Yates v Halliday

[2006] NSWSC 1346

CITATION:	Phillip Allan Yates & (6) Ors v John Norman Phillips Halliday [2006] NSWSC 1346
HEARING DATE(S):	27/10/2006
JUDGMENT DATE :	7 December 2006
JURISDICTION:	EQUITY DIVISION
JUDGMENT OF:	Lloyd AJ
DECISION:	Judgment for the plaintiffs. Defendant to produce trust documents at his own expence - see par [65] of judgment. Costs reserved.
CATCHWORDS:	EXECUTORS AND ADMINISTRATORS – trust account statement – filing of accounts and production of documents sought – request for security of costs for preparation of accounts – distribution of funds from estate – trustee under duty to beneficiaries to give them complete and accurate information as to the administration of the trust – beneficiaries right to seek disclosure of trust documents – trustee bound to keep accounts – failure to preserve or to produce trust documents – inadequate explanation of what happened to trust documents – failure to make reasonable investigations – absolute right of beneficiary to inspect – trust records wrongfully disposed of – a court of equity will not make orders that are futile – breach of fiduciary duty – infringement of self-dealing rule – a trustee who commits a breach of trust may lose his right of reimbursement or indemnity
LEGISLATION CITED:	Wills Probate and Administration Act s 85(1AA) Trustee Act 1925 s 59(4)
CASES CITED:	Aberdeen Railway Co v Blaikie Bros (1854) 1 Mcq 461; All ER Rep 249 Christensen v Christensen (No. 2) [1954] 3 QWN 162 CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 221 ALR 196 Ex parte James (1803) 8 Ves 337, 32 ER 385 Freeman v Fairlie (1812) 3 Mer 24, 36 ER 10 Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 Hayes v Wilson (1885) 11 VLR 640 Re Fairbairn [1967] VR 633 Re Simersall; Blackwell v Bray (1992) 35 FCR 584 Re White; White v McLachlan (1910) 10 SR(NSW) 295 Schmidt v Rosewood Trust Ltd [2003] 2 AC 709 Spellson v George (1987) 11 NSWLR 300 Will of Hickey (1889) 3 QLR 162
PARTIES:	Phillip Allan Yates - First Plaintiff Melinda Jane Yates - Second Plaintiff Megan Louise Yates - Third Plaintiff Steven Andrew Bignell - Fourth Plaintiff Sharon Anne Bignell - Fifth Plaintiff Nigel Richard Mordaunt - Sixth Plaintiff Amber Melanie Mordaunt - Seventh Plaintiff John Norman Phillips Halliday - Defendant
FILE NUMBER(S):	SC 3475 of 2006
COUNSEL:	D P Ash (barrister) - Plaintiffs L J Ellison SC - Defendant
SOLICITORS:	Staunton & Thompson- Plaintiffs Beck Dunwoodie & Associates - Defendant

- 18 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Lloyd AJ

Thursday, 7 December 2006

SC 3475/06 Phillip Allan Yates & (6) Ors v John Norman Phillips Halliday

JUDGMENT

Introduction

1 HIS HONOUR: In 1990, the late Mr Jack Yates made a will appointing the defendant, Mr John Norman Phillips Halliday, sole trustee and executor. Mr Halliday is a chartered accountant. By virtue of paragraphs 3 and 4 of the will, various shares owned by the deceased were to be transferred to the Yates Family Trust. This was done. The rest and residue of the estate was given to the deceased’s seven grandchildren upon their attaining the age of 21 years.

2 Mr Yates died in 1992. Probate of the will was granted to Mr Halliday on 20 July 1992. Mr Halliday made various distributions as each grandchild reached the age of 21. The distribution to the youngest grandchild, Phillip Allan Yates, took place on 5 December 2005.

3 The estate has now been fully administered, apart from $3,181.57, which, I understand, has been retained to cover the costs and disbursements of filing the final tax return on behalf of the estate.

4 The plaintiffs are the seven grandchildren. They claim an order for the filing of accounts and the production of documents which they say that Mr Halliday was obliged to keep but failed to do. Mr Halliday, however, says that it should be a consequence of any such orders and a prerequisite to it being carried out that the plaintiffs lodge sufficient money by way of security for costs to cover the costs of that additional work.

The relevant facts

5 Accompanying the grant of probate was a notice pursuant to s 85(1AA) of the Wills, Probate and Administration Act 1898 requiring accounts to be verified, filed and passed within 12 months of the grant. These accounts were filed on 18 August 1993.

6 As noted above, Mr Halliday made various distributions as each grandchild reached 21. He also prepared tax returns for each of the years up to and including the tax year 2005/2006. He also prepared tax returns for each of the beneficiaries whilst money was held on their behalf prior to the distribution to each of them.

7 In the administration of the estate a great deal of correspondence passed between the parties. Evidence of this is annexed to the two affidavits of Robert Ross Medcalf, the solicitor for the plaintiffs, sworn 27 June 2006 and 13 October 2006. This correspondence details the interaction and dispute between the parties. It is convenient for me to summarise the history of the correspondence between the parties here.

8 The solicitors for the plaintiffs wrote to Mr Halliday on 17 August 2005 requesting disbursement of the monies held in trust pursuant to the will of Jack Yates to the final of his grandchildren to attain 21 years of age, Phillip Yates. The letter indicates that Phillip became entitled to the monies when he came of age on 17 May 2005. The plaintiffs then wrote to Mr Halliday in late July 2005 requesting immediate release of the monies to Phillip to which they had received no response. Also on 17 August 2005 the solicitors for the trustee of the Yates Family Trust (being the same solicitors representing the plaintiffs), Letterstik Pty Ltd, wrote to Mr Halliday requesting that the shares in JV Yates & Co Pty Ltd which Jack Yates had bequeathed to the Yates Family Trust be transmitted to the trustee of the Yates Family Trust, it being the proper holder of the shares. The letter indicated that Mr Halliday remained the registered holder of the shares despite previous requests by Letterstik Pty Ltd that the shares be transferred to it in its capacity as trustee and that it was inappropriate for the defendant to continue to hold them, he being the settlor of the Yates Family Trust.

9 The solicitors for the plaintiffs and the trustee wrote to Mr Halliday again on 25 August 2005, as he had not replied to either of the letters sent the week previously. They again requested release of the monies to Phillip and transfer of the shares to the Yates Family Trust both by 1 September 2005. If this was not complied with they indicated proceedings would be commenced in the Supreme Court of New South Wales against Mr Halliday.

10 On 26 August 2005, Mr Halliday personally wrote a letter to each of the plaintiffs discussing his dealings with their grandfather since they first met in 1969 and detailing two issues of particular concern to him in his winding up of the estate. The first being the distribution of funds from a Hong Kong trust and the second being the Yates Family Trust, as to which Mr Halliday 0said he wished to divest himself of all activities in relation to the trust and have it determined. On 30 August 2005, Mr Halliday’s solicitor informed the plaintiffs’ solicitor that his client was in the process of winding up the estate and that this would take time due to the complexity of the estate and its international elements.

11 On 1 September 2005, one of the plaintiffs wrote a letter and on 3 September 2005 the remaining plaintiffs wrote a joint letter to Mr Halliday informing him that there were no family disputes surrounding the issues he raised in his letter and they were in consensus that the money owing to Phillip should be paid immediately. Further, on 15 September 2005, the plaintiffs’ solicitors wrote again to Mr Halliday’s solicitors as Mr Halliday had not yet responded to the letters of the plaintiffs (all of which had been sent on 6 September 2005). The plaintiffs’ solicitors indicated that the reasons given by Mr Halliday to explain his delay in the distribution of assets were unsatisfactory and inaccurate. Another letter was sent by the plaintiffs’ solicitors to Mr Halliday’s solicitors on 28 September 2005 indicating no reply had yet been received and if Mr Halliday continued to neglect his executorial duties after 30 September 2005 proceedings would be commenced in the Supreme Court.

12 An interim response was sent by Mr Halliday’s solicitors on 11 October 2005 indicating that they were receiving final instructions to enable the winding up of the estate without litigation. A further letter from Mr Halliday’s solicitors to the plaintiffs’ solicitors was sent on 12 October 2005 indicating that Mr Halliday wished to finalise the estate and make the final distribution to Phillip but that he first required a release from the beneficiaries and a statutory declaration. The letter further indicated Mr Halliday wished to divest himself of his powers under the Yates Family Trust and that the desirable course by which to do so was the winding up of the trust.

13 On 20 October 2005 the plaintiffs’ solicitors responded reiterating that they wished Phillip’s share of the estate to be released to him and that the defendant had not given any valid reason as to why distribution could not occur and had refused to advise of the amount to be distributed. The letter further indicated that Mr Halliday had no entitlement to any release without full disclosure of his executorship, that the beneficiaries of the Yates Family Trust did not wish the trust to be wound up, and that to their knowledge no overseas property was included in the estate. The solicitors for the plaintiffs requested that they be provided with a copy of the grant of probate, an indication of the amount to be distributed to Phillip and that that amount be distributed to him.

14 A response to this was sent by Mr Halliday’s solicitors to the plaintiffs’ solicitors on 31 October 2005 enclosing a copy of the grant of probate, estimating the amount for distribution to Phillip to be between $170,000.00 and $180,000.00 and indicating that the request for distribution by 10 November 2005 may be met. The letter also addressed a number of other issues. On 11 November 2005 a response was sent to Mr Halliday’s solicitors. The plaintiffs’ solicitors acknowledged receipt of the letter and indicated that distribution to Phillip was expected by 25 November 2005.

15 On 18 November 2005, Mr Halliday wrote to Phillip enclosing a cheque for $174,145.64, representing the capital distribution of Phillip’s entitlement under the estate. Mr Halliday’s solicitors also wrote to the plaintiffs’ solicitors on 28 November 2005 to indicate that distribution had occurred.

16 On 5 December 2005, the plaintiffs’ solicitors sent a letter to Mr Halliday’s solicitors expressing concern that the distribution made to Phillip was somewhat lower than that received in the past by his siblings and cousins. The letter indicated that in March 1997 Ms Amber Mordaunt received a distribution of $182,541.80 and at the time the defendant communicated to her that as at 22 January 1997 the total net equity value of the Estate was $1,277,792.62. Further, the letter indicated that Mr Steven Bignell received a distribution of $192,676.96 in March 2003. The letter requested full and complete records of the defendant’s trusteeship of the estate along with an explanation of the reasons for the diminution in Phillip’s share of the Estate. They particularly requested income tax returns, accounts (which they noted should have been prepared every year in administration of the estate), accounting invoices, and details of any commission claimed and legal expenses incurred.

17 The solicitors for Mr Halliday responded on 13 December 2005 defending the defendant’s administration of the estate. Of particular note there was no annexure of the documents requested and the letter said:

Nothing will be achieved by trawling back through accounts. ... Our client does not wish to be involved in a continuing fishing expedition in relation to the estate. ... Nothing in the prior correspondence discloses any matter of sufficient concern for your client to maintain the correspondence, nor does it disclose any grievances. It is now time to close this file and move on. Therefore we consider the matter to be completed and do not intend to respond to any further correspondence on the same subject matter.

18 The plaintiffs’ solicitors replied to this on 16 December 2005 restating that the plaintiffs required all documents they had requested and that they were legally entitled to them.

19 On 22 December 2005, Mr Halliday’s solicitors replied indicating that the defendant was preparing final accounts for the estate which would be filed in the Supreme Court before the end of January 2006. On 18 January 2006 a response from the plaintiffs’ solicitors indicated the documentation had not yet been received. The plaintiffs’ solicitors sent a further letter on 2 March 2006, as they had still not received the documentation requested nor a copy of the accounts that were proposed to be filed in the Supreme Court.

20 As no response was received to the letter of 2 March 2006 the plaintiffs’ solicitors wrote directly to Mr Halliday on 14 March 2006 on the assumption that his solicitors, Beck Dunwoodie & Associates, were no longer representing him. The letter informed Mr Halliday that if he did not provide the documents requested by 17 March 2006 legal proceedings would be instituted against him. A further letter of 27 March 2006 from the plaintiffs’ solicitors to Mr Halliday’s solicitors (Beck Dunwoodie & Associates still acting for him) indicated that despite telephone conversations between the solicitors of the parties no accounts had yet been received.

21 On 28 March 2006, Mr Halliday’s solicitors sent a letter to the plaintiffs’ solicitors enclosing the accounts and indicating they had been filed on 19 March 2006. The plaintiffs’ solicitors wrote to Mr Halliday’s solicitors on 15 May 2006 indicating that the accounts which had been provided were not the “full, true and just account of all moneys” received by the defendant and requesting particulars. A response to this was sent by Mr Halliday’s solicitors on 7 June 2006 arguing that Mr Halliday was not obliged to provide the beneficiaries with the level of detail requested. That letter stated:

If the court requires more detail our client is prepared to comply with their reasonable request but is not prepared to throw away substantial professional time and expenses in circumstances where your client does not have a reasonable grievance.

22 The solicitors for the plaintiffs responded on 19 June 2006 reiterating their right to proper accounts and pointing out that if the records had been properly kept there would be no time and expense thrown away and that Mr Halliday had charged fees which would presumably include the keeping of proper records.

23 In response to the commencement of proceedings by the plaintiffs on 27 June 2006, Mr Halliday’s solicitors sent a letter to the plaintiffs’ solicitors on 3 July 2006 stating:

Our client has fulfilled his obligations in respect of accounting to date. ... We re-iterate that throughout the process which you have followed, neither you nor your clients have set out a succinct grievance which requires further work to be done by our client nor provided any reason why the accounting provided to date is insufficient. If your clients persist with their requests, our client will endeavour to provide further detail to the best of the available resources. However, a cost will be involved and the cost will be considerable as it is fourteen years since the testator died ... because of the amount of time that has elapsed and the volume of documents, our client requests that $20,000.00 be placed in our trust account by your clients to secure his costs by establishing a fund from which they may be paid in due course. If your clients persist in their instructions and you serve the summons, we have instructions to move the court to grant security for costs in the matter in the amount of $20,000.00 being the estimated amount set out above.

24 On 4 July 2006, the solicitors for the plaintiffs responded to this indicating that the plaintiffs only sought documents they believed they were entitled to as of right. The letter indicated that they do not dispute that Mr Halliday is entitled to reasonable costs in meeting the request for accounts; however, due to the obligation to prepare accounts each year, the cost should not be great.

25 Mr Halliday’s solicitors forwarded a notice of appearance on 21 July 2006 to the plaintiffs’ solicitors. The plaintiffs’ solicitors replied by letter on 28 July 2006 indicating the notice of motion was all they had received from Mr Halliday and that the plaintiffs wished to avoid costs. They indicated that if Mr Halliday could advise the plaintiffs to their reasonable satisfaction of the basis by which he believes he has fulfilled his accounting obligations then there would be no need for the plaintiffs to press for formal relief.

26 No response was received to this, with the next communication from Mr Halliday’s solicitors on 18 August 2006 being a request for security for costs with an enclosed draft notice of motion and proposed affidavit to be filed if the plaintiffs would not provide the security requested. These were then officially served on the plaintiffs through mail sent 24 August 2006. Mr Halliday’s solicitors wrote further to the plaintiffs’ solicitors on 28 August 2006 suggesting their respective counsel arrange an attendance with one of the Probate Registrars to discuss the adequacy of the accounts in the defendant’s affidavit of 13 March 2006.

27 On 7 September 2006, the plaintiffs’ solicitors attended the offices of Mr Halliday’s solicitors to examine requested documents, and at that time the plaintiffs’ solicitors requested additional documents be provided. Mr Halliday’s solicitors wrote to the plaintiffs’ solicitors on 11 September 2006 to advise why some of this documentation could not be provided. On 15 September 2006, they provided a copy of the 1999 income tax return to the plaintiffs’ solicitors. Then on 26 September 2006 they wrote to the plaintiffs’ solicitors referring to their previous letters and the inspection of documents and stating:

We assume that you have received all the documents you are entitled to. We believe that we have made available all necessary documents and that your clients have had all necessary information which exists and which they are entitled to receive.

28 The plaintiffs’ solicitors sent a letter in response on 27 September 2006 indicating they had not seen all documents they should have and pointing to the existence of various trust documents which Mr Halliday was yet to make available to them. They wrote to Mr Halliday’s solicitors again on 10 October 2006 attaching a schedule of documents they wished to inspect. They pointed out:

...it seems to us in everyone’s interest that your client state clearly in relation to each trust document that is no longer in his possession, his best knowledge of its fate or whereabouts, and also his reasonable efforts to retrieve it.

They further indicated that the plaintiffs maintained the position that they had received no proper accounts.

29 Annexed to the second affidavit of Mr Medcalf are also fee memoranda for “...professional services rendered in connection with the preparation of income tax return(s) and/or financial statements…” for the years ended 30 June: 1991, 1992, 1994, 1995, 1996, 1997, 1998, and 1999 (x2) on behalf of Greene Moses Partners (Mr Halliday’s former partnership); and 2003, 2004, 2005 and 2006 on behalf of John N P Halliday. The amounts claimed were significant and apparently paid by the plaintiffs. The fact that the fees were levied and paid gives the plaintiffs a valid expectation that income tax returns and financial statements were indeed prepared.

30 Mr Halliday gave both affidavit and oral evidence, to which I refer below. He says that he has delivered all accounting documents of the estate in his possession to his solicitor, Mr I C Dunwoodie, where they were made available for inspection by the plaintiffs’ and their representatives. From the period 1992 to 2001 Mr Halliday was a member of the accounting partnership of Greene Moses Partners. That partnership no longer exists. Mr Halliday acknowledges that some historical documents remained with that partnership. He is unaware of the whereabouts of documents other than those in his present custody and which he has made available for inspection. Surplus documents including cheque butts and the like were disposed of.

31 Following his receipt of the plaintiff’s solicitors’ letter of 10 October 2006 to which was attached a schedule of missing documents, Mr Dunwoodie carried out a cursory inspection of the documents held by him and quickly located the 1993 income tax return and the 1998 income tax return. Mr Dunwoodie’s instructions were not to conduct a full search as there were insufficient funds in his trust account to pay for this, and he has not conducted any further search. This does, however, suggest that the examination of the documents by the plaintiffs’ representatives on 7 September 2006 was less than thorough.

The defendant’s evidence

32 As noted above, Mr Halliday says that for the period 1992 to 2001 he was a member of the accounting partnership known as Greene Moses Partners. When he left there were three partners. The remaining principal partner, Mr Moses, died some three years ago and the partnership no longer exists. In his affidavit, Mr Halliday states:

It may be that some historical documents remained with the partnership after I left. However, I do not believe that any of those documents would provide any additional information to those documents which I still have and which I have made available to the plaintiffs. I do not know the whereabouts of any other documents other [sic] those in my … present custody.

33 When asked in cross-examination whether he had made enquiries to recover documents in the possession of the former partnership, Mr Halliday said: “Who do I enquire to? A dead person?”

34 In his affidavit, Mr Halliday states that he delivered all accounting documents in his possession to his solicitors, where they were made available for inspection. As I understand his evidence, he says that “at that time” surplus documents including cheque butts and the like were disposed of. When asked in cross-examination whether he had all receipts and vouchers in respect of the trust, Mr Halliday said: “Your people are supposed to inspect that. If they inspected it, they would find 100 per cent of it there.”

35 Mr Halliday said, in cross-examination, that in keeping accounts over the thirteen-year period he did not individualise payments: “To individualise payments you would have had a document which would have been a book.” I note, however, that fees were levied on a yearly basis. In my opinion, Mr Halliday had an obligation to keep proper accounts and it is self-evident that over a thirteen-year period the keeping of proper account may have resulted in “a book” of accounts. His answer is not an adequate excuse for his failure to comply with that obligation – an obligation for which he was rendering professional fees.

36 Mr Halliday’s attention was drawn, in cross-examination, to the statement of disbursement and receipts in the accounts which he filed on 13 March 2006. They show a disbursement in the year ended 30 June 1995 for “Purchase of real estate $914,382”; and a receipt in the year ended 20 June 1999 from the “sale of real estate of $914,382”. He was asked whether this related to a particular property and said that was correct. He was then asked the question and gave the following answer:

Q It is your evidence, is it, that the property was sold for exactly the same amount of money it was bought for, three years later?

A When you are accounting for this for probate, in corpus capital, the property was bought, I think, from memory, for $875,000 plus stamp duty. It was sold for the same amount, $875,000 less commission. The two negate each other so far as corpus was concerned, not as far as revenue was concerned.

37 The sale of a property for exactly the same price which was paid for it over three years earlier in what was, at the time, a booming property market, seems to be too much of a bizarre coincidence and one which requires explanation.

38 In the course of his cross-examination, Mr Halliday also conceded that a small parcel of shares held by the estate in David Jones Limited were sold to a company called ESKJ Investments Pty Limited, a family company of Mr Halliday of which he is a director and shareholder. Mr Halliday said, however, that he did this in the interests of the trust to avoid the payment of brokerage fees, which in turn would have reduced the amount paid into the estate. He further indicated that the superannuation fund to which the shares were transferred was a family trust with a number of members. In apparent evasion of questions as to the benefit the family received from the transfer of shares he said:

Tell me what benefit the Halliday family would have got by buying shares in a company it did not want in its portfolio and paying market value, when it could have bought something more worthwhile?

Mr Halliday contends that he did this in the interests of saving money for the trust and believes that these shares are still owned by ESKJ Investments Pty Limited.

39 Mr Halliday states in his affidavit that, together with his staff, he has performed approximately 84 hours of work in connection with these proceedings, amounting to fees of $18,335.65 plus GST, for which he has not received payment out of the estate. He further states that should the court require further accounting work to be done he is prepared to do it but on the condition that the plaintiffs lodge sufficient funds in advance to cover the reasonable costs and disbursements of work done by him to date and any work ordered to be done by the court. As previously noted, however, there remains in the estate accounts only some $3,181.57 following the final distribution to Phillip Allan Yates, which was retained to cover the costs and disbursements of filing the final tax return on behalf of the estate.

The plaintiffs’ submissions

40 The plaintiffs rely upon the alleged failure of Mr Halliday to keep accounts and to keep the documents which form the basis for these accounts, coupled with the right of a beneficiary to see trust documents.

41 Mr D P Ash, appearing for the plaintiffs, relied upon the following statements of principle, which I accept. The classic statement of principle is found in Scott on Trusts, vol IIA, 4th ed (1987), Boston, Little, Brown and Co at 462–465, adopted by Kirby P in Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 at 422 and by Gummow J in Re Simersall; Blackwell v Bray (1992) 35 FCR 584 at 587:

The trustee is under a duty to the beneficiaries to give them on their request at reasonable times complete and accurate information as to the administration of the trust. The beneficiaries are entitled to know what the trust property is and how the trustee has dealt with it. They are entitled to examine the trust property and the accounts and vouchers and other documents relating to the trust and its administration

42 In Schmidt v Rosewood Trust Ltd [2003] 2 AC 709 at 729 [51], the Privy Council held that the right to seek disclosure of trust documents is one aspect of the court’s inherent jurisdiction to supervise and, if necessary to intervene in, the administration of trusts. Schmidt was referred to with approval by the Full Court of the High Court in CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 221 ALR 196 at 200 [17]. In Simersall, Gummow J said (at 589) that a trustee has an obligation “to keep proper accounts and to allow inspection of them by the cestui que trust”.

43 Particular reliance is placed on the judgment of Gillard J in Re Fairbairn [1967] VR 633 Gillard J said, at 637:

A trustee is bound to preserve the estate. If he destroys any part of it, he does so at his own peril.

44 In Freeman v Fairlie (1812) 3 Mer 24, 36 ER 10 at 17-18, Eldon LC, after noting “the bounden duty of an executor, to keep clear and distinct accounts of the property which he himself is bound to administer”, held that where trust documents are not produced, an executor must show that he has done his utmost to supply his own defect.

45 Finally, in Spellson v George (1987) 11 NSWLR 300 at 316, Powell J held that it is not correct to say that the enforcement by the court of a trustee’s obligation to account is dependent upon the cestuis que trust first raising a question of fraud or some other like breach of trust (at 316):

On the contrary, so it seems to me, where the court's assistance in enforcing the trustee's obligation to account is invoked, the court should be concerned with only two questions, they being, first, whether the plaintiffs are, or the plaintiff is one of the, cestuis que trust, and, second, whether the defendant trustee has failed to observe his obligation to account.

46 Mr Ash submits that Mr Halliday has either failed to produce all the relevant trust documents or has failed to preserve them and having failed to keep and preserve them he has not explained what has happened to them or what reasonable investigations could have been made of his former accounting firm. Mr Ash further submits that the accounts filed on 13 March 2006 are a mere summary and fail to answer the proper description of accounts. The plaintiffs now seek, in particular, an order that Mr Halliday provide the following documents:

(a) Income Tax returns of the Estate for 1993, 1999, 2006.

(b) Income Tax assessments for the trust and for its beneficiaries for 1993 to 2001.

(c) The Financial Reports of the Estate for each year ended from 30 June 1993 to 30 June 1999 and for the year ended 30 June 2006.

(d) Itemised executor’s invoices.

(e) General ledgers for each year to the year ended 30 June 2006.

(f) In respect of the Trust property, receipts.

(g) In respect of the Trust Property, any vouchers evidencing payments or disbursements.

(h) In respect of any bank account kept by or on behalf of the Defendant in respect of the trust, bank statements, chequebooks and deposit books.

(i) Any tax invoice or bill raised by or on behalf of the Defendant or any firm of accountants of which he has been a principal, addressed to the Trust, other than those copied at pages 61 to 73 of Mr Medcalf’s affidavit in the proceedings made on 13 October 2006.

(j) Any tax invoice or bill raised by a legal practitioner and passed on by, intended to be passed on by, the Defendant to the Estate.

47 I note, however, that Mr Dunwoodie’s cursory inspection of documents resulted in the disclosure of the 1993 tax return (as well as the 1998 tax return). The plaintiffs alternatively seek an order that Mr Halliday file and serve an affidavit setting out in relation to any such document that was, but no longer is, in his possession his enquiries and knowledge as to its whereabouts and his efforts to retrieve it.

The defendant’s submission

48 Mr L J Ellison SC, appearing for Mr Halliday, submits that everything that Mr Halliday had has been produced; he is not holding on to any further documents; there is nothing in the evidence to show that there exists any document which was not produced and made available for inspection; there is no allegation of any specific misfeasance; and there is no utility in going further.

Conclusion

49 I wholly accept the principles relating to the duty of executors to keep proper accounts throughout the period of their administration of the estates and to produce them when asked to do so by any beneficiary, as explained by the authorities upon which the plaintiffs rely, noted in paras [42] to [46] above. Moreover, it is not necessary for there to be any allegation of breach of trust on the part of the executor – the right of a beneficiary to inspect is an absolute right.

50 Mr Halliday has shown by his conduct that he did not and does not appreciate the duties of a trustee or an executor to keep accounts, neither does he seem to understand the right of beneficiaries to examine trust accounts and vouchers and other documents relating to the trust and its administration. In the present case it is at least clear that Mr Halliday persistently failed to observe his obligations to keep such records as will enable the provision to the beneficiaries of adequate information concerning the estate.

51 Particular examples of Mr Halliday’s conduct include the fact that he requested a release from the beneficiaries before making the final distribution to Philip Yates; his resistance for a long time in producing what documents he had on the irrelevant ground that there was an absence of any grievances; his demand for $20,000 to meet his costs in providing the accounts which the plaintiffs sought, despite their legal entitlement thereto as of right; and his failure to keep and furnish upon request proper accounts.

52 Moreover, in giving his evidence Mr Halliday was constantly evasive, refusing to give straight answers in cross examination and giving no indication as to whether proper trust accounts were actually prepared despite having charged professional fees for doing so. It is not a sufficient answer to simply invite the plaintiffs or their representatives to sort through two boxes of documents to determine whether the estate was properly administered. It was Mr Halliday’s duty as executor and trustee to keep and produce when requested appropriate records demonstrating how the estate was administered. Neither has Mr Halliday demonstrated that he had made an adequate attempt to obtain accounting records from the former partnership of Greene Moses Partners. In any event, since Mr Halliday remained the executor and trustee of the estate upon his departure from that partnership, the estate records should have also been kept by him, rather then being left in the former partnership.

53 Although the plaintiffs have always had an unfettered right to inspect trust documents, it is understandable that they would particularly wish to do so in the present case. The evidence has disclosed a number of dubious transactions involving trust assets during Mr Halliday’s administration. It is only through the production of complete records that Mr Halliday can satisfy the concerns of the beneficiaries, records which Mr Halliday has apparently failed to keep, despite his obligation to do so.

54 I cannot find a kind word to say about Mr Halliday or his conduct in administering the estate. In particular, there is his persistent and unjustified refusal to produce proper and complete accounts to the beneficiaries when asked to do so. The latter conduct I have found to be a clear breach of his duty.

55 The plaintiffs would in these circumstances be entitled to the order that they seek, namely, that Mr Halliday provide the documents that they have specified, noted in par [47] above. The difficulty now is that Mr Halliday has said on oath that he “disposed of” what he described as “surplus documents” at the time of filing the final statement of account in March 2006, that he has now produced everything that he has and that he does not know the whereabouts of any other document. That is, as I understand it, he says that he cannot produce any more than what he has done.

56 It is settled law that a court of equity will not make orders that are futile. Thus in Meagher, Gummow and Lehane’s Equity Doctrines and Remedies, 4th ed (2002), LexisNexis Butterworths, Sydney by R P Meagher, J D Heydon and M J Leeming, the authors correctly state the position at [20-140]:

Equity will not specifically enforce what cannot be done: Ferguson v Wilson (1866) LR 2 Ch App 77. And it does not matter that the impossibility may be entirely due to default on the part of the defendant; if, for whatever reason, the defendant cannot possibly perform his obligation, specific performance will not be decreed against him: Seawell v Webster (1859) 29 LJ Ch 71… Quite apart from the court’s reluctance to make orders in vain, since disobedience is a contempt of court punishable by imprisonment, it “is unthinkable that a court should put a man at risk of imprisonment by making an order which it knows, at the time of making the order, is impossible of performance”: Udall v Capri Lighting Ltd (in liq) [1988] QB 907 at 915.

57 Nevertheless, the plaintiffs are fully justified in bringing these proceedings, particularly in view of the non-observant attitude of Mr Halliday towards his duties and to the reasonable requests of the plaintiffs. They are entitled to the full accounting records that they seek and, if Mr Halliday no longer has them, the plaintiffs are entitled to know where they are and what has happened to them.

58 The accounts produced thus far by Mr Halliday are insufficient. Under the customary practice the proper accounts must show all receipts as well as payments, which should be supported by vouchers; and the executor or trustee must also furnish information sufficient to verify the fact of any investment transaction: H A J Ford and W A Lee, Principles of the Law of Trusts, Lawbook Co (looseleaf subscription service), at par [9080]. Moreover, as stated further by the authors of Principles of the Law of Trusts at par [9080]:

The accounts must show all receipts as well as all payments, which should be supported by vouchers: White v Lady Lincoln (1803) 8 Ves 363; 32 ER 395 per Lord Eldon at 369, (ER 397); although oral evidence of disbursements may be allowed in the absence of vouchers: Christensen v Christensen [1954] QWN 37. The trustee must also furnish information sufficient to verify the fact of any investment.

The accounts kept by the trustees should not be destroyed at the termination of the trust, even although the beneficiaries have given the trustees a release … They may be needed at a later date if some question arises, or if an allegation is made against a trustee: Payne v Evens (1874) LR 18 Eq 356 at 367. A trustee who has destroyed the trust accounts may be viewed unfavourably: Gray v Haig (1854) 20 Beav 219; 52 ER 587 at 238 (ER 594) and may lose costs: Payne v Evens (1874) LR 18 Eq 356. Where accounts have not been kept the court will allow bank books, cheque books, solicitors' accounts and other documents belonging to the trustee or the trustee's estate to be inspected: Stainton v Carron Co (1857) 21 Beav 346; 53 ER 391 at 361 (396); Furness v Public Trustee [1921] 40 NZLR 898 at 901-902.

In these respects Mr Halliday has fallen well short of his fiduciary duty.

59 Mr Halliday also failed in his duty in his dealing with the David Jones shares which I have described in par [38] above. This conduct infringes the self-dealing rule, namely, that trustees are prohibited from purchasing trust property. In Ex parte James (1803) 8 Ves 337, 32 ER 385, Lord Eldon said (at 345; ER at 388):

…the purchase is not permitted in any case, however honest the circumstances…

I note that none of the exceptions to the self-dealing rule applies in the present case.

60 In Re White; White v McLachlan (1910) 10 SR (NSW) 295, Street J adopted (at 296) the following comments of Lord Cranworth LC in Aberdeen Railway Co v Blaikie Bros (1854) 1 Mcq 461 at 471-472; [1843-60] All ER Rep 249:

It is a rule of universal application, that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect. So strictly is this principle adhered to, that no question is allowed to be raised as to the fairness or unfairness of a contract so entered into.

61 I have described in pars [36] and [37] above the purchase by Mr Halliday of real estate in 1995 and its sale four years later resulting in the receipt of precisely the same sum as the original outlay. Although it is a notorious fact that the Sydney property market was booming during those years, the result of this transaction is that the estate lost the benefit of any interest on the sum of $914,382 that was outlayed during that period. Although I accept the fact that the property was rented. The following statement quoted in J D Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia, LexisNexis Butterworths Australia, 7th ed (2006), at 593 would appear to apply:

A trustee commits a breach of trust if he violates any duty which he owes as trustee to the beneficiaries. Ordinarily he does not commit a breach of trust if he does not intentionally or negligently do something which he ought not to do or fail to do something which he ought to do. Ordinarily he does not commit a breach of trust unless he is in some way personally at fault. A trustee commits a breach of trust, however, even if he does the best he can if his best is not good enough …. he is under duty in administering the trust to exercise such care and skill as a person of ordinary prudence would exercise, and he is liable for a loss resulting from his failure to comply with this standard, even though he does the best he can.

62 An executor or trustee is entitled to receive reimbursement or indemnity in relation to all charges and expenses properly incurred on behalf of the trust: see, for example, s 59(4) of the Trustee Act 1925, which states the common law position. Moreover, in the present case the testator, in addition to appointing Mr Halliday as sole executor and trustee, expressly provided that he shall be entitled to be paid professional fees for work done by him or his firm. A trustee who commits a breach of trust, however, may lose this right of reimbursement or indemnity. The courts have tended to be severe where the trustee has failed to maintain accounts: Christensen v Christensen (No. 2) [1954] 3 QWN 162, Will of William Hickey (1889) 3 QLR 162. In Hayes v Wilson (1885) 11 VLR 640, the services of an accountant were necessitated by the neglect of executors to keep proper accounts. It was held that executors should have to pay out the accountant’s fee from their own pocket, but were allowed to keep commission.

63 In the present case Mr Halliday has appropriated professional fees of some considerable sum “in connection with preparation of income tax return(s) and/or financial statements”. He has failed to produce trust documents that the beneficiaries have a right to see. In my opinion, the beneficiaries are entitled to the documents that they seek and, if not produced, are entitled to a proper and detailed explanation, on oath, as to what has happened to them and where they now are. Since Mr Halliday has already charged for keeping these trust accounting records he should repair his omission at his own expense, particularly since there remains only the sum of $3,187.57 in the trust account which, I understand, is being retained to cover the costs of preparing the final tax return.

64 I indicated during the hearing that the question of costs would be considered after the delivery of judgment in this case. Accordingly, the question of costs will be reserved. I note, however, the following statement in Halsbury’s Laws of Australia, Butterworths (subscription service), vol 27 at par [430-3760];

A trustee must personally bear the costs of an action against him or her by a beneficiary for an account or for the administration of the trust to the extent that those proceedings have been occasioned by the trustee’s own default or neglect and may be ordered to pay the beneficiary’s costs: Hilliard v Fulford (1876) 4 Ch D 389 at 394; [1874-80] All ER Rep 247; (1876) 46 LJ Ch 43 per Jessel MR; Re Hayter; Re Wallett; Hayter v Wells (1883) 32 WR 25; Re Knox’s Trusts [1895] 2 Ch 483, CA; Re Skinner; Cooper v Skinner [1904] 1 Ch 289; (1903) 73 LJ Ch 94; 89 LT 663; Re Holton’s Settlement Trusts; Holton v Holton (1918) 88 LJ Ch 444; 119 LT 304.

Orders

65 For the reasons described above I make the following orders:

(1) The defendant, at his own expense, provide reasonable access to the plaintiffs or their legal representative the following documents within twenty eight (28) days:

(a) Income Tax returns of the estate for 1993, 1999 and 2006.
(b) Income Tax assessments for the Trust and for its beneficiaries for 1993 to 2001
(c) The Financial Reports of the estate for each year ended from 30 June 1993 to 30 June 1999 and for the year ended 30 June 2006.
(d) Itemised executor’s invoices.
(e) General ledgers for each year to the year ended 30 June 2006.
(f) In respect of the trust property, receipts.
(g) In respect of the trust property, any vouchers evidencing payment or disbursements
(h) In respect of any bank account kept by or on behalf of the defendant in respect of the Trust, bank statements, cheque books and deposit books.
(i) Any tax invoice or bill raised by or on behalf of the defendant or any firm of accountants of which he has been a principal, addressed to the trust, other than those copied at pages 61 to 73 of Mr R R Medcalf’s affidavit in the proceedings sworn on 13 October 206.

(k) Any tax invoice or bill raised by a legal practitioner and passed on by, or intended to be passed on by, the defendant to the estate.

(2) On default, the defendant, at his own expense, must file and serve an affidavit setting out in respect of each such document whether he kept such document, why he does not have it, what has happened to it and where it is now.

(3) The question of the costs of these proceeding is reserved.

(4) The proceedings are listed for mention before me on Monday, 19 February 2007, unless the parties file consent orders relating to all outstanding matters, including costs, beforehand.

I hereby certify that the preceding 65 paragraphs are a true copy of the reasons for judgment herein of the Honourable Mr Justice D H Lloyd.

Associate

Dated: 7 December 2006

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