sum certain as creditor of his or her trustee. Where a trustee admits or otherwise acknowledges to a beneficiary that the trustee has an immediate and unconditional obligation to pay a specified amount of money to the beneficiary, and the beneficiary would thereby be entitled at law to recover that amount as money had and received, and the beneficiary then recovers a sum certain from the trustee in a proceeding, the beneficiary is a ‘creditor’ for the purposes of s 58 of the Act. If the remaining criteria in the statutory provision are satisfied, the beneficiary will be entitled to an award of interest to the extent permitted by the provision.
There is, therefore, no general barrier to the plaintiff, who in his capacity of a beneficiary of the trust recovered the principal sums from the trustee, in seeking an award of interest under s 58 of the Act in respect of the recovery of those sums.
Acknowledgement of obligation to pay
As stated, for the plaintiff to qualify as a creditor for the purposes of s 58 of the Act, there must be an admission or acknowledgment that the trustee had an immediate and unconditional obligation to pay the principal sums to the plaintiff.
The plaintiff submits that the resolutions for each relevant financial year, coupled with the account entries recording the drawings in the financial statements of the trust, constitute the requisite admission by the trustee of an obligation to pay the principal sums. In this respect, the plaintiff relied on the decision of the Court of Appeal of Western Australia in Chianti Pty Ltd v Leume Pty Ltd (‘Chianti’).[36]
[36](2007) 35 WAR 488.
The trustee submits that the acts of the trustee relied on by the plaintiff were insufficient to create the relationship of debtor and creditor as the trustee had not stated an account expressing that the trustee was subject to an immediate and unconditional duty to pay the entitlements.
In Chianti, Buss JA, with whom Martin CJ and Pullin JA agreed, held, albeit in obiter,[37] that the relevant trust deed, distribution resolutions and account entries in that case collectively constituted an admission by a trustee of an obligation to pay the beneficiary on demand.[38] The key provision of the trust deed was clause 3.5, which provided as follows:
Any amount set aside for any beneficiary … shall cease to form part of the Trust Fund and upon the setting aside or becoming subject to the trust shall thenceforth be held by the Trustee as a separate trust fund on trust for that person absolutely with power to the Trustee pending payment over to the person to invest, apply or deal with the whole or any part of the fund or any resulting income from it in the manner provided for in clause 5(e).
[37]Chianti Pty Ltd v Leume Pty Ltd (2007) 35 WAR 488, 511 [70] (Buss JA, Martin CJ and Pullin JA agreeing).
[38]Ibid 514–515 [77].
Each of the resolutions of the trustee in Chianti for the relevant financial years provided as follows:
TRUSTEES RESOLUTION RELATING TO INCOME
That so much of the income of the [SJRF Trust] for the year to end 30 June [relevant year] as has not hitherto been paid or applied pursuant to the relevant clause of the Trust Deed be dealt with as follows ––
The total income for the period be applied pursuant to the relevant clause of the Trust Deed for the benefit of the beneficiaries listed below and in the amounts and proportions beside their names:-
[Beneficiaries and distributed amounts listed]
This application being effected by crediting the said amounts to such beneficiaries in the books of the trust.[39]
[39]Ibid 509 [64].
The financial statements of the trust showed the funds distributed to the beneficiary under the resolutions as liabilities accumulated in either a ‘Beneficiaries’ Loan Account’, a ‘Beneficiaries’ Current Account’ or an ‘Unpaid Beneficiary Entitlement’ account for the relevant financial years.[40]
[40]Ibid 497 [30].
Buss JA further made the following remark in respect of the identification of an admission in the financial statements of the trustee:
Although it is unnecessary to determine this point, my examination of Edwards v Lowndes and the other cases in the line of authority referred to in Meagher, Gummow & Lehane’s, Equity Doctrines & Remedies (4th ed, 2002) [1-215] and Gummow J’s reasons in Roxborough [v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516, 541] (at [67]), does not indicate that it is essential, for there to be a binding admission in relation to an amount owing by a trustee to a beneficiary, that the relevant amount is held as, or represented by, cash at bank or some other monetary sum when the alleged admission is made.[41]
Acknowledgement under the trust’s financial statements
[41]Ibid 515 [77].
An acknowledgment of debt in the financial statements of an entity will ordinarily be in the form of an outstanding liability expressly stated in the balance sheet.[42] As noted, there is no liability account under the financial statements of the trust in respect of the plaintiff as, according to the trust distribution statements in the financial statements, each entitlement was exhaustively paid out as drawings. However, for the reasons below, even if the financial statements of the trust recorded as a liability an unpaid present entitlement to the plaintiff, that account would in itself be insufficient to support an action for money had and received at common law.
[42]See, eg, Jones v Bellgrove Properties Ltd [1949] 2 KB 700, 703 (Lord Goddard CJ, Tucker and Singleton LJJ agreeing); Stage Club Ltd v Millers Hotels Pty Ltd (1981) 150 CLR 535, 554 (Wilson J); In re Brookers (Australia) Ltd (in liq); Brooker v Pridham (1986) 41 SASR 380, 384 (King CJ); Lonsdale Sand & Metal Pty Ltd v Commissioner of Taxation (Cth) (1998) 81 FCR 419, 421–422 (Mansfield J); Chianti Pty Ltd v Leume Pty Ltd (2007) 35 WAR 488, 510 [66] (Martin CJ); Ashwick (Qld) No 127 Pty Ltd v Commissioner of Taxation (2009) 77 ATR 92, 144 [216] (Ryan J); Fischer v Nemeske Pty Ltd (2016) 257 CLR 615, 621–622 [3] (French CJ and Bell J); Wild Juice Pty Ltd v GW & R Mould Pty Ltd [2016] VSC 454, [84] (Gardiner AsJ); Hashman v Australian Medico-Legal Group Pty Limited [2016] NSWSC 1773, [20] (Brereton J).
When considering the financial statements of a trustee, in seeking to discern an acknowledgment of debt to a beneficiary for the purposes of the common law action of money had and received, it is insufficient to rely uncritically on a liability owing under the balance sheet to a beneficiary. That is because the accounting liability may reflect an amount to which the beneficiary is entitled in equity,[43] but not recognised as a debt owing at common law. Such a liability is not an amount to which the beneficiary is entitled to recover under the common law action of money had and received.
[43]See Re Vestey’s Settlement [1951] Ch 209, 224 (Jenkins LJ).
Viewed in isolation, the resolutions of the trustee vested an entitlement in the plaintiff in equity, but not at common law. Clause 2.1 of the trust deed provides the trustee with a mere power to deal with the net income of the trust in a particular financial period as the trustee saw fit. That included the power to set aside portions of the income. Under the terms of the resolutions, the trustee resolved to set aside the relevant amounts to the plaintiff, with the result that those sums would ‘become the absolute property of [the plaintiff] and shall be held for [the plaintiff] as separate Trust Funds’. But there was no reference in the resolution to the trustee resolving to pay the amount to the plaintiff. Therefore, although an accounting liability may arise by virtue of the resolutions, there was not any act of the trustee admitting to ‘an immediate and unconditional duty to pay’.[44]
[44]Thomas Reuters, Westlaw, The Law of Trusts: Ford & Lee (online at November 2018) [1.4510] (emphasis added), quoted in Tindon Pty Ltd v Adams [2006] VSC 172, [50] (Hargrave J).
On this analysis, it is difficult to distinguish this case from the facts in Chianti, where the liability recorded in the financial statements, read in light of the relevant trust deed and trustee resolution, were construed to constitute an admission by the trustee of ’an obligation to pay on demand’[45] at law despite the trustee resolution in that case not referencing any duty to pay. The terms of clause 3.5 of the relevant trust deed in Chianti, which provided that any amount set aside for the beneficiary would ‘be held by the Trustee as a separate trust fund on trust for that person absolutely’, are not materially indistinguishable from the wording expressed in the resolutions in this proceeding. It may be that Buss JA placed greater weight on the reference to ‘pending payment’ in clause 3.5 of the Chianti trust deed to conclude that an action at common law existed. Regardless, in light of the trust deed and the resolutions of the trustee in this proceeding, something beyond the mere recording of a liability in the financial statements is required to trigger a debt owing at common law. The plaintiff contends that the recording of the drawings in the financial statements constituted that ‘additional step’.
[45]Chianti Pty Ltd v Leume Pty Ltd (2007) 35 WAR 488, 515 [77] (Buss JA, Martin CJ and Pullin JA agreeing) (emphasis added).
There is ambiguity around the accounting effect of the drawings entries. For every debit entry to reduce the balance of an ‘Unpaid Trust Distribution’ account for the plaintiff, it is unclear from the face of the financial statements which account received the opposite credit entry.[46] In the early course of correspondence between the parties, the trustee, relying on information supplied from The Practice, contended that the plaintiff’s entitlements had been paid to his father. This may suggest the opposing credit entry had been offset against the father’s loan account, represented as a current asset in the balance sheet.[47] Ultimately, on the evidence, the answer is unclear.
[46]As noted at [15], the trustee, in its capacity as trustee of the trust, did not hold cash on hand other than the settlement sum for the Trust.
[47]In the course of early correspondence, Brian Seoud unequivocally denied that he had ever actually received the plaintiff’s entitlements. However, that does not negate that an accounting entry may have been made to his loan account.
Despite this ambiguity, it may be concluded that the drawings recorded in the financial statements represent the satisfaction and, therefore, extinguishment of the plaintiff’s entitlements to the income of the trust for that financial year. Underlying the accounting entries for drawings is an acknowledgment that a corresponding payment or crediting was made to the plaintiff’s benefit. Where the plaintiff did not in fact realise that amount or credit to his benefit, the drawings entries are sufficient to constitute an acknowledgment that an amount remains immediately owing to him. This is sufficient to support an action for money had and received at law. Thus, the plaintiff became a creditor of the trustee for the purposes of s 58 of the Act.
Date or time certain
The plaintiff’s case was expressed not on the basis that there had been a ‘demand of payment’, but that the principal sums were owing by virtue of the trust deed. Accordingly, interest starts accruing under s 58 ‘from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain)’. Although there is no dispute that the entitlement was payable by virtue of the trust deed, the parties dispute the particular ‘date or time certain’ at which the entitlement was payable.
The plaintiff contends that his entitlement in respect of each relevant financial year became payable as at the point in time that the trustee took the additional step of recording the amounts distributed as drawings. He contends that point in time could not have been any later than the end of each respective financial year, the balance sheets in the financial statements of the trust being dated as at 30 June at the end of each relevant financial year. That is the ‘date of time certain’ from which interest would start to accrue in his favour under s 58.
The Court accepts the principle that where a liability recorded in a balance sheet is construed to constitute an acknowledgement of a debt owing, ‘[t]he acknowledgment operates … at the date at which the balance sheet speaks, namely the end of the relevant financial period’.[48] However, on the facts, there is an added layer of complexity in identifying the date of time certain because one of the amounts recovered, being the first payment of $194,913.50 into Court, was in the form of an undivided settlement sum, rather than attributable to particular amounts owing under the trust deed.
Section 58 and settlements
[48]Brooker v Pridham (1986) 41 SASR 380, 385 (King CJ, Mohr J agreeing), quoted in Chianti Pty Ltd v Leume Pty Ltd (2007) 35 WAR 488, 514 [76] (Buss JA, Martin CJ and Pullin JA agreeing); see also Stage Club Ltd v Millers Hotels Pty Ltd (1981) 150 CLR 535, 563 (Wilson J), but cf 545 (Gibbs CJ).
An amount paid by a defendant to a plaintiff subject to a compromise may attract statutory interest.[49] However, it is unclear whether a judgment of the Court is required for an amount to be ‘recovered’ under that provision. A previous decision of this Court suggested that an amount may be recovered in the absence of a judgment,[50] while other sources express the view that there must be a judgment to which s 58 attaches for it to be said that ‘in a proceeding’ a debt of sum certain has been ‘recovered’.[51]
[49]See Ruby v Marsh (1975) 132 CLR 642, 652–653 (Barwick CJ).
[50]Melbourne and Metropolitan Board of Works v Bevelon Investments Pty Ltd [1977] VR 473, 475 (Anderson J).
[51]See James Edelman and Derek Cassidy, Interest Awards in Australia (LexisNexis Butterworths, 2003) 144 [7.9], citing The ‘Medina Princess’ [1962] Lloyd’s LR 17; Techno-Impex v Gebr van Weelde Scheepvaartkantoor BV [1981] QB 648; The Tharros Shipping Case [1981] 1 LR 166; Mathew v Sutton [1994] WLR 1455; President of India v La Pintada Compania Navigacion SA [1985] AC 104, 121 (Lord Brandon of Oakbrook). See also 153–154 [7.15]. See generally DI Cassidy, ‘Interest Revisited’ (1997) 71 Australian Law Journal 514, 517–518.
The payments of the principal sums into Court were subject to orders, but not a judgment, of the Court. The orders requiring payment of the principal sums into Court were consent orders made pursuant to r 59.07 of the Rules, which provides for the making of either a judgment or an order. However, the terms of the consent orders were clearly directed to ordering payments into Court, rather than making a judgment in respect of the substantive rights and liabilities of the parties.
The issue was not in contention between the parties and the Court assumes that the amounts were ‘recovered’ by the plaintiff for the purposes of s 58 of the Act, notwithstanding the absence of a judgment in his favour.
Terms of recovery in this case
The first payment of $194,913.50 into Court was an undivided settlement sum. As is clear from the recitals in the consent orders, the initial payment related to a compromise between the parties in respect of the plaintiff’s entitlements for the 2009, 2010, 2011 and 2013 financial years, with an additional amount of $15,000 included in respect of the 2012 financial year then remaining in dispute.
Although the terms of the consent order in respect of that second payment of $100,000 into Court specified that the payment was in relation to the resolution of both the 2012 and 2014 financial years, that payment is appropriately attributed exclusively to the 2014 financial year. This is because the amount of $15,000 was attributed to the 2012 financial year in the first payment, which reflects the amount to which the plaintiff was entitled under the resolution for the 2012 financial year, and the amount of $100,000 for the second payment reflects the amount to which the plaintiff was entitled under the resolution for the 2014 resolution.
Given the indivisible nature of the initial payment of $194,913.50, it is not feasible to trace back that sum to particular financial years and conclude that portions of the sums began accruing interest from the end of each of those financial years.[52] In situations where an undivided settlement sum in respect of multiple sums certain is ‘recovered’ by the plaintiff, the Court will take the ‘time when the … sum was payable’ for the purposes of s 58 of the Act as being the latest point at which one of the sums certain were payable. Based on these facts and applying this approach, interest should start accruing on the recovery of the $194,913.50 on and from 1 July 2013 and on the recovery of the $100,000 on and from 1 July 2014.
2014 financial year
[52]The analysis would have been different if the terms of settlement, as reflected in the orders of the Court, had attributed particular amounts to particular financial years.
As stated, the trustee submitted that the plaintiff could not obtain interest in relation to the 2014 financial year because the resolution for the 2014 financial year was invalid as it was unsigned by Mr Seoud.
The fact that the resolution for the 2014 financial year was unsigned is now irrelevant for the purposes of assessing the plaintiff’s entitlement to interest for that year. In accordance with the recitals accompanying the consent orders on 8 June 2018, the plaintiff’s claim against the trustee for the alleged unpaid distribution for the 2014 financial year was ‘satisfied in full’, at least in respect to the principal, by the second payment of $100,000 into Court. That payment was the recovery in a proceeding of a sum certain. For the purposes of awarding interest under s 58 of the Act, the Court will not go behind that compromise and question the plaintiff’s entitlement to trust distributions for the 2014 financial year.
Good cause to the contrary
The trustee submitted that, should the Court hold that the plaintiff is prima facie entitled to interest under s 58 of the Act, there is nonetheless ‘good cause’ for the Court to, at least in part, decline to make an order for interest. The good cause was said to be the lengthy delays prior to the issuing of this proceeding caused by erroneous requests for documents by the plaintiff’s solicitors.
On 15 January 2016, the plaintiff’s solicitors wrote to the solicitors for the plaintiff’s father noting that they had received various financial information relating to the affairs of the late Mr Seoud, including certain financial statements and tax returns of the trust. The information listed in the letter included the tax return for the trust for the 2012 financial year. The plaintiff’s solicitors noted that, on the face of that financial information, the plaintiff had a valid claim against the estate of Mr Seoud for unpaid trust distributions from the trust.
On 26 April 2016, the plaintiff’s solicitors wrote a letter, in materially identical form to the letter of 15 January 2016, to Mr Sonenberg, who by that time had been appointed director of the trustee.
On 22 November 2016, after further correspondence, the solicitors for the trustee informed the plaintiff’s solicitors that, as a result of searches by The Practice, there was an inconsistency between the resolution and financial statements for the 2012 financial year in respect of the amount to which the plaintiff was entitled for that financial year.
On 13 December 2016, the plaintiff’s solicitors responded by way of letter as follows:
To establish such inconsistency between the copy taxation return provided to us and the copy Minutes provided with your letter, we kindly request that you provide us with a copy of the actual taxation return lodged on behalf of the Seoud Family Trust for the year ended 30 June 2012.
That tax return was a document that, according to the letters dated 15 January 2016 and 26 April 2016, the plaintiff’s solicitors already had in their possession.
Over the next few months there was ‘some head scratching’ on the part of the trustee’s solicitors in their attempts to correct the erroneous request for the 2012 tax return by the plaintiff’s solicitors.
As observed by counsel for the trustee, the confusion between the parties appeared to subside by the time the plaintiff’s solicitors wrote to the trustee’s solicitors on 6 March 2017, which returned the dispute back to the substantive matter of the unpaid distributions to the plaintiff.
Good cause in part
While mere unexplained delay on the part of a plaintiff is insufficient to constitute good cause for the purposes of s 58 of the Act,[53] the Court may disallow interest for part of the period prior to the date of the commencement of a proceeding where the plaintiff unduly delayed commencing the proceeding.[54]
[53]David Leahey (Aust) Pty Ltd v McPherson's Ltd [1991] 2 VR 367, 382 (Tadgell J).
[54]Ibid; Clarke v Foodland Stores Pty Ltd [1993] 2 VR 382, 394 (Fullagar, Marks and JD Phillips JJ); University of Sydney v Raine & Horne Commercial (NSW) Pty Ltd [1999] V ConvR 54-607, [39] (Hedigan J); PGA Group Pty Ltd v Idameneo (No 789) Ltd (formerly Symbion Health Ltd); (No. 2) [2011] VSC 420, [5] (Davies J); Sutherland v Globe Real Estate Pty Ltd [2018] VSC 408, [38] (Derham AsJ); Cumner v Bird [2018] VSC 443, [86] (Matthews JR).
The Court accepts the trustee’s submission that the erroneous request by the plaintiff’s solicitors is a sufficiently good cause for the Court to decline in part an order for interest under s 58 of the Act. The plaintiff should be disentitled for the period between the letter of the plaintiff’s solicitors on 13 December 2016 and their subsequent letter on 6 March 2017. However, as the error of the plaintiff’s solicitors is confined to this period, there is not good cause to disentitle the plaintiff to an award for interest either between the admission of debt and the commencement of that period, nor beyond the end of that period.
Calculation of interest
The Court has a discretion as to the rate of interest to be applied under s 58 of the Supreme Court, albeit subject to the maximum rate prescribed in the provision.[55]
[55]MGT Samorr Knitting Mills v Rocklea Spinning Mills (No. 2) [2003] VSC 366, [20] (Byrne J); Sutherland v Globe Real Estate Pty Ltd [2018] VSC 408, [40] (Derham AsJ).
The plaintiff submitted that to the extent he was entitled to an award of interest, the interest should be calculated on the rate prescribed in s 58 of the Act. The trustee, other than raising an arguable good cause for disentitling an award for interest, did not make submissions in respect of an alternative lower rate for the purposes of s 58.
The delay by the plaintiff’s solicitors has reduced the time period for which the plaintiff is entitled to interest. That delay having being adequately addressed, interest should be awarded at the maximum statutory rate for the remaining eligible period.
Conclusions
Section 58 allows interest to be awarded up to entry of judgment.[56] In this case, where there has been no judgment, the provision will permit interest up to recovery of the sums certain. Accordingly, factoring in the period for which interest is disentitled, the plaintiff is entitled to interest under s 58 of the Act, at the maximum rate prescribed in that provision as follows:[57]
[56]LexisNexis Australia, Civil Procedure Victoria (online at 26 March 2019) [670.2], citing Rosenberg v Fifteenth Eestin Nominees Pty Ltd (No 3) [2011] VSC 66, [27] (Habersberger J).
[57]Inclusive of all dates mentioned below.
(a) on the sum of $194,913.50, from:
(i) 1 July 2013 to 13 December 2016; and
(ii) 6 March 2017 to 16 March 2018; and
(b) on the sum of $100,000, from:
(i) 1 July 2014 to 13 December 2016; and
(ii) 6 March 2017 to 8 June 2018.
If the parties are unable to agree on the costs of the proceeding, written submissions should be filed.
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