Smith v Stewart and 0RS

[2000] NSWSC 1224

CITATION:	SMITH V. STEWART & 0RS [2000] NSWSC 1224
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 2478/98
HEARING DATE(S):	29, 30 November & 1 December 2000
JUDGMENT DATE:	19 December 2000
PARTIES :	Nicole Louise Smith - plaintiff Robert Edgar Stewart - 1st defendant John Arthur Nurmi - 2nd defendant John Stephen Rhodin - 3rd defendant Estate of Eileen Stewart - 4th defendant
JUDGMENT OF:	Hodgson CJinEq at 1

COUNSEL :	Miss J. Sandford for plaintiff Mr. G. Burton for defendants
SOLICITORS:	Leigh Virtue & Associates, Sydney for plaintiff Philip J. Beazley, Sydney for defendants
CATCHWORDS:	TRUSTS - Duties of trustees - Duty not to profit from trust - Duty to ensure trust property used for benefit of beneficiary - Exoneration of breach - 19-year-old girl obtains damages verdict - Father becomes trustee of proceeds - Proceeds used to purchase and improve house in which family lived - Contributions to improvements by father - Whether father should be reimbursed - Beneficiary moves away from house, receives no benefit from property for six years - Whether breaches of trust - Substantial capital gain - Whether father should be exonerated.
LEGISLATION CITED:	Trustee Act 1925 s.85
DECISION:	See end of judgment

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

CORAM: HODGSON, CJ in Eq.

Tuesday 19th December 2000

NO. 2478 OF 1998
SMITH V. STEWART & ORS.

JUDGMENT

1   In 1974, the plaintiff, then aged 9, was injured in a motor vehicle accident. In 1984, the plaintiff was awarded damages of $296,613.00 in respect of that accident. On 8th March 1985, the first defendant Robert Stewart (the plaintiff’s father), the second defendant John Nurmi (an accountant and friend of Mr. Stewart), and the third defendant John Rhodin executed a deed acknowledging that they held $292,533.00 together with interest accrued thereon on trust for the plaintiff. The reason for setting up the trust was that, at that time, it seemed that the plaintiff was and would remain unable to manage her affairs. Most of the trust money was used in the purchase and improvement of a house property at Clareville, purchased in 1985 for $180,000.00. Between 1985 and 1992, the plaintiff lived at this house with her father, her step-mother Aileen Stewart, and her half-brother Julian. 2   In 1992, the plaintiff left that house, and since then has lived away from it. Mr. Stewart continued to occupy the house until he separated from his wife Aileen in 1996. The plaintiff married Max Smith on 24th February 1996. Mr. Stewart paid for the wedding, but otherwise the plaintiff received no benefit from the trust or from her father after she left the house in 1992, prior to her commencing these proceedings on 20th May 1998. 3   In these proceedings, the plaintiff seeks the transfer of the trust property to herself, and remedies for alleged breaches of trust by Mr. Stewart and Mr. Nurmi. Mr. Rhodin has not participated in the proceedings: no remedy is sought against him, and no point is taken about his absence from the proceedings.

OUTLINE OF FACTS

4   The plaintiff was born on 24th May 1965, and her parents were Mr. Stewart and Carol Tyrell. It appears that Mr. Stewart and Ms. Tyrell separated in about 1968, and in 1977 Mr. Stewart married Aileen. Their son Julian was born on 22nd April 1978. Julian has cerebral palsy. 5   At the time of plaintiff’s accident in 1974, she was living with her mother. She was in hospital for about one month, and then she spent a few months at Mr. Stewart’s house at Mackerel Beach. In early 1975, the plaintiff moved back with her mother, spending weekends and holidays with Mr. Stewart. It appears that the plaintiff did not get on with her step-father, whom Ms. Tyrell had married; and in 1980, the plaintiff commenced living full-time with Mr. Stewart and Aileen. 6   In about 1981, the plaintiff took a typing and shorthand course at Miss Hale’s Business College, Mona Vale; but apparently did not perform very well. In about 1984, she undertook a course at Mount Wilga Rehabilitation Centre. 7   At the trial of her proceedings for damages, a psychiatrist Dr. McMurdo gave evidence about her condition and prospects. In a report dated 28th February 1984, Dr. McMurdo said the following:

I do not see any need to revise my assessment made in January 1982. There is no doubt that Nicole has suffered a most unpleasant result from her accident which has left her intellectually impaired, physically impaired and emotionally impaired. This will affect all areas of her life. With regard to work, it will be difficult for her to find suitable employment, and she will have to work at a level much lower than her previous potential because of damage intellectually and physically, and also because of the emotional sequelae from this, i.e. her inability to comfortably accept responsibility.

In another report dated 13th June 1984, Dr. McMurdo said the following:

It is highly probable that your client will require some supervision in the future. It is hard to predict the problems which may arise in the future, but she is almost certainly going to have some problems coping with everyday activities and will almost certainly require assistance and supervision but not on a constant basis. She would benefit from a “guardian”, who could keep a supervisory eye upon her to ensure that she is caring for herself adequately. At this point in time, from my previous assessment, I do not think this would need to be on a constant or daily basis. If she were living with a responsible person who was able to keep a “parental” protective attitude towards her, this would be quite adequate.

Even though Miss Stewart may not require such close supervision at this point in time, it is very probable that she will require more supervision in the future as her condition is likely to deteriorate and not improve. Should there be any further trouble with the shunt there could be marked deterioration in her ability to care for herself, but a neurosurgeon, or neurologist would be better able to comment about this.

8   As mentioned earlier, the plaintiff obtained a verdict for $296,613.00. In his judgment in the case, Master Greenwood of this Court said the following about the plaintiff:

The deficit shows up in a number of ways. The plaintiff is forgetful. She lacks initiative. She cannot take responsibility. She is easily confused and in general operates at a low level of efficiency. The effect of this has been that she has been unable to complete a secretarial course because she could not handle the shorthand or the business principles. She has a typing speed of twenty-eight words a minute but this requires that she not be pressured. The medical evidence indicates that she cannot handle stress. In practical terms this means that she can perform only simple tasks. She requires careful instruction and supervision to enable her to carry out these tasks and any stress or novel situation that arise in relation to such a task that she has been set is such that she cannot cope.

...

I have come to the conclusion that the plaintiff to all intents and purposes is virtually unemployable in a practical sense, and I am fortified in this conclusion by the evidence of Dr. McMurdo, when he indicated that whilst theoretically the plaintiff could be employed, in fact she was unemployable.

...

A claim is also made for gratuitous economic services rendered to the plaintiff by her father and stepmother. Medical evidence indicated that such services would always be required, in that whilst the plaintiff would be in general self-sufficient, she would require somebody to keep an eye on her because she would be unable to plan details like grocery lists and menus, nor would she be able to organise her life and plan ahead.

9   The judgment provided for $20,000.00 in respect of past and future voluntary care, pursuant to Griffiths v. Kerkemeyer. Master Greenwood was satisfied that the plaintiff was unable to manage her own affairs, and ordered that the verdict be invested until a scheme had been established for dealing with the verdict to the advantage of the plaintiff. 10   As mentioned before, the trust instrument was signed on 8th March 1985. The sum of $303,441.38 was paid to the trustees on 10th May 1985. 11   Somewhat earlier, a decision had been made to purchase the property at Clareville with the proceeds of the judgment. A contract was entered into in about March 1985 to purchase this property for $180,000.00. Something in the order of $194,000.00 was borrowed from the State Bank to finance this purchase. The purchase was made in the names of Mr. Stewart (one-quarter interest), Aileen (one-quarter interest) and the plaintiff (one-half interest). 12   On 8th May 1985, Mr. Nurmi had lent $7,631.00 to stamp the trust deed. 13   The purchase was completed some time prior to 28th May 1985, that being the date of registration of the transfer. It appears that, in addition to the $180,000.00, about $5,000.00 was spent on stamp duty and about $6,000.00 on legal costs. 14   After receipt of the verdict money, the bank was repaid, and a discharge of the bank’s mortgage was executed on 14th June 1985. Mr. Nurmi was repaid his $7,631.00 on 6th June 1985. The Commonwealth Government was paid $2,308.50 on 22nd July 1985 in respect of the plaintiff’s rehabilitation course at Mount Wilga. 15   Although this is not entirely clear, it appears that there was around $100,000.00 left over after these expenses. There is in evidence a written advice, apparently from Australian Fixed Trusts, referring to a capital sum of $100,000.00, recommending that this be reduced to $85,000.00, and that $15,000.00 be placed in a cheque account and $70,000.00 in a Real Property Growth Trust. The advice noted that this would allow receipt of a pension of $74.30 per week plus fringe benefits. 16   On 28th June 1985, $15,000.00 out of the verdict moneys was paid into the State Bank, and $70,000.00 was invested in Australian Fixed Trusts. 17   The family, comprising Mr. Stewart, Aileen, the plaintiff and Julian, moved to Clareville in about May 1985. The plaintiff lived in a self-contained flat under the main house, but had evening meals with the family. It appears that Mr. Stewart retained his house at Mackerel Beach until 1995, but never rented it. 18   Over the years, a number of improvements were made to the Clareville property. The first improvements were made in 1985-1986, apparently comprising a pool/spa, underpinning for this, a deck and balustrade, and a shower area. In different evidence, Mr. Stewart has put the cost of this work at $35,000.00 in one place, and about $74,000.00 in another. A $1,000.00 deposit for the swimming pool was paid for by way of a loan from Mr. Nurmi. It appears that $15,000.00 from the State Bank was used for this improvement. It may be that a further $15,000.00, being the difference between the sum of $100,000.00 apparently left over after the purchase and the total of $85,000.00 put into the State Bank and Australian Fixed Trusts, was also used for this work. It is unclear how any remainder was paid. At one stage in his evidence, Mr. Stewart says he paid $59,000.00 towards this improvement, at another he said he used money from the trust, and then at a later time again, he said that that evidence was mistaken. 19   It appears that in about 1986 or 1987, $2,300.00 was lent by Mr. Nurmi on account of building repairs and renovations. On 16th September 1987, Mr. Nurmi lent $12,000.00 for the purchase of a motor vehicle, which was used for family purposes and also for Mr. Stewart’s work. 20   On 18th September 1987 and 1st October 1987, a total of about $70,500.00 was repaid by Australian Fixed Trusts. $15,300.00 of this was paid to Mr. Nurmi on 9th October 1987, to repay the loans he had made. Mr. Stewart was paid a little over $5,000.00, on account of maintenance of the plaintiff. The balance of $50,000.00 was put into Liberty Life Investment Bonds. 21   Meanwhile, from about July 1986, the plaintiff was receiving an invalid pension of about $130.00 per week gross. The payment of this pension continued, but was reduced after the plaintiff commenced work at Woolworths on 25th September 1989. The pension finally stopped in May 1991: by that time, the plaintiff was earning about $220.00 per week from her employment at Woolworths. It appears that the plaintiff obtained her driving licence in 1989. 22   Further improvements were made to the property between 1989 and 1991. The evidence is not entirely clear about the date, nature and cost of the various improvements, but they appear to have been something like the following. In about 1989, work was done extending the lounge, and building a pathway, at a cost of about $12,000.00. On 31st January 1989, $13,000.00 had been redeemed from Liberty Life, and it appears likely that most of that sum was used for this work. In about 1990, it appears that the kitchen was renovated for about $10,000.00. At the end of 1991, it appears that work was done enlarging the family room, building a rear deck and replacing the pool deck, renovating the bathroom and painting. There is in evidence a quote for this work, dated 12th November 1991, from S.A.Y. Builders, in the sum of $44,350.00. In February and March 1990, further sums totalling about $42,000.00 had been redeemed from Liberty Life, and it seems probable that those sums were used towards this work in 1990 and 1991. It seems that something in the order of $10,000.00 extra would have been required for this work in 1990 and 1991. 23   In 1991, Mr. Stewart took the plaintiff on a trip to Las Vegas, where they attended a Jeff Fenech world title fight. 24   The plaintiff left the Clareville house in February or March 1992, and since then has lived independently. 25   Mr. Stewart sold his Mackerel Beach house in 1995 for $220,000.00. It appears that $135,000.00 of this was used to purchase, along with Aileen, a unit at Avalon. This unit was rented out, and was subsequently sold. 26   The plaintiff married Max Smith in February 1996. Mr. Stewart paid for this wedding, and it appears that he also contributed $500.00 towards the cost of a honeymoon. It appears that about the same time, the plaintiff asked for money to buy a unit. It also appears that on one occasion, Mr. Stewart said he would speak to Mr. Nurmi about arranging for a deposit on a unit, although it is clear that that did not eventuate. 27   In 1996, Mr. Stewart separated from Aileen. It seems that he then commenced living at 199 Pyrmont Street, Pyrmont. Aileen remained at Clareville, and Julian lived with her there, at least some of the time. Aileen was in and out of hospital during 1997, and she died on 31st October 1997. 28   In early 1997, the plaintiff’s solicitors sought an account from the trustees. These proceedings were commenced in May 1998. It appears that since about the middle of 1998, Mr. Stewart has been residing permanently at Pyrmont. From 29th October 1998, the Clareville property has been leased for $400.00 per week. 29   It appears that the Clareville property is now worth about $650,000.00. There is evidence as to the rental value of the property, to which I will return. There is also in evidence a report on the plaintiff from Dr. McMurdo, dated 17th October 1997, in which Dr. McMurdo makes the following observations about the plaintiff:

There has been a remarkable change in your client since my previous assessment of her and this is almost certainly due to improvement in her confidence level and her self esteem. This did not begin to change until she found a job and moved away from the family home and then realised that she could stand on her own feet and live independently of her parents which probably had an infantilising effect upon her.

... Fortunately, due to a combination of events she has matured very considerably. It is probable that as a result of the head injury and surgical procedures following the accident she is somewhat cognitively impaired. However this is not enough to prevent her working, coping with marriage, or budgeting.

ISSUES

30 At one stage, it appeared there was a question whether the plaintiff was now sui juris; but that is not now seriously contested. In any event, I am satisfied that she is. She has been in employment since 1989, and has lived independently of Mr. Stewart since 1992. Dr. McMurdo’s recent report shows that she has made a remarkable improvement since 1985, and it too confirms that she is able to manage her affairs. 31 The principal questions that have been contested concern the plaintiff’s claim there have been breaches of trust, and Mr. Stewart’s claim that he is entitled to a charge on the Clareville property in respect of amounts he has expended on that property. The plaintiff’s claim relates to matters such as the trustees’ failure to keep records and failure to give a proper account to the plaintiff of their dealings with the trust property; but, more importantly as regards remedies sought by the plaintiff, is based upon both trustees having failed to ensure that the trust property was used appropriately for the benefit of the plaintiff, and as regards Mr. Stewart, upon his having profited from the trust in his use of the Clareville property. 32 Limitation Act defences have been raised by the defendants. They were raised late, and at the outset of the hearing I indicated that I would permit them on a limited basis only, and if necessary, permit the plaintiff to raise matters in reply to those defences. In the event, this matter will not arise, because I have decided that the plaintiff’s claim for relief relating to breaches occurring prior to May 1992 would not succeed in any event. 33 If and in so far as breaches of trust are shown that could result in recovery of money from the defendants, there is the question whether the defendants should be exonerated under s.85 of the Trustee Act. There is also the question of costs of the proceedings. 34 There are a number of factual issues which will need to be determined, in order to determine the plaintiff’s claim for breaches of trust, and Mr. Stewart’s claim for a charge. There are questions as to the extent to which, in the years 1985 to 1992, the plaintiff contributed financially to her own support and looked after herself, and the extent to which Mr. Stewart contributed financially to the plaintiff’s support and provided other benefits and services to her. There are questions as to the extent to which Mr. Stewart used his own money on maintaining and improving the Clareville property. There are questions concerning the extent to which Mr. Stewart continued to provide financial and other support to the plaintiff in the period after the plaintiff left the Clareville property in 1992. 35 It will be convenient to look at these factual issues first; then to consider other issues, apart from exoneration and costs; and finally to consider exoneration and costs.

FACTUAL ISSUES

36   Dealing first with the credibility of Mr. Stewart and the plaintiff, I considered that Mr. Stewart’s evidence was vague and unsatisfactory concerning the expenditure on the property. Also, I find to be not believable Mr. Stewart’s evidence to the effect that he did not know the plaintiff was receiving a pension between 1986 and 1991. As shown by the advice document, the trust property was applied in 1985 with the intention of ensuring that the plaintiff could receive a pension. Mr. Nurmi was certainly aware of this, and I think it highly probable that Mr. Stewart must also have been aware of this. Mr. Stewart claims to have taken a close interest in the plaintiff’s welfare in those years, and in my opinion he must have known that she was receiving a pension. I also considered Mr. Stewart’s evidence in relation to the purpose for which the motor vehicle was purchased to be less than frank. 37   The plaintiff gave evidence in a clear and straightforward way. There was some inaccuracy in her evidence. In paragraph 3.12 of her affidavit of 8th November 1999, she denied a conversation alleged by Mr. Stewart, and yet admitted such a conversation in cross-examination. On balance, however, I think the plaintiff’s evidence is more reliable than Mr. Stewart’s, and in general terms, I prefer the evidence of the plaintiff to that of Mr. Stewart where they conflict. 38   I turn now to the question of how the family expenses were provided for during the years 1985-1992. Plainly, the plaintiff was in receipt of a pension of at least $130.00 per week from mid-1986, and was receiving wages of about $220.00 per week from mid-1991. I am inclined to think she also received some benefits prior to mid-1986, but I cannot be satisfied as to how much she was receiving and for how long she was receiving it. I accept the plaintiff’s evidence that, from mid-1986, she was paying about $100.00 per fortnight to Aileen. I accept that, at least after her return from Las Vegas, she was paying $150.00 per week to Aileen. I am not able to be certain how much she was paying from the time she commenced work in 1989 until about the time she left for Las Vegas. I accept that, in the years 1986-1992, the plaintiff purchased her own breakfast supplies, coffee and other personal items. I also accept that Aileen did much of the shopping for provisions for the family, using inter alia money provided by the plaintiff. 39   I believe that Mr. Stewart was generally aware of all this. However, I also accept that Mr. Stewart did give substantial financial and other support to the plaintiff during these years. I believe that he did make a substantial contribution to the household expenses, which assisted the plaintiff. I believe he made a substantial contribution to providing her with clothes and other items, and also to her education and transport. He provided for holidays. He paid for outgoings on the property, including such things as rates and electricity. 40   I accept the plaintiff’s evidence that, at least since the family moved to Clareville, she substantially looked after herself, and indeed made valuable contributions to the working of the household, especially in helping to look after Julian. However, I also believe that, at least in the first few years, she still needed guidance and supervision, of the kind noted in Dr. McMurdo’s reports and Master Greenwood’s judgment. I accept that in those early years, but for the family situation, she would have required assistance from some commercial agency. However, her need for that kind of assistance was much less, if it remained at all, by the time she obtained employment in 1989, and certainly by the time she was confirmed in full-time employment in 1991. 41   As regards expenditure by Mr. Stewart on the property, as mentioned above I am satisfied that he paid outgoings on the property, including Council and water rates. I am satisfied that he did contribute to the improvements that were made on the property, but there is a real question as to how much he contributed, and as to whether that contribution was reasonably incurred on behalf of the trust and contributed appropriately to the value of the trust property. As I will note later, the serious deficiency of evidence as to these matters is due to Mr. Stewart’s own breaches of trust, in not keeping appropriate records: in those circumstances, although questions of fact must still be decided on the ordinary civil standard, I believe I should not be overly ready to be satisfied by vague and inexact proofs offered by a trustee. Having regard to the vagueness in Mr. Stewart’s evidence about expenditure in 1985-1986, and the variations in that evidence, I cannot be satisfied that he contributed more than about $5,000.00 of his own money at that time. I am satisfied that he contributed something like $10,000.00 of his own money in about 1991. I am prepared to accept that this expenditure of $15,000.00 was reasonable, and did result in a commensurate improvement in the value of the trust property. 42   After the plaintiff left Clareville, I accept that there continued to be some family-related contact between Mr. Stewart and the plaintiff, not as much as Mr. Stewart suggests, but perhaps somewhat more than the plaintiff asserts. Plainly Mr. Stewart paid for and was associated with the plaintiff’s wedding. Also, I accept that Mr. Stewart gave some assistance to the plaintiff in moving to new accommodation, but I do not accept that he provided any significant assistance in the way of furniture or substantial household items. 43   I accept that Mr. Stewart expressed willingness to speak to Mr. Nurmi about the provision of a deposit for a unit, and that he was expecting some further contact from the plaintiff before he set about doing so. However, in my opinion, it is clear that Mr. Stewart made no unequivocal statement that he would provide such a deposit, much less that he would provide any further assistance beyond the deposit in the purchase of a unit.

BREACHES OF TRUST AND REIMBURSEMENT OF TRUSTEE
Submissions

44   Each side, by leave, provided some written submissions, which I will leave with the papers. 45   Ms. Sandford for the plaintiff submitted that, plainly, Mr. Stewart and Mr. Nurmi failed to keep proper records. Mr. Nurmi simply put Mr. Stewart in control of the trust property, and did nothing to ensure that it was used appropriately for the benefit of the plaintiff. By 1995, he knew that the plaintiff had left the property and that the property was not being used for her benefit, yet did not ensure that it was so used. Although an accounting had been requested in early 1997, no accounting was provided until after the proceedings had been commenced, and the accounting then provided was inadequate. 46   Ms. Sandford submitted that I could not be satisfied that any money of Mr. Stewart’s had been spent improving the property, and could not be satisfied that any contribution which he did make added to the value of the property. On the other hand, plainly Mr. Stewart did receive a benefit from the trust, living in the house rent-free. After the plaintiff left the house in 1992, Mr. Stewart did not do anything to provide any benefit to the plaintiff from the trust property. 47   Mr. Burton for Mr. Stewart and Mr. Nurmi submitted that the arrangements made prior to 1992 were for the benefit of the plaintiff, and consented to or acquiesced in by the plaintiff. As regards the position after 1992, the plaintiff never sought any benefit from the Clareville property. Mr. Stewart expressed himself as willing to provide help for the purchase of a unit, but the plaintiff did not indicate what she wanted in that regard. Further, it was beneficial for the plaintiff to have the Clareville house to return to if she needed to, and to have the family there for support if she did return.

Decision

48   It is plain that Mr. Stewart and Mr. Nurmi did not keep proper records of their dealings with the trust property, and in that respect have committed breaches of trust. However, those breaches do not directly translate into any recovery of money or property from the trustees. It is still necessary for me to decide questions relevant to what if any money or property should be recovered simply by applying the civil standard of proof. As mentioned earlier, where the deficiency of evidence is due to the trustees’ breaches of trust, I consider I should not be overly ready to be satisfied by vague and inexact proofs. However, even taking this matter into account, I have been satisfied that Mr. Stewart did put $15,000.00 of his own money into the property, and that this money was reasonably spent. 49   The plaintiff claims against both trustees on the basis that they did not ensure that the trust property was applied for the benefit of the plaintiff. However, apart possibly from the application of $12,000.00 to buy a motor vehicle, I am satisfied that the trust property was applied for the acquisition and maintenance and improvement of the house and for the support of the plaintiff, and that, at least until the plaintiff left the property in early 1992, this was an appropriate application of the trust property for the benefit of the plaintiff. It involved the acquisition of a capital asset, with the prospect of a capital gain; and involved the saving on rent that would otherwise need to be paid for the plaintiff’s accommodation, and the setting up of a family situation in which the plaintiff would not have to incur any costs of commercially provided care. 50   As regards the motor vehicle, I accept that this was to some extent used for the benefit of the plaintiff; but in substance, it was acquired as a motor vehicle for Mr. Stewart and for the family in general. Although Mr. Stewart claimed that ultimately any proceeds of the sale of the car were returned to the trust, there are certainly no records of that happening, and I think it more probable that they were retained by Mr. Stewart, perhaps being used towards the acquisition of a replacement car. However, I note that a Griffiths v. Kerkemeyer award of $20,000.00 was made by Master Greenwood, and I accept that over 50% of that was in respect of care provided by Mr. Stewart. Although in Griffiths v. Kerkemeyer (1976) 139 CLR 161 at 193, Mason J stated that the award of such damages did not depend upon any liability in a plaintiff to pay such sums to carers, he did not decide that carers have no right to such sums if they are awarded and paid; and in my opinion, there is a moral if not a legal obligation upon such a plaintiff to pass on such sums to relevant carers. I think it is reasonable to treat the motor vehicle as being in effect a satisfaction of Mr. Stewart’s legal or moral claim in respect of this component of the verdict, or alternatively to be part of a just allowance for his efforts on behalf of the plaintiff and the trust estate. 51 It is claimed against Mr. Stewart that he was in breach of trust in that he profited from the trust in having rent-free accommodation. I accept that rent-free accommodation in trust property is prima facie profit from the trust, and thus something for which a trustee should account. If one looked at the matter aside from the family situation, and aside from the support which was provided to the plaintiff by Mr. Stewart and by the family situation, I think a trustee would be obliged to account for the benefit of rent-free accommodation. In this case, it is said that Mr. Stewart obtained no profit, because otherwise he would have lived at his Mackerel Beach property, and Mackerel Beach was kept as holiday accommodation and not rented; but I do not think that alone could have been an answer. 52 The evidence suggests that in 1985, the property could have been rented for between about $7,000.00 and about $10,000.00 per annum; in 1986, between about $9,000.00 and about $13,000.00 per annum; in 1987, between about $10,000.00 and about $16,000.00 per annum; in 1988, between about $12,000.00 and about $19,000.00 per annum; in 1989, between about $13,000.00 and about $21,000.00 per annum; in 1990, between about $14,000.00 and about $23,000.00 per annum; and in 1991, between about $16,000.00 and about $25,000.00 per annum. Having regard to the circumstance that the plaintiff had her own self-contained accommodation, one could perhaps put the rental value of the defendant’s occupation at about $5,000.00 in 1985, $6,000.00 in 1986, $7,000.00 in 1987, $8,000.00 in 1988, $9,000.00 in 1989, $10,000.00 in 1990, and $11,000.00 in 1991. 53 Against this, one must take into account the family situation, the value of financial and other support given to the plaintiff, the payment of outgoings, the circumstance that there was no actual return received by Mr. Stewart from the freeing of the Mackerel Beach property, and finally Mr. Stewart’s possible entitlement to a just allowance in respect of the capital gain made by the trust, and the saving of depletion which would have occurred through other investment of the trust and the cost of rented accommodation for the plaintiff and commercial help for the plaintiff. 54 In a family situation such as this, I do not think the Court should be too ready to find a breach of trust, when something like a balance of this kind can be seen between the benefit to the trustee from rent-free accommodation, and very real benefits provided to the beneficiary by the trustee and from the family circumstances. I do not think it necessary to consider in any detail the evidence concerning the cost of renting other accommodation and of providing commercial help for the plaintiff. 55 For these reasons, I am not satisfied that there was a breach of trust which would result in any recovery of money or property from either trustee in respect of events occurring prior to the time when the plaintiff left the Clareville property in early 1992. 56 Turning to Mr. Stewart’s claim in respect of matters occurring before the time when the plaintiff left the property, I would not recognise any right to reimbursement in respect of payment of outgoings on the property. It seems to me that that is part of the give and take which contributes to the balancing which I have found. However, I accept that Mr. Stewart has a claim in respect of about $15,000.00 spent for improvements on the property, subject to possible offsets from later events. 57 Turning to the period after the plaintiff left the property, I consider that although Mr. Stewart did not provide any significant support to the plaintiff, he did reasonably believe for some time that the plaintiff might need to return to the family situation, and that it was appropriate to keep that situation and that accommodation available for the plaintiff in case she did need to return. In those circumstances, I am not satisfied that Mr. Stewart is shown to be in breach of trust prior to the end of the year 1992. However, by about the end of 1992 it should have been clear to Mr. Stewart that the plaintiff did not wish to return to Clareville, and that she could live independently; so that by that time he should have been making arrangements so that the trust property would be used for her benefit. 58 As regards the year 1993, the evidence suggests that in that year the property had a rental value of something between about $18,000.00 and about $27,000.00 per annum. I have found to the effect that Mr. Stewart had a right to be reimbursed around $15,000.00 in respect of his contribution to improvements on the property. When one combines with this an allowance of some time for him to make other arrangements for himself, his wife, and his handicapped son, I think it appropriate to find no balance owing to the plaintiff by reason of breach of trust due to events prior to the end of 1993. However, that must be considered as exhausting Mr. Stewart’s claim for reimbursement. 59 As regards the years from 1994 onwards, I think it must be held that, in those years, Mr. Stewart was in breach of trust in using the trust property for his own benefit and not ensuring that the trust property was used for the benefit of the plaintiff. Mr. Stewart’s obligation to ensure that the trust property was appropriately used for the benefit of the plaintiff did not depend upon any request being made by the plaintiff; and in my opinion, the strict position is that Mr. Stewart would be accountable to the plaintiff for the rental value of the property in the years from 1994 onwards. It appears that by about 1995, Mr. Nurmi was aware that the plaintiff had left the property, and was getting no benefit from it; and allowing some time for him to take stock of the situation and to take steps to ensure that it was rectified, I would hold that, on strict trust principles, he would be accountable to the plaintiff for the rental value of the property from the year 1996 onwards. 60 The evidence suggests that the rental value of the property in 1994 was between about $20,000.00 and about $26,000.00; in 1995 between about $21,000.00 and about $28,000.00; in 1996 between about $22,000.00 and about $28,000.00; in 1997 between about $23,000.00 and about $27,000.00; in 1998, about $24,000.00; in 1999, about $26,000.00; and in 2000, about $27,000.00. The property was in fact let in October 1998 for $400.00 per week: I am not satisfied that this was unreasonable conduct by the trustees, and I would not require an account for any excess of rental value over $400.00 a week from October 1998. 61 The result of this is that, subject to the possibility of exoneration, I would find Mr. Stewart liable to the plaintiff for a nett amount of about $100,000.00 in respect of breaches of trust occurring between 1994 and 1998, and Mr. Nurmi liable (along with Mr. Stewart) for a nett amount of about $60,000.00 for breaches of trust between 1996 and 1998. For reasons I will give, I will not attempt at this stage to be more precise than this.

EXONERATION AND COSTS

62 The question of whether the trustees can and should be exonerated from these breaches of trust must be determined in the light of s.85 of the Trustee Act 1925 (NSW), which is in the following terms:

85(1) Where a trustee is or may be personally liable for any breach of trust, the Court may relieve the trustee either wholly or partly from personal liability for the breach.
(2) The relief may not be given unless it appears to the Court that the trustee has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the direction of the Court in the matter in which the trustee committed the breach.
(3) (Repealed)
(4) This section applies whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act.

63   Mr. Burton submitted that there was no allegation of dishonesty, and that the trustees had acted reasonably: the question of reasonableness must be considered on the basis that these trustees were not remunerated for their efforts, and in circumstances where the plaintiff has suffered no real loss of benefit. 64   Ms. Sandford submitted that Mr. Stewart had acted unreasonably in keeping for himself the benefit of the trust property for so many years after the plaintiff had left, and taking no steps to ensure that the plaintiff benefited from it. Similarly, from the time he became aware of this circumstance in 1995, Mr. Nurmi acted unreasonably in not ensuring that the plaintiff benefited from the trust property. 65   In my opinion, Mr. Stewart and Mr. Nurmi both acted honestly. However, there is a question whether they can be regarded as having acted reasonably. 66   I have considerable difficulty in deciding this aspect of the case, because it seems to me that the question of exoneration has not been adequately addressed by the defendants and because I am not entirely certain as to the plaintiff’s own wishes in this matter. 67   Neither defendant showed any appreciation that he had acted in breach of trust, and would need an indulgence from the Court if personal liability was to be avoided. Both defendants made it clear that they resented the fact that the claim had been brought at all. 68   In approaching the question of exoneration, I would certainly keep in mind that, in 1985, the plaintiff was recognised as someone who was unemployable, and who would always need supervision; and that by 1992, having lived in a family situation with Mr. Stewart on the trust property for nearly seven years, the plaintiff had become someone able to live independently, had been employed for three years, and beneficially owned an asset then worth in the order of $400,000.00. In my opinion, it is fair to regard this dramatic improvement in the plaintiff’s situation as to some extent flowing from the way the trust money had been used and from the family care provided by Mr. Stewart. 69   The evidence which I do have suggests that it may have been possible to make out a case for exoneration of Mr. Stewart along the following lines:

1. Mr. Stewart remained of the belief, at least up to October 1998, that the plaintiff was not fully independent and not able to manage her affairs, and that she might need to return to the Clareville home.
2. Mr. Stewart was by 1994 established in the Clareville home, in which he was supporting his wife and handicapped son, and had very limited resources to relocate.
3. He had marital difficulties which led to separation in 1996, and his wife had a long illness leading to her death in 1997.
4. The result of this case, leaving aside any question of accounting for breach of trust and payment of costs by the defendant, will be that the plaintiff will have an asset of around $600,000.00, and will be in a strong financial position, with both herself and her husband in secure employment, an outcome to which Mr. Stewart made a substantial contribution by his support and his use of the trust property between 1985 and 1992.
5. However, Mr. Stewart’s assets are limited, consisting of little more than the proceeds of sale of the Mackerel Beach property and property obtained with those proceeds. If he is required to account for (say) $100,000.00, and also pay the costs of both sides of these proceedings, this would have a devastating impact on him and his handicapped son.
6. Having regard to Mr. Stewart’s concern that the plaintiff might need to return and to his own problems, his conduct in the years 1994 to 1998 was reasonable; and in any event, the question of reasonableness under s.85 should be considered in relation to his overall performance, which has delivered a very good outcome to the plaintiff.
7. In all the circumstances, he ought be excused: it would be unreasonable to impose severe financial hardship on Mr. Stewart and Julian, in order that the plaintiff end up with (say) $750,000.00 rather than $600,000.00.

70   However, the financial aspect of this case was not advanced by Mr. Stewart: he has never volunteered what his financial circumstances are and have been, and indeed objection was taken to some questions and evidence on the topic. The evidence which was admitted did suggest that the position is as I have surmised, but plainly I could not act on this basis unless it was squarely alleged by Mr. Stewart, with full disclosure by him of all relevant material. 71   Another matter is that I am not certain whether or not the plaintiff has fully considered all the implications of opposing exoneration of Mr. Stewart. It appears that at one time she had a reasonable relationship with him, and also that his support in the years 1980 to 1992, and his use of the trust property in the years 1985 to 1992, have contributed substantially to the dramatic improvement in the plaintiff’s position, to her present self-sufficiency and (with at least $600,000.00) strong financial position. For her to seek to have (say) $750,000.00 instead of $600,000.00 could cause severe hardship to Mr. Stewart and Julian, and could make the breakdown in their relationship irreversible; and I do not know if the plaintiff has taken this into account. 72   As regards Mr. Nurmi, for his part he made no attempt to explain with any clarity exactly when and how he became aware in about 1995 that the plaintiff had left the trust property, and exactly what he then did to ascertain whether or not it was then being used for her benefit and to ensure that it was; and why it was not until October 1998 that the property was let. He too may have a case for exoneration, but evidence necessary to justify it has not been led. 73   Although Mr. Stewart and Mr. Nurmi should have led all evidence relevant to exoneration at the hearing, I am reluctant to finally reject their claim for exoneration, when this could have a severe impact on Mr. Stewart and Julian which is disproportionate to the benefit to the plaintiff, when this could make the breakdown of the family relationship irretrievable, and when I am not sure if this is what the plaintiff really wants. 74   In those circumstances, what I propose to do is to declare that the plaintiff is sui juris, make appropriate orders for the Clareville property either to be sold or to be transferred to the plaintiff, to make orders appropriate to secure to the plaintiff the nett rents received since the property was let in 1998, and at this stage to make no order as to costs. I will stand over the remainder of the plaintiff’s claim, and the defendant’s application for exoneration, to February or March next year. If the plaintiff wishes to see any additional material which would be relied on by the defendants for exoneration, before finally deciding whether to oppose exoneration, I would limit a time for the filing and service of such evidence and the production by Mr. Stewart of relevant financial material. If on the adjourned date it appears that the defendants continue to seek exoneration and that the plaintiff opposes this, I would set a date for a short further hearing on this question.

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Last Modified: 12/19/2000