Trojan v Nest Egg Nominees Pty Ltd - [2004] SASC 182

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
TROJAN v NEST EGG NOMINEES PTY LTD & ANOR
Judgment of The Honourable Justice Nyland
24 June 2004
EQUITY - TRUSTS AND TRUSTEES - TRUSTEES - THEIR APPOINTMENT, DISMISSAL, ESTATE, ETC - RETIREMENT AND REMOVAL
Application for removal of trustee – plaintiff and second defendant were equal shareholders in and directors of first defendant company – second defendant chairperson and secretary of first defendant – second defendant in a separate action claims a beneficial interest in land which the first defendant holds as trustee – whether position of second defendant as plaintiff in second action was in conflict with her obligations as trustee – whether the interest of beneficiaries of the first defendant required removal of second defendant as trustee – Public Trustee appointed to act as substitute trustee.
Law of Property Act 1936 s 69; Companies Act 1962; Trustee Act 1936 s 36, referred to.
Letterstedt v Boers (1884) 9 AC 371; Miller v Cameron (1936) 54 CLR 572, applied.
Benzijia v Adriatic Fisheries Pty Ltd and Cubelic [1984] 37 SASR 545; Pope v DRP Nominees Ltd [1999] 74 SASR 78, discussed.
ASC v AS Nominees Ltd (1995) 62 FCR 504; Re Whitely; Learoyd v Whitely (1886) 33 CH D 347; Jess v Hughes & Ors (unreported, Supreme Court of Victoria, Civil List, considered.

TROJAN v NEST EGG NOMINEES PTY LTD & ANOR
[2004] SASC 182
Nyland J:

In action number 307 of 2002 on 28 February 2002, Eric John Trojan (Trojan) as plaintiff, instituted proceedings against Nest Egg Nominees Pty Ltd (Nest Egg) as first defendant and Ruth (no surname) also known as Ruth Arndell (Ruth) as second defendant. In those proceedings, Trojan sought the following orders:
1.        An order removing the first defendant as a trustee of the Eric Trojan Investment Trust and the Eric Trojan Action Trust.
2.        An order appointing another trustee of the Eric Trojan Investment Trust and the Eric Trojan Action Trust.
3.        Such further or other orders as this Honourable Court considers necessary or desirable in the interest of the beneficiaries of the Eric Trojan Investment Trust and the Eric Trojan Action Trust and to advance the purposes of each trust.
In action number 610 of 2002 on 2 May 2002, Ruth, as plaintiff, instituted proceedings against Trojan as first defendant and Nest Egg as second defendant. In those proceedings, Ruth sought the following orders:
“A.A declaration that [Nest Egg] holds its interest in the said land as to one half thereof for [Ruth].
BAn order that [Nest Egg] do execute a transfer to [Ruth] of an interest to the extent of one moiety as a tenant in common with [Nest Egg] in the whole of land comprised and described in Certificate of Title Register Book Volume 5774 Folio 704.
CPartition pursuant to section 69 of the Law of Property Act 1936 and all necessary consequential directions thereto.
DIn the alternative to C, that the said land and improvements thereon be sold pursuant to Section 69 of Law of Property Act 1936 and on such terms and conditions as this Court deems fit.
E[Trojan] is estopped from denying that [Ruth] holds an interest in the said land as to a moiety because [Trojan] has freely acknowledged that [Ruth] and [Trojan] have shared finances and property on an equal basis in all things since the commencement of their relationship in or about 1979.
FAn inquiry and account,
G Further or in the alternative to an inquiry and account, damages.
H Costs.”
An order was subsequently made for both actions to be heard together and they were listed for trial before me on 12 January 2004. For convenience I will hereafter refer to each of these actions as 307 and 610 respectively.
On 19 December 2003, however, Trojan filed an application in 610 seeking the following orders:
“1.That the trial date in respect of action number 610 of 2002 be vacated.
2.That the action number 610 of 2002 be adjourned to a directions hearing before a Master for directions at the conclusion of the trial of action 307 of 2002.
3.That judgment be entered in favour of [Trojan] in action number 610 of 2002.
4.That [Trojan] have the costs of this action on a solicitor-client basis, to be taxed or agreed.”
When the matter came on for hearing before me, Mr C S Abbott appeared as counsel for Trojan and Ruth appeared in person. Nest Egg was unrepresented. On that date, Mr Abbott indicated that he wished to proceed with his application for the appointment of another trustee of the Eric Trojan Investment Trust and the Eric Trojan Action Trust in support of which an affidavit was filed by Ian Martin Henschke, an associate of Trojan, who indicated that he was prepared to act in that capacity.
In the course of that hearing, I expressed a concern about the appointment of a trustee who was a friend or associate of one of the parties and indicated that if there was to be a substitution of the trustee, an independent person would be more appropriate. The matter was then adjourned for a short period for an approach to be made to the Public Trustee to see if she would be prepared to act in that capacity, and also to enable Ruth to obtain some legal advice as to that matter.
On 14 January 2004, Mr Abbott informed me that he had been in contact with the office of the Public Trustee and as a result of discussions with that office, he was instructed to amend his application for the appointment of a new trustee so as to substitute the Public Trustee for Mr Henschke. The matter was thereafter adjourned until 23 January 2004.
On the adjourned date, Mrs Watson appeared on behalf of the Public Trustee and indicated that although she was not keen to be involved in the proceedings on the basis that there was no issue arising as to public interest, she was nevertheless prepared to do what she could to assist the court in the matter.
There was thereafter some argument as to the suitability of the appointment of the Public Trustee in addition to which Ruth complained that she would suffer prejudice if I were to proceed immediately to determine the matters arising in 307 as there were witnesses she wished to call with respect to that application. They were not immediately available, however, due to her understanding that both 307 and 610 were to be adjourned as a result of an earlier intimation from Trojan’s solicitors that there was to be an application to vacate the date for hearing of both actions. I indicated to Ruth that she should file an affidavit of each of the proposed witnesses as to the matters about which they would give evidence to assist me in determining whether it would be necessary for oral evidence to be called with respect to 307 or whether that particular action could be determined on the affidavits.
The matter was then further adjourned to 2 February 2004 for argument. On that date, Mrs Watson again appeared for the Public Trustee and indicated that her instructions were to neither consent to, nor oppose, the appointment of the Public Trustee in this matter in the terms of draft minutes of order provided to me. Those draft minutes are annexed hereto and marked “A”.
I thereafter heard argument with respect to the application to appoint an independent trustee as sought by Trojan in 307 and with respect to the application by Trojan for an order for summary judgment as sought in 610, as well as the application by Ruth for the matter to be adjourned for her to file further affidavits or call witnesses with respect to the matter.
In order to understand the issues arising for determination, it is necessary to have some regard to the history of the relationship between the parties. Trojan and Ruth first met in 1977 and commenced a relationship in or about 1978. The company, E J T Nominees Pty Ltd (EJT), was incorporated pursuant to the Companies Act 1962 in or about June 1977. The objects for which the company was established included to act as trustee of a trust.
Trojan was appointed a director of EJT on or about 31 July 1980. He resigned on 17 December 1986 but was re-appointed on 24 January 1990. Ruth was appointed as a director of EJT on 1 November 1982. On 13 June 1986, a meeting of members resolved to change the name of EJT to Nest Egg Nominees Pty Ltd. Ruth and Trojan are the current directors of Nest Egg. There are 40 shares issued in the company, 20 of which are held by Ruth and 20 by Trojan. Ruth is also the company secretary and in addition is the chairperson of the company.
The Articles of Association of the company give the chairperson a casting vote at general meetings and at meetings of directors.
On 26 July 1979, the Eric Trojan Investment Trust (ETIT) was created by deed. This is a discretionary trust of which the trustee was EJT (Nest Egg). The beneficiaries of the trust are listed in the schedule to the trust deed as follows:
“C         BENEFICIARIES
(i)     Eric John Trojan of 181 Fullarton Road, Dulwich;
(ii)   Any child of the said Eric John Trojan;
(iii) Any son-in-law or daughter-in-law of the said Eric John Trojan;
(iv)   Any grandchild of the said Eric John Trojan;
(v)    Any spouse of any grandchild of the said Eric John Trojan.
(vi)   Any trustee (in its capacity as such) of any Trust or settlement under which any one of the beneficiaries hereinbefore referred to in paragraphs (i) to (v) inclusive of item C hereof is a beneficiary whether present or contingent provided however that the settlor is no a beneficiary of such trust or settlement;
(vii) Any corporation, at least one share in which is owned by any of the beneficiaries hereinbefore referred to, or by the Trustee of any Trust referred to in the preceding clause, provided however that the Settlor is not a shareholder of such corporation.
(viii)       Any charitable institution, person or persons, body corporate or incorporated or howsoever constituted whom the Trustee in the Trustee’s absolute discretion considers worthy of receipt of funds either for charitable or educational purposes, or for the relief of poverty or for religious scientific or public education purposes in Australia including public hospitals or any hospital which is carried on by a society or association otherwise than for the purposes of profit or gain to the individual members if that society or association.”
In 1986, the name of ETIT was changed to Fuzzies Investment Trust.
On 21 January 1980, Ruth agreed to act as settlor in executing a deed creating a discretionary trust known as the Eric Trojan Trading Trust (ETTT). The schedule to the trust deed or indenture creating ETTT states that the trustee is EJT Nominees (Nest Egg). Item C of that schedule sets out the beneficiaries of the trust which includes Trojan, any child or child-in-law of his or any grandchild or any spouse of any grandchild. The beneficiaries are the same as the beneficiaries for the Investment Trust. The name of this trust was changed in 1986 to Fuzzies Action Trust.
On the 29 October 1981, EJT (Nest Egg) purchased approximately 17 hectares of land at Norton Summit, being the whole of the land comprised and described in Certificate of Title Register Book Volume 5774 Folio 704. Since the purchase of the property certain improvements have been made to the land including three cabins, a cottage known as Pine Corner, a café and various sheds. The registered proprietor of this land is Nest Egg. It was agreed between the parties that Nest Egg hold the land on trust for the ETIT (now Fuzzies Investment Trust).
Adjacent to the Norton Summit block is an area of land belonging to National Parks and Wildlife, which is leased by Nest Egg. A cottage known as Morialta Cottage is located on this land, the lease having commenced on 10 May 1993. In 1996, a lease was entered into for a property known as Teringie House. The lease on that property appears to have expired and neither of the parties to this action presently have any interest in that land.
The relationship between Ruth and Trojan appears to have deteriorated to the extent that in September 2000, Trojan indicated to Ruth that he no longer wished to work with her. It is unnecessary to go into the details of the relationship between the parties thereafter, suffice to say that the situation between them appears to have been quite acrimonious.
Ruth now claims that she is entitled to a 50% interest in the properties due to amounts of money she contributed to the trust assets and agreements she alleges she has made with Trojan.
On the 25 October 2001, Trojan, in his capacity as a director of Nest Egg and as beneficiary of the two trusts, wrote to Ruth suggesting that she prepare a written claim and present it to the board of Nest Egg for discussion.
On the 26 October 2001, Trojan wrote a further letter to Ruth in which he said:
“I am writing to remind you that you that your principle (sic) duty in your capacity as a director of Nest Egg Nominees is to act in the interests of the beneficiaries and not to act in your own personal interests.”
Subsequently, Trojan’s solicitors wrote to Ruth indicating that Trojan was prepared to accept that Ruth had some entitlement to claim for contributions to the trust since 1981, but asked that Ruth resign as director of Nest Egg. As that did not occur, Trojan commenced proceedings in 307, seeking the removal of Ruth as trustee of the two trusts. Ruth then instituted proceedings in 610 in which she claimed to be a beneficiary of Nest Egg pursuant to Article VIII, Item C of the Eric Trojan Trading Trust deed. Although that is a matter which may ultimately be the subject of some dispute, for present purposes I proceed on the assumption that the trust deed is open to that interpretation.
Mr Abbott submitted that it was necessary for the matters raised by 307 to be resolved prior to the hearing of the issues which were the subject of 610 and that it was unnecessary to hear any oral evidence with respect to the earlier application as that matter could be determined on the affidavits filed in the proceedings.
Mr Abbott submitted that the essence of 610 was a claim by Ruth for an interest in land held by Nest Egg. As Ruth was, however, director and chairperson of Nest Egg, she was in fact in control of the very entity against which one of its directors was making a claim. Nest Egg was not represented in the proceedings in which a director of it was claiming a beneficial interest in a part of its assets and this was not therefore in the interests of the beneficiaries of the trust. Mr Abbott argued that Ruth was acting in conflict with her duty as a director and also with the interests of Nest Egg by claiming interest in the land subject to the trusts.
Mr Abbott therefore submitted that the beneficiaries of the trust should be separately and independently represented in 610. If that occurred, a properly advised independent trustee would be able to obtain expert advice as to the quantum of the claim made by Ruth, could file an offer to settle, and would also be in a position to concede the validity of that claim if so advised. To date, none of that had been possible due to the conflict between Ruth as a potential claimant also being the trustee.
In response to the claim by Ruth that any alteration or substitution of the trustee at this stage of the proceedings would be detrimental to her interests, Mr Abbott submitted that the only detriment would be that the entity she now sought to sue in 610 would be represented and accordingly, if that was a detriment, it was a proper detriment.
In an affidavit sworn on 30 January 2004, Ruth submitted that she would be prejudiced by not having her brother and Mr David Prince, an accountant, who was familiar with the business of the trust, give evidence to the court. She deposed to the fact that her brother would give evidence regarding the financial arrangements between herself and Trojan and Mr Prince would give evidence regarding the trustee’s affairs and the respective roles of herself and Trojan in the various entities which are the subject of these proceedings.
Whilst conceding that there had been a certain lack of harmony between herself and Trojan in the past, Ruth believed that it was still possible to resolve these matters amicably and that nothing further should be done in either of these proceedings until there had been a further opportunity to resolve these matters. She argued that the appointment of an independent trustee was unnecessary because there were no actions that such a trustee might reasonably take that could not be taken by herself as the current trustee. Any problems that might be occasioned could be resolved by simple written resolution provided for within the terms of the articles of association of Nest Egg. This could include a resolution between the directors to obtain legal advice. On that basis the additional cost of the appointment of a new trustee was not justified.
In my opinion, the evidence of the proposed witnesses is arguably relevant to the determination of the issues raised in 610 but is of little, if any, relevance to the resolution of the issues raised in 307 which ultimately turns on the discrete issue of whether Ruth’s role as director of Nest Egg is in conflict with her claim against the company as a plaintiff. In my view, therefore, it is possible to resolve the application for substitution of the trustee on the basis of the affidavits presently before the court without the need for calling any oral evidence or filing further statements.
It has been accepted that in managing a trust business a trustee should exercise the same care as that which an ordinary prudent business person would exercise in conducting that business as if it were his or her own (ASC v AS Nominees Ltd[1] and the cases cited therein). A trustee also has a duty of caution. As stated in Re Whitely; Learoyd v Whitely[2]: “The preservation of the fund, and the procurement of a just income therefrom, are primary objects of the creation of the trust itself, and are to be primarily regarded”.
[1] (1995) 62 FCR 504 at 516
[2] (1886) 33 CH D 347 at 355
The requirements of care and caution apply equally when the trustee is a company, and also apply to the trustee company’s directors. As Finn J stated in ASC v AS Nominees (supra):
“when and to the extent that directors of a trustee company are themselves ‘concerned in’ the breaches of trust of their company, they are liable to the company according to the same standard of care and caution as expected of the company itself.”
In this case the only conflict that is alleged against Ruth is that her interest as a plaintiff in 610 is in conflict with her obligations to carry on Nest Egg’s trustee obligations. Nest Egg has a duty to protect and preserve the assets of the trusts for the benefit of the beneficiaries. Nest Egg has been unable to protect its position in 610 by filing an offer and/or obtaining independent advice whilst Ruth has been a director. Therefore, there is a real apprehension that Nest Egg is in breach of its duty, and that breach of duty is as a result of Ruth holding a position as a director.
The removal of a trustee is authorised at both common law and under statute. The common law provides for the removal of a trustee by the Courts where there have been “acts or omissions … such as to endanger the trust property or to shew a want of honesty, or a want of proper capacity to execute the duties or a want of reasonable fidelity” (Story’s Equity Jurisprudence, quoted in Letterstedt v Boers[3]). Additionally Letterstedt v Boers provides “In exercising so delicate a jurisdiction as that of removing trustees, their Lordships do not lay down any general rule beyond the very broad principle above enunciated, that their main guide, must be the welfare of the beneficiaries”.
[3] (1884) 9 AC 371 at 386

In Miller v Cameron[4] Latham CJ (at 575), Starke J (at 579) and Dixon J (at 580) (Evatt & McTiernan JJ concurring) accepted that there was no general rule regarding the circumstances in which a trustee may be removed. However, it was accepted that the welfare of the beneficiaries was paramount and a trustee might be removed if the Court was satisfied that it would be detrimental to the beneficiary’s interest if a trustee continued to hold his position.
[4] (1936) 54 CLR 572
Although a “falling out” has occurred between Ruth and Trojan, it is not necessarily enough to call for the appointment of a new trustee (Benzijia v Adriatic Fisheries Pty Ltd and Cubelic[5]). However, the adversarial relationship between the directors in a trustee company was a factor which led Batt J to hold that a trustee should be replaced by the Court (Jess v Hughes and Ors[6]).
[5] [1984] 37 SASR 545 at 556-7
[6] (Unreported) Supreme Court of Victoria, Civil List, Batt J, 20 December 1995
Section 36 of the Trustee Act (1936) also gives the Court the power to remove a trustee. This section provides:
Power of the Court to appoint new trustee
36.(1) The Supreme Court may, on the application of a person referred to in subsection (1c), make -
(a)an order removing one or more of the trustees of a trust; or
(b)an order replacing one or more of the trustees of a trust; or
(c)an order appointing a trustee or trustees, or an additional trustee or trustees, of a trust; or
(d)any other order that in its opinion is necessary or desirable.
(1a) The Court may make the order if it is satisfied that the order is desirable -
(a)in the interests of the persons (whether identified or not) who are to benefit from the trust; or
(b)to advance the purposes of the trust.
(1b)There is no need for the Court to find any fault or inadequacy on the part of the existing trustees before making an order under this section.
(1c)The following persons may apply for an order under this section:
(a)the Attorney-General; or
(b)a trustee of the trust; or
(c)a beneficiary of the trust; or
(d)in the case of a trust established wholly or partly for charitable purposes the following persons may apply for an order in addition to those referred to in the other paragraphs of this subsection:
(i)a person who is named in the instrument establishing the trust as a person who is entitled to, or may, receive money or other property for the purposes of the trust; or
(ii)a person who is named in the instrument establishing the trust as a person who must, or may, be consulted by the trustees before distributing or applying money or other property for the purposes of the trust; or
(iii)a person who in the past has received money or other property from the trustees for the purposes of the trust; or
(iv)a person of a class that the trust is intended to benefit; or
(e)any other person who satisfies the Court that he or she has a proper interest in the trust.”
In Pope v DRP Nominees Pty Ltd[7] the Full Court considered an earlier version of s 36. That version was worded more narrowly than the current provision, and provided that the Court could only appoint a new trustee in cases where it was found “expedient, difficult or impracticable to do so without the assistance of the Court”. In Pope the Full Court held that the Court’s common law power to remove a trustee remained despite s 36.
[7] [1999] 74 SASR 78
In any event, given the changes made to s 36, that section is now worded so as to be almost as wide as the common law power. In the present circumstances, if an order was made to remove a trustee under the common law, that order could properly be made under s 36 as well.
Although Ruth believes that the parties may be able to come to some sort of resolution whereby the Directors of Nest Egg make resolutions in writing to obtain legal advice, I think that the history of their dealings to date makes that unlikely. Further, as Mr Abbott pointed out, that solution suffers practical problems. For example, if Ruth were to remain a Director of Nest Egg, she would be entitled to view professionally privileged advice to Nest Egg, the company which she is suing.
In my opinion, the interests of the beneficiaries require that their interest in the trust properties be represented and protected in 610 by an independent trustee. Another factor pointing to the removal of Ruth as a trustee is the animosity between the parties. Although the hostility between Ruth and Trojan may have started to ease, I consider that there is still sufficient friction and resentment between them to be adverse to the interests of the beneficiaries.
Although it was argued on behalf of Trojan that it did not matter if the trustee was biased in his favour - as he was a beneficiary of the trust and it would therefore be proper for the trustee to be biased in his favour - I consider that the animosity between the parties is such that resolution of the conflict is more likely to be reached if an independent person is the trustee. I therefore propose to make an order removing Ruth as trustee of the Eric Trojan Investment Trust and Eric Trojan Action Trust and in lieu thereof appointing the Public Trustee to act as the new trustee of those trusts in substitution for Nest Egg Nominees Pty Ltd (ACN 007 836 900) the original trustee thereof. I also indicate that I am, as a result thereof, prepared to make consequential orders in terms of the draft minutes of order annexed hereto.
There remains the claim for summary judgment by Trojan. Mr Abbott pointed out that there were no orders sought against Trojan in 610. There was no cause of action pleaded with respect to him and as matters stood he was merely a witness in those proceedings. Mr Abbott submitted that if the action was not dismissed immediately then Trojan would be entitled to full costs of the action with respect to the outcome of the trial and on that basis it was appropriate to enter summary judgment in his favour.
Rule 25.04 of the Supreme Court Rules empowers the court to enter summary judgment in favour of a defendant in addition to which there is an inherent jurisdiction in the court to dismiss an action where there is no cause of action pleaded that is known to law or where there is no real question to be tried or where no relief is sought against a party (Rule 3.01(a)).
Ruth opposed the application for summary judgment and argued that Trojan was properly a party to the proceedings in 610 on the basis that there was an estoppel claimed against him personally, in addition to which she was seeking damages against him. At present I have some difficulty understanding the argument advanced by Ruth with respect to these matters but it may be that a more thorough examination of the issues arising in 610 will shed some light on those matters.
I have finally decided that it is not appropriate at this stage of the proceedings to grant the application for summary judgment. I think that it is essential for some attempts to be made to mediate the issues between the parties. In view of the appointment of the Public Trustee, I hope this will assist in the resolution of the issues between the parties.
I therefore propose to adjourn for further consideration all other orders sought by each of the parties, including the applications for costs.
APPENDIX A
FDN
IN THE SUPREME COURT OF SOUTH AUSTRALIA
No 307of 2002
BETWEEN
ERIC JOHN TROJAN
Plaintiff
and
NEST EGG NOMINEES PTY LTD (ACN 007 836 900)
First Defendant
and
RUTH (no surname) also known as RUTH ARNDELL
Second Defendant
ORDER APPOINTING NEW TRUSTEE
Date of document:     February 2004
Filed on behalf of the Plaintiff by D’Angelo Kavanagh           179 Goodwood Road
  Millswood SA 5034
  (08) 8373 3363
(08) 8271 9659
Law Code: L1412
Settled by:Terence P Kavanagh
Date and time of filing or transmission
Master:  The Honourable Justice Nyland
Date of Application:  2^nd February 2004
Application made by:                   Plaintiff
Date of Hearing:  2^nd February 2004
Date of Order:  2^nd February 2004
Appearances:  Mr C S L Abbott, counsel for the plaintiff
The defendant in person
The Court orders:
1.Public Trustee be appointed the new trustee of the Eric Trojan Investment Trust and the Eric Trojan Action Trust in substitution for Nest Egg Nominees Pty Ltd (ACN 007 836 900) the original trustee thereof.
2.The land comprised in Certificate of Title Register Book Volume 5774 Folio 704 of which NEST EGG NOMINEES PTY LTD (ACN 007 836 900) is registered as the proprietor of an estate in fee simple and all other assets now subject to the trusts vest in Public Trustee.
3.Public Trustee is entitled to charge a commission for acting as trustee not to exceed 4% of the first $100,000.00 of value, 3% of the second $100,000.00 of value, 2% of the third $100,000.00 of value, and a flat 1% of the remainder of value of the trust assets, and be reimbursed all reasonably incurred disbursements including (but not limited to) legal fees and expert fees.
4.Public Trustee is entitled to be remunerated for its commission and disbursements before any division, distribution or payment from trust assets is made in respect to any claim by a party to this action.
5.    The question of costs is reserved.
6.    The summons be adjourned.
7.The plaintiff and the new trustee and any other person interested may apply for further orders and directions.
REGISTRAR