Tindon Pty Ltd v Adams
[2006] VSC 172
•19 May 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL & EQUITY DIVISION
No. 4377 of 2006
| TINDON PTY LTD (ACN 079 370 504) | Plaintiff |
| v | |
| JOHN ADAMS and WINDOW CONCEPTS PTY LTD (ACN 006 814 768) | First Defendant Second Defendant |
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JUDGE: | HARGRAVE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 27 April 2006 | |
DATE OF JUDGMENT: | 19 May 2006 | |
CASE MAY BE CITED AS: | Tindon Pty Ltd v Adams | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 172 | |
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Trusts and Trustees – deed of trust providing for annual net income of the trust to be held by the trustee on a separate trust for the unitholders in proportion to their unit entitlements – whether annual net income forms part of the trust fund for the purpose of the trustee’s right to indemnity from the trust fund in respect of liabilities incurred or provided for – whether trust deed excluded trustee’s rights of indemnity against unitholders and from separate trust fund comprising net annual income of the trust – whether loan accounts in trust books of account created a common law relationship of debtor and creditor between trustee and beneficiary.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr I. Martindale | Kenna Teasdale Lawyers |
| For the First Defendant For the Second Defendant | Mr M. Flynn No Appearance | Oakley Thompson & Co |
HIS HONOUR:
Parties and Introduction
The first defendant (“the trustee”) is the trustee of two unit trusts. The plaintiff and the second defendant each hold one-half of the issued units in those trusts. A dispute has arisen between the plaintiff and the trustee as to the entitlement of the plaintiff to be paid certain sums. The plaintiff has applied to the Court pursuant to the provisions of Order 54[1] or the inherent jurisdiction of the Court, for declaratory relief and orders requiring the trustee to pay to it specified sums of money.
[1]Supreme Court (General Civil Procedure) Rules 2005.
The second defendant makes no claims against the trustee and has informed the Court that it will abide the decision of the Court. It was not represented.
There are two relevant trusts (collectively “the trusts”), known as “The Delprop Unit Trust” (“Delprop Trust”) and “The Delprop (Port Side) Unit Trust” (“Port Side Trust”).
The Delprop Trust was established in May 1995 by a trust deed. The Port Side Trust was established in June 1996 by a separate trust deed.
Each of the trust deeds contains identical terms. References in this judgment to the “trust deed” are references to the trust deed for each of the trusts.
As I have said, the plaintiff and the second defendant each hold one-half of the issued units in the trusts. The plaintiff is a company representing the interests of Roydon Kim Luff. The second defendant is a company representing the interests of Gary Oliver Owen Drew.
A dispute has arisen between Mr Luff and Mr Drew. As a result, the previous trustee Delprop Pty Ltd, which is owned and controlled equally by Mr Luff and Mr Drew, retired as trustee and the plaintiff was appointed as an independent trustee of the trusts in its place on 14 April 2005.
The trustee is a member of the accounting firm Horwath (BRI) Vic Pty Ltd and accepted the position of trustee in a professional capacity.
Claims in respect of Delprop Trust
The business of the Delprop Trust up to 30 June 2004 resulted in substantial net income. Each of the unitholders loaned all or part of its share of this net income back to the Delprop Trust. As at 30 June 2004, the amount lent by each of the two unitholders to the Delprop Trust was $1,995,875. The plaintiff does not make a present claim for repayment of the amount of its loan to the Delprop Trust.
The accounts for the Delprop Trust for the year ended 30 June 2005 were prepared at the request of the trustee. Although there was some issue in correspondence as to whether the trustee “unequivocally adopted” these accounts, I am satisfied that the trustee and both of the unitholders have proceeded on the basis that the accounts which were prepared at the request of the trustee state the net income of the Delprop Trust for the year ended 30 June 2005 (“2005 Delprop accounts”). The 2005 Delprop accounts state unequivocally that the net income of the Delprop Trust was $678,427 (“2005 net income”).
There is no provision in the 2005 Delprop accounts for contingent liabilities.
As at 30 June 2005, the Delprop Trust had cash at bank or on deposit of $670,704. Since that time, it has received substantial rental income, and its cash position has increased so that it has, at all relevant times, had the cash to pay to each unitholder its entitlement to one half of the 2005 net income. The first claim which the plaintiff makes is for a declaration that it is entitled to immediate payment of one-half of the 2005 net income of the Delprop Trust, a sum of $339,213.50. The plaintiff seeks an order that the trustee pay to it this amount.
In addition to cash, at 30 June 2005 the Delprop Trust owned three unencumbered properties (“the Delprop properties”). The Delprop properties are valued in its balance sheet as at 30 June 2005 at cost, in the sum of approximately $3,800,000. The evidence discloses that these properties have a value of approximately $6,750,000, and that they will be sold once rental negotiations which are currently underway have been completed. This will result in a net profit of approximately $3,000,000 which will be available to be split between the two unitholders.
Since the commencement of this proceeding, the trustee has in fact paid a substantial portion of the claim made by the plaintiff in respect of the 2005 net income of the Delprop Trust to the unitholders. A sum of approximately $81,000 remains unpaid to each unitholder. Further, during the course of the hearing, counsel for the trustee undertook to pay a further amount to the unitholder within seven days, thus paying all of their respective entitlements to the 2005 net income. When the trustee complies with this undertaking, this aspect of the proceeding will become moot. However, the question of costs will remain to be determined and, in addition, there may be real utility in the issue being determined by this Court having regard to the proposed sales of the Delprop properties.
Claims in respect of Port Side Trust
The trustee caused annual accounts for the Port Side Trust to be prepared, and these have been adopted by the trustee and the unitholders (“2005 Port Side accounts”).
For the year ended 30 June 2005, the net income of the Port Side Trust was $110,703. One-half of this amount was distributed to each of the unitholders and was then the subject of a loan back by each of them to the Port Side Trust in the sum of $55,351.50 (“the Port Side loans”). The Port Side loans are included in the 2005 Port Side accounts as current liabilities. The plaintiff claims a declaration that the loan by it to the Port Side Trust is repayable on demand and that a demand has been made. The plaintiff seeks an order that the trustee pay to it the sum of $55,351.50 in repayment of this loan.
As at 30 June 2005, the Port Side Trust had cash at bank of approximately $80,000. This amount was insufficient to repay both of the Port Side loans, which totalled $110,703. Further, as at 30 June 2005, the Port Side Trust owed $423,566 to the Delprop Trust (“the inter-trust loan”). The inter-trust loan is included in the 2005 Port Side accounts as a non-current liability.
The Port Side Trust owns one property (“the Port Side property”). That property is valued in its balance sheet as at 30 June 2005 at cost, in the sum of approximately $380,000. This property has recently been sold by the trustee for $1,250,000. Settlement is due in mid-July 2006. Accordingly, on an accruals basis, there will be a net profit of approximately $865,000 in the Port Side Trust in respect of this sale for the year ended 30 June 2006. This amount should be available to be split between the unitholders when the sale proceeds are received. Settlement is due on 11 July 2006.
Further, since the commencement of this proceeding, the trustee has repaid part of the Port Side loans to the unitholders. In this regard also, counsel for the trustee stated during argument that a further payment was to be made within seven days, thus reducing the amount of the Port Side loans to approximately $24,000 each. It appears that the trustee has been repaying, from available cash, the Port Side loans and the inter-trust loan on a pro rata basis as cash has become available.
Summary of Defences
In summary, it was submitted on behalf of the trustee that the relief sought by the plaintiff should be refused because:
(1)the plaintiff agreed to defer receipt of its share of the 2005 net income of the Delprop Trust;
(2)the trustee was in any event entitled in equity to defer paying the plaintiff its share of the 2005 net income of the Delprop Trust until he was satisfied that there would be sufficient trust assets to meet all of the liabilities of the Delprop Trust; and
(3)there is no debtor-creditor relationship between the trustee and the plaintiff under which the plaintiff can make a common law claim for payment to it of the balance of the Port Side loan.
Relevant terms of trust deeds
The starting point for any consideration of the plaintiff’s claims is the trust deed.
Recital E to the trust deed provides:
“This Deed is made with the intention that the Trustee and the Unitholders from time to time will be bound by this Deed and the Unitholders shall be entitled to the benefits of the Trust to the extent set out below.”
Recital B provides:
“The Trustee has agreed to be trustee of the Trust and to hold the Trust Assets upon the trusts and with the powers and authorities and on and subject to the terms and conditions set out below.”
Clause 1 of the trust deed contains a number of relevant definitions:
(1) “Accounting Period” means a year ending 30 June.
(2) “Income Period” means the period from 1 July to 30 June.
(3) “Trust Fund” or “Fund” means:
“... the trust fund established by this Deed consisting of all moneys paid to or accepted by the Trustee from time to time for the issue of units... and all moneys investments and property paid or transferred to and accepted by the Trustee as additions to the Trust Fund any accumulations of income, all accretions to the Trust Fund and the investments and property from time to time representing the said moneys investments property accumulations and accretions or any part or parts respectively.”
(4)“Trust” means “the trust established pursuant to the terms and conditions of this Deed.”
Clause 2.1 of the trust deed contains the declaration of trust, in the following terms:
“In consideration of the premises the Trustee declares that it will and the Unitholders acknowledge that the Trustee shall from the date of this Deed stand possessed of the Trust Fund and the income of the Trust Fund upon the trusts and with and subject to the powers and provisions set out below.”
Clause 13 of the trust deed deals with the income of the Trust Fund. The following clauses are relevant to this proceeding.
Clause 13.4 provides:
“Subject to any special rights or restrictions provided in Clause 3 in relation to Units of any class, the Trustee shall in each Accounting Period until the Vesting Day pay apply or set aside the whole of the net income of the Trust Fund for such Accounting Period to or for the benefit of the Unitholders in proportion to the number of Units registered in their respective names as at the end of such Accounting Period.”
There are no special rights or restrictions attaching to any of the issued units in the trusts.
Clause 13.5 of the trust deeds provides that the trustee may, with the consent of the unitholders before the end of any Accounting Period:
“... accumulate all or any part of the net income of the Trust Fund in respect of such Accounting Period and such accumulations shall be dealt with as an accretion to the Trust Fund...”
There was no evidence of any consent by the unitholders to accumulation of the 2005 net income of the Delprop Trust. Accordingly, no issue of the 2005 net income forming an accretion to the Trust Fund arises.
Clause 13.8 of the trust deed provides that:
“The Trustee shall hold so much of the net income of the Trust Fund for each Accounting Period... as shall not be the subject of a determination effectively made at or prior to the end of such Accounting Period pursuant to the provisions of clauses 13.4 or 13.5 in trust for the holders of Units in proportion to the number of Units of which they are respectively registered as holders on the last day of such Accounting Period.”
As there was no evidence of the trustee applying or setting aside the 2005 net income of the Delprop Trust, or any part thereof, under cl. 13.4, or (with the consent of the unitholders) accumulating the 2005 net income under cl. 13.5, this clause applies to constitute a separate trust of one half of the amount of the 2005 net income of the Delprop Trust for each of the unitholders. This interpretation of cl. 13.8 is reinforced by cl. 13.9.
Clause 13.9 of the trust deed establishes a separate trust fund for each unitholder in respect of their proportionate entitlement to the net income of the trusts for any Accounting Period, as follows:
“Any amount set aside for any Unitholder pursuant to any provision of this Clause of this Deed or deemed to be held on trust pursuant to clause 13.8 shall not form part of the Trust Fund but shall upon the setting aside be held by the Trustee as a separate trust fund in trust for such Unitholder with power in the Trustee pending payment over to such Unitholder to invest or apply or deal with such separate fund or other resulting income or any part in any of the investments authorised by the Deed in respect of the Trust Fund.” (Emphasis added.)
In my view, the combined operation of cll. 13.4, 13.5, 13.8 and 13.9 of the trust deed had the effect that, on 30 June 2005, there were constituted two separate trusts under which the trustee held one-half of the amount of the 2005 net income of the Delprop Trust upon trust for each of the unitholders (“the separate trusts”).
The question remains as to whether the trustee is or was at any time entitled to be indemnified out of the assets of the separate trusts in respect of liabilities incurred by him in the execution of the Delprop Trust. In my view, the trust deed provides that the trustee had no such entitlement.
Clause 1.5 of the trust deed provides:
“It is expressly declared that notwithstanding:-
1.5.1anything contained or implied in this Deed;
1.5.2that but for this provision an obligation at law or in equity might arise; or
1.5.3that any obligation incurred by the trustee has been incurred by or with authority or at the request of the Unitholders or any of them;
no Unitholder shall by reason of any matter above or by his relationship with the Trustee or otherwise be under any obligation to indemnify the Trustee against any liability or obligation incurred by the Trustee in the course of exercising the duties rights or authorities conferred on the Trustee in relation to the Trust Fund or arising under this Deed or in the course of carrying on any business hereby authorised or in the event of there being a deficiency of the assets of the Trust Fund as compared with the liabilities of the Trustee and the Trustee or any creditor of the Trustee shall not have any right of indemnity whatsoever against the Unitholders or any of them in any circumstances whatsoever and the only rights (if any) of indemnity of the Trustee or any creditor of the Trustee shall be limited to recourse to the assets of the Trust Fund as provided in clause 13.”
In my view, cl. 1.5 constitutes an agreement between the trustee and the unitholders that any right of indemnity of the trustee is limited to the assets of the Trust Fund only. This does not include the assets of the separate trusts once they are established. The effect of establishment of the separate trusts is to remove the amount of the net income for an Accounting Period from the Trust Fund. This conclusion is reinforced by cll. 14.6 and 14.11 of the trust deed.
Clause 14.6 provides:
“The Trustee shall be entitled to be paid by way of remuneration such reasonable commission as is fixed from time to time by the Trustee with the consent of the Unitholders and shall be indemnified out of the assets for the time being comprising the Trust Fund against liabilities incurred by the Trustee in the execution or attempted execution or as a consequence of the failure to exercise any of the trusts authorities powers and discretions or by virtue of being the Trustee.” (Emphasis added.)
Clause 14.11 provides:
“Without in any way affecting or derogating from anything contained in clause 1.5 the Trustee acting in good faith shall be entitled to be indemnified out of the Trust Fund in respect of all liabilities incurred by the Trustee... provided that the right of the Trustee to be indemnified in respect of any liability incurred by the Trustee or arising in or about the investment and administration of the Trust Fund... shall be limited always to the assets of the Trust Fund in the hands of the Trustee for the time being and shall not extend to enable the Trustee to recover any loss or obtain any reimbursement for any liability incurred from any Unitholder or other person beneficially entitled to any unit.” (Emphasis added.)
In my opinion, these express provisions of the trust deed operate to exclude the trustee’s rights to both a personal indemnity against the unitholders and to indemnity out of the assets of the separate trusts in respect of any liabilities incurred by the trustee in so acting. At least as between the trustee and the unitholders, these provisions of the trust deed are binding and effectual.[2]
[2]RP Meagher and WMC Gummow, Jacobs’ Law of Trusts in Australia (6th ed, 1997) at [2106]; HAJ Ford and WA Lee, Principles of the Law of Trusts at [14070]; RWG Management Ltd v Commissioner for Corporate Affairs [1985] VR 385 at 394-5.
Before leaving this issue, I should mention cl. 14.13 of the trust deed. Under that clause, the trustee is given powers “in addition to... any other powers” they have by law or under the trust deed. These powers include the power under cl. 14.13.17:
“... to pay out of the Trust Fund or the income all costs charges and expenses incidental to the management of the Trust Fund ...” (Emphasis added.)
In my view, the reference to the power to pay costs, charges and expenses out of “the income” in this sub-clause is, when construed in the context of the trust deed as a whole, a power to pay costs, charges and expenses out of the income in the hands of the trustee at the time when it comprises part of the Trust Fund. In other words, before 30 June in any year, the trustee may have recourse to the income of the Trust Fund in his hands to meet expenses. If he does not do so prior to 30 June in any year, then the trustee must wait until further income is received in the next Accounting Period commencing on 1 July in that year. In my view, this is the only sensible way in which the trust deed can be construed as a whole.
Further, sub-cl. 14.13.15 bears on this question. In my view, this sub-clause has the effect that, if the trustee has an expense which he cannot pay or meet out of the income then in his hands, the trustee may borrow or raise money for the purpose of paying or meeting the expense. Having done so, the trustee is then entitled to apply income when received by him in repaying the borrowing or otherwise making good the money raised to pay the expense.
Decision: Delprop Trust
On behalf of the defendant, reliance was placed upon a number of general statements in the authorities dealing with a trustee’s right to indemnity from trust property in respect of liabilities incurred by a trustee in the execution of the trust.[3] In my view, these authorities do not answer the express terms of the trust deed in this case. As I have said, the indemnities to which a trustee is entitled under the general law are capable of being excluded by express provisions in the trust deed, at least as between the trustee and the beneficiaries. I say nothing on the question of exclusion of the right of indemnity in circumstances of insolvency, where there may be prejudice to creditors.[4]
[3]Reference was made to Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 369-70; Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 at 246; Dwight v Federal Commissioner of Taxation (1992) 37 FCR 178 at 190.
[4]See, eg, RP Meagher and WMC Gummow, Jacobs’ Law of Trusts in Australia (6th ed, 1997) at [2106]; HAJ Ford and WA Lee, Principles of the Law of Trusts at [14070]; RWG Management Ltd v Commissioner for Corporate Affairs [1985] VR 385 at 394-5.
Further, it was submitted on behalf of the defendant that the trustee was entitled to retain sufficient assets out of the separate trusts to meet contingent liabilities of the Delprop Trust. I do not accept this submission. It may be that, in determining the net income of the Delprop Trust for an Accounting Period, the trustee may include in his accounts a provision against contingent or future liabilities and thus reduce the amount of the net income for that year. However, the trustee made no such provision on or prior to 30 June 2005 and the issue does not fall for determination in this proceeding. If it did, it would be necessary to construe cl. 13.1 of the trust deed, which provides rules for ascertaining the income of the Trust Fund, in the light of authorities such as Bartlett v Diamond[5]. However, in the absence of any such issue in the proceeding, I will not consider this matter further.
[5](1845) 14 M & W 49 at 56-7; 153 ER 385 at 387
Next, it was argued on behalf of the defendant that the trustee has acted reasonably in withholding payment to the plaintiff of its entitlement under the separate trust in its favour in respect of its share of the 2005 net income of the Delprop Trust. In this regard, it was submitted that the law allows a trustee a reasonable time to carry out his duty. Reliance was placed upon the statement by the learned authors of Hardingham & Baxt, Discretionary Trusts (2nd ed, 1984), to the effect that trustees of discretionary trusts are permitted a reasonable time to determine how to distribute income.[6]
[6]IJ Hardingham and R Baxt, Discretionary Trusts (2nd ed, 1984) at [217]; [520].
Accepting that this general statement may be applicable to the trusts in issue in this proceeding, which are not discretionary trusts and upon which I express no opinion, the trustee has in my view taken more than a reasonable time to comply with the request of the plaintiff that the separate trust in its favour in respect of its share of the 2005 net income be terminated and the trust property paid to it. In this regard, I note that the plaintiff has been calling for payment of its share of the 2005 net income since at least August 2005, that the accounts of the Delprop Trust for the Accounting Period ended 30 June 2005 were finalised by 21 November 2005 and signed on behalf of both unitholders by that date, a draft of the originating motion in the proceeding was given to the trustee on 22 December 2005 and the trustee has at all relevant times had sufficient cash either at bank or on deposit to enable payment of the 2005 net income to both unitholders.
On behalf of the trustee, it was submitted that it was reasonable for the trustee to make provisions for contingent liabilities in determining the amounts available for distribution to unitholders. I do not accept this submission. The parties have at all times acted on the basis that the 2005 net income is that stated in the 2005 accounts which, as I have said, do not make any provision for contingent liabilities. It was not, in my view, open to the trustee to make provisions after the event and to thereby alter his obligations under the trust deed.
It was also submitted on behalf of the trustee that the plaintiff had engaged in discussions with the trustee about the appropriate amount of provisions to be made in respect of contingent liabilities of the Delprop Trust and, as a result, had agreed to defer receipt of its full entitlement to share in the 2005 net income. Reliance was placed upon a handwritten facsimile signed by Mr Luff of the plaintiff in which he stated:
"4. SURPLUS FUNDS
THE OTHER SIDE MAY WISH TO HAVE YOU HOLD DISTRIBUTION UNTIL THE TERMINATION AGREEMENT IS SIGNED BUT YOU ARE REQUIRED BY THE TRUST DEED TO SETTLE ALL DEBTS AND DISTRIBUTE ALL PROFITS. FROM OUR POSITION YOU HAVE OUR AGREEMENT TO DISTRIBUTE ALL AVAILABLE FUNDS EITHER IN CASH OR IF A SHORTFALL OCCURS: THEN TRANSFER SUCH SHORTFALL TO LOAN FUNDS UNTIL THE PROPERTIES ARE SOLD." (original emphasis).
In my view, this handwritten facsimile from Mr Luff does not constitute an agreement to defer receipt by the plaintiff of its full entitlement to one half of the 2005 net income. The position would be different if the evidence established that the Delprop Trust did not have sufficient cash to pay this entitlement to the plaintiff. However, as I have said, that was not the case.
In all of the circumstances, I can see no reason why the trustee was entitled to refuse the request of the plaintiff that the separate trust in its favour in respect of its share of the 2005 net income of the Delprop Trust be terminated and its share of the 2005 net income paid to it. As the sole and absolutely entitled beneficiary of this separate trust, the plaintiff was entitled to request that the trust be terminated and the trust assets distributed to it.[7]
[7]RP Meagher and WMC Gummow, Jacobs’ Law of Trusts in Australia (6th ed, 1997) at [2308]; HAJ Ford and WA Lee, Principles of the Law of Trusts at [16090].
Decision: Port Side Trust
It is next necessary to consider the plaintiff’s claim in debt for repayment of the Port Side loan. As I have said, the trustee has paid, and undertaken to pay, some but not all of the unpaid amount. On behalf of the trustee it was submitted that there was no debtor-creditor relationship between the plaintiff and the trustee, entitling the plaintiff to demand repayment whenever it chose to do so. In this regard, reliance was placed upon the decision of Heerey J in Euroasian Holdings Pty Ltd v Ron Diamond Plumbing Pty Ltd (in liq).[8] However, in my view, that case is obviously distinguishable. It concerned a resolution made by the trustee of a discretionary trust to distribute money to an object of the discretionary trust. The liquidator of that object served a statutory demand on the trustee requiring payment of the amount resolved to be distributed. One of the grounds upon which Heerey J set aside the statutory demand was that there was no debt, because the resolution by the trustee did not bring about the relationship between the trustee and the object of debtor and creditor. The relationship was one enforceable in equity only.[9]
[8](1996) 64 FCR 147.
[9](1996) 64 FCR 147 at 150.
On behalf of the plaintiff, reliance was placed upon the following statement by the learned authors of Ford and Lee, Principles of the Law of Trusts, at [1440]:
“In its common law sense ‘creditor’ does not ordinarily comprehend a beneficiary in relation to the trustee. But a trustee under an existing trust can become a debtor at common law to the beneficiary by stating an account, or, in other words, admitting to the beneficiary that a certain sum of money is held by the trustee subject to an immediate and unconditional duty to pay it to the beneficiary.” (Citations omitted.) (Emphasis added.)
One of the cases cited by Ford and Lee for the above statement is Bartlett v Diamond in which Pollock CB stated:
“So long as a trust continues, a bill in equity is the only remedy. We think that the moneys received were originally received in trust; and that the trust had not determined at the testator's death. If that trust was ended, and the testator had stated an account, or, in other words, had admitted himself to the plaintiff that he held any sum of money in his hands payable to him absolutely, he would, with respect to that sum, be a debtor, not properly a trustee, and then an action would have been maintainable against him.“ (Emphasis added.) [10]
[10](1845) 14 M & W 49 at 56-7; 153 ER 385 at 387. See also Turner v NSW Mont de Piete Deposit and Investment Co Ltd (1910) 10 CLR 539 at 545-6; Harmonic Resonator Ltd v Walton (1927) 27 SR (NSW) 81 at 82-3.
In my view, the principle stated in Ford and Lee and in Bartlett v Diamond does not support the plaintiff's case. In the first place, the Port Side Trust is a continuing trust. Secondly, the 2005 Port Side accounts are not capable of constituting an admission to the unitholders of the kind referred to in Bartlett v Diamond, so as to give rise to a debtor/creditor relationship between the trustee and the unitholders. The accounts do not contain an admission that any sum of money is held by the trustee subject to an immediate and unconditional duty to pay it to the unitholders in respect of the Delprop loans. Indeed, the accounts disclose that the trustee did not at that time have sufficient cash on hand to be the subject of an immediate and unconditional duty to repay the Port Side loans. Accordingly, the matter is to be determined by reference to equitable principles.
In my view, the conduct of the trustee in using the available cash from time to time to pay the Port Side loans and the inter-trust loan on a pro rata basis involves no breach of trust. In this regard, the limited evidence which is available discloses that the plaintiff has adopted inconsistent positions in its dealings with the trustee. On the one hand, the plaintiff has stated a preference for the available cash in the Port Side Trust to be utilised in reduction of the inter-trust loan. On the other hand, the plaintiff has made demands for immediate payment of the Port Side loan to it. In these circumstances, the trustee informed the unitholders that he intended to use the cash in the Port Side trust to make pro rata payments in respect of the Port Side loans and the inter-trust loan. This was a reasonable course for the trustee to adopt and did not, in my view, involve any breach of trust.
Conclusion
In respect of the plaintiff’s claims against the Delprop Trust, I will make a declaration as to the entitlement of the plaintiff to be paid the balance of its one-half share of the 2005 net income as at the date of the hearing before me. If the trustee has not complied with his undertaking at the time of making final orders, I will make a monetary order for any unpaid amount.
The plaintiff’s claim in respect of the Port Side Trust is dismissed.
I will hear the parties as to the form of orders and as to costs.
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