Yunghanns v Candoora No 19 Pty Ltd (No 2)
[2000] VSC 300
•4 August 2000
| SUPREME COURT OF VICTORIA | |
| COMMERCIAL AND EQUITY DIVISION COMMERCIAL LIST | Not Restricted |
No. 2093 of 1999
F5079
| AN INFANT YUNGHANNS by PETER NICHOLAS YUNGHANNS his litigation guardian | Plaintiff |
| v | |
| CANDOORA No. 19 PTY LTD (ACN 055 346 622) | Defendant |
---
JUDGE: | Warren J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 5, 6 and 7 June 2000 | |
DATE OF JUDGMENT: | 4 August 2000 | |
CASE MAY BE CITED AS: | Yunghanns v Candoora No. 19 Pty Ltd (No. 2) | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 300 | |
---
Receiver – appointment over trust assets and undertakings – parties engaged in extensive litigation – dissipation of trust funds on legal costs – trust in jeopardy – interests of infant beneficiary at risk.
Supreme Court Act 1986; s.37 – whether just and convenient to appoint a receiver.
Corporations Law, s.426 – powers of receiver
---
APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr A.J. Myers QC with | Strongman & Couch |
| For the Defendant | Mr P.B. Murdoch QC with Mr D. Collins | B 2 B Lawyers |
HER HONOUR:
The plaintiff is the infant son named "William" of Peter Nicholas Yunghanns. The infant was born on 25 March 2000.
Peter Nicholas Yunghanns is about 60 years and the father of David Brian Yunghanns and Sarah Jane Mahon (formerly Yunghanns).
David Yunghanns and Sarah Mahon are aged about 37 and 35 years respectively, and are the children Peter Yunghanns and Margaret Yunghanns who were divorced by decree of the Family Court of Australia in early 1995. Their property dispute was compromised and on 26 June 1996 the Family Court made consent orders in relation to their property. One of the orders related to the defendant in this proceeding ("Candoora") and the trust of which it was the trustee. As a result of the Family Court orders effective control of the trust passed from Peter Yunghanns to David Yunghanns and Sarah Mahon.
The defendant, Candoora is the trustee of a trust known as "The Yunghanns Children's Trust" ("the trust") which was established by a deed of settlement dated 27 June 1992. It is a discretionary family trust. Candoora as trustee holds the issued share capital of Ligon 211 Pty Ltd which in turn holds all the issued capital in Wingara Wine Group Pty Ltd which in turn owns all the issued share capital in Sunnycliff Orchards Pty Ltd and all of the issued share capital in Sunnycliff Investments Pty Ltd. Candoora and the other companies conduct a substantial vineyard, wine producing, farming and citrus business with an annual turnover in excess of $30M. The business was developed by Mr Yunghanns from about 1967 onwards. As a result, Candoora as trustee administers a very large estate of considerable value.
Candoora as trustee is now controlled by the children David Yunghanns and Sarah Mahon who are the only directors and equal shareholders of Candoora.
The father, Peter Yunghanns, and the two adult children, David Yunghanns and Sarah Mahon, have fallen out and are parties in a number of pieces of litigation in this court. They have fought other litigation in the Family Court, the High Court and have been parties or in control of parties to Federal Court proceedings. On 25 July 1996 Mr Yunghanns married Patricia Gaye Yunghanns. In 1999 Patricia Yunghanns became pregnant. Peter Yunghanns brought these proceedings on behalf of the unborn child and sought an order pursuant to Rule 16.01 of the Rules of Court that he be appointed to represent the unborn child.
On 25 October 1999 Peter Yunghanns, on behalf of his then unborn child, applied to Gillard J for an ex parte injunction to restrain the defendant as trustee of the Yunghanns Children's Trust from taking steps to exclude the then unborn child as a primary beneficiary of the trust.
The trust was created by a deed of settlement dated 27 June 1992. The settlor was Norman Messey Taylor, the trustee is the defendant and Dariway Pty Ltd (a company controlled by Peter Yunghanns) was the appointor and guardian. The deed of settlement established a discretionary trust for the benefit "of the children of Peter Nicholas Yunghanns, living at the date of making this deed or born thereafter and prior to the vesting day". The children of Peter Yunghanns living at the date of making the deed were his son David and his daughter Sarah. The vesting date has not occurred. At the time of the creation of the trust Peter Yunghanns apparently did not contemplate having other children. However, the terms of the trust are expressed as describing the primary beneficiaries as the children of Peter Yunghanns rather than specifically nominating David Yunghanns and Sarah Mahon. In other words, it is relevant that the primary beneficiaries can encompass the children of Peter Yunghanns at the time of the creation of the trust and, also, children born thereafter.
On 25 October 1999, Gillard J granted an ex parte interim injunction restraining the defendant as trustee from exercising any power to vest the trust or to exclude the unborn child as a beneficiary of the trust. The originating motion and summons on originating motion, by which this proceeding was commenced, seek orders for an interlocutory injunction restraining the defendant from taking any step to vest the trust or exclude the unborn child, an interlocutory injunction restraining the defendant from dealing with, disposing of, parting with or encumbering any assets of the trust and an order for the appointment of a receiver to the property of the trust.
On 25 October 1999, Gillard J, having granted an interim injunction, adjourned the plaintiff's application for interlocutory relief to 4 November 1999. Candoora was thereby given the opportunity to consider the affidavit material filed on behalf of the plaintiff and to respond. On 4 November 1999, the plaintiff pursued the application for interlocutory relief. No undertakings were offered by the defendant to the plaintiff or the court. There was no affidavit material filed in opposition to the affidavits in support of 22 and 25 October 1999 sworn by Peter Yunghanns. His Honour heard detailed submissions on that occasion and granted an interlocutory injunction pending the delivery of his judgment on the matters raised. The principal submission of the defendant was that an unborn child had no standing to bring the application. At the conclusion of submissions his Honour extended the interim injunction. On 15 December 1999, his Honour delivered his reasons and granted the plaintiff an interlocutory injunction in the same form as the interim injunction: see Yunghanns v Candoora No. 19 P/L [1999] VSC 524.
In his reasons Gillard J (at 23-24) made two findings for the purposes of the interlocutory injunction application, as follows:
"I make two findings.
There is no love lost between Mr Yunghanns and his two adult children David and Sarah. There are many proceedings between them and the companies controlled by them with each side seeking to gain control of a substantial business empire to the exclusion of the other. In the absence of any evidence from the two children I find that there is a risk they may exercise their power as directors of the trustee to prejudice the interests of the unborn child so that upon its birth it no longer has any right to enforce. Its rights would in those circumstances be taken away before it acquired any legal personality to enforce it. In addition to any right to property once born the child would have the right to bring a proceeding to remove the trustee. On determining whether or not it is proper to remove a trustee, the Court will regard the welfare of the beneficiaries as the dominant consideration – see Miller v Cameron (1936) 54 CLR 572.
The removal of a trustee does not depend upon proof of misconduct: a conflict of duty and interest may be a basis for removal – see Monty Financial Services Ltd v Dezmo (1996) 1 VR 65.
The second finding I make is that on the balance of convenience the unborn child will suffer a greater wrong if the injunction is refused than the trustee will suffer if the injunction is granted. Indeed, no evidence was placed before the court with respect to this issue by the trustee.
In my opinion justice demands that the injunction be granted.
It is to be granted because in my opinion the status quo should be preserved until birth, there is a serious question to be decided, namely, whether or not Candoora should be replaced as trustee and the balance of convenience favours the granting of the interlocutory injunction.
The proposed order is limited as follows – "Until the trial of the proceeding or further order the defendant by itself its servants or agents be restrained from exercising any power or powers as trustee pursuant to the deed of settlement dated 27 June 1992 establishing the Yunghanns Children's Trust so as to vest the trust, to exclude any beneficiary or class of beneficiaries or amend, vary or alter the said deed of settlement."
The injunction granted by Gillard J on 4 November 1999 and his reasons of 15 December 1999 partly set the context for the present application for the appointment of the receiver of the trust assets and undertakings.
Furthermore, the present proceeding, hereafter referred to as "the Candoora proceeding", cannot be considered in isolation. It forms part of a set of proceedings between Peter Yunghanns and his adult children David Yunghanns and Sarah Mahon. The other proceedings are the Merim proceeding (No. 2053 of 1999) and the Rentiers proceeding (No. 2034 of 1998). Each of the proceedings are within the Commercial List. I ordered on 7 April 2000 that the three proceedings, that is, the Candoora proceeding, the Merim proceeding and the Rentiers proceeding all be heard and determined at the same time. The three matters have been fixed for trial commencing on 29 January 2001 on an estimated duration of 12 weeks.
In addition to the present proceeding and the Merim and Rentiers proceedings there have been related proceedings in the Family Court of Australia. An overview of those proceedings is relevant to the application to appoint a receiver.
After Peter Yunghanns and Margaret Yunghanns separated, in about 1992 Peter Yunghanns commenced proceedings in the Family Court to determine the division of the property of the marriage. Ultimately, the Family Court proceedings were settled by way of orders providing for maintenance instalments in the sum of $3m to be paid to Margaret Yunghanns together with orders concerning spousal maintenance and distribution of property.
The Family Court orders were made on 26 June 1996 apparently by consent and were signed by the parties to the agreement. The orders provided that leave was granted to David Yunghanns, Wingara, Dariway Pty Ltd, Ligon 211 Pty Ltd ("Ligon"), and Rentiers to intervene in the Family Court proceedings. In addition to the payment of the various sums agreed to Margaret Yunghanns, totalling $3m, the said sum was secured by way of an assignment of Ligon to Margaret Yunghanns as security of the debt for $3m. The orders provided, also, that the whole of the issue capital in Candoora comprising two fully paid ordinary shares were to be transferred, one share in favour of David Yunghanns and one share in favour of Sarah Mahon. Importantly, the orders required Peter Yunghanns to do all things necessary and sign all documents to ensure that any entity in which he had an interest would not call in any loan owing by Ligon or Wingara which had an adverse effect on the operation of Wingara. The context of paragraph 13 of the orders of the Family Court was that the debt of Wingara was assigned as security for the payment of the sum of $3m to Margaret Yunghanns. It had the effect that Peter Yunghanns was not permitted to do anything that would cause the calling in of any loan owing by Ligon and/or Wingara which had an adverse effect on the operation of Wingara.
At a later point an injunction was obtained in the Family Court restraining Peter Yunghanns from calling up debts. The position of Peter Yunghanns was that he considered he was entitled to call up debts that were not loans owed by Ligon and/or Wingara. He maintained further that the debt had to be a debt that was owing at the time the orders were made by the Family Court and not a future debt and that it had in fact to be a debt that was owing by Ligon or Wingara. Nevertheless orders were made at first instance by the Family Court. On appeal to the Full Court of the Family Court the injunction was dissolved. An application was made for special leave to the High Court and leave was refused.
The circumstances that led to the application for an injunction before the Family Court arose after the lockout when Peter Yunghanns caused several statutory demands to be served to recover debts and loans for the Wingara group. Hence, in addition to the parties to the marriage, the adult children of Peter Yunghanns and the various Yunghanns' companies already referred to and other parties became involved (being corporate entities associated with the broader Yunghanns' interests: Sunnycliff Orchards Pty Ltd and Sunnycliff Investments Pty Ltd) in the Family Court proceeding.
In an affidavit sworn on 4 June 2000 in this proceeding David Yunghanns deposed that the intervention of the other parties in the Family Court proceedings was critical to and was an important component of the overall final property settlement embodied in the Family Court orders made on 26 June 1996. He deposed in his affidavit " … As a result of the orders ownership and control of the entities which constitute the Wingara Group has formally passed to my sister and me". On its face this statement appears contrary to the provisions of The Yunghanns Children's Trust deed executed on 27 June 1992. David Yunghanns continued in his affidavit of 4 June 2000 (para 10(a)): " … Special provision in respect of the property was made to establish the Wingara Group under the control, direction and ownership of myself and Sarah to protect the value of the settlement to my father, my mother and to Sarah and me and preventing other parties from taking advantage of book entries and the benefit of extant loan application balances". In effect on the face of the affidavit David Yunghanns purported to assert that the Family Court proceedings and the orders made in June 1996 effected a settlement in favour of David and Sarah. This assertion was challenged on behalf of the infant in this proceeding.
It appears also from the affidavits that there were other proceedings instituted in the Federal Court of Australia in relation to the statutory demands whereby David Yunghanns, Sarah Mahon and the Wingara Group disputed the debts that were the subject of the statutory demands and sought to have the demands set aside.
Subsequently, on 17 June 1999 the Rentiers proceeding was commenced to recover debts from Candoora, Sunnycliff, Sunnycliff Orchards, Wingara and Ligon. Thereafter, the Merim proceeding was instituted.
It is relevant for the purposes of considering the present application for the appointment of a receiver in the Candoora proceeding to set out the general background facts to each of the Merim and Rentiers proceedings.
The Merim Proceeding
The first defendant, Merim Pty Ltd ("Merim") is the trustee of two trusts. The first trust is the David Brian Yunghanns Trust Fund. The second trust is the Sarah Jane Yunghanns Trust Fund. Both trust funds were constituted by separate trust deeds each executed on 30 April 1973. Merim was incorporated on 17 April 1973. The first plaintiff, David Yunghanns, is the sole specified beneficiary of the first trust. The second plaintiff, Sarah Mahon, previously Sarah Jane Yunghanns, is the sole specified beneficiary of the second trust. Peter Yunghanns is the second defendant in the Merim proceeding. David Yunghanns and Sarah Mahon are the same adult children of Peter Yunghanns. Under both trust deeds Peter Yunghanns has the power and role of appointor whereby it is alleged by David Yunghanns and Sarah Mahon that he has power to replace a trustee or add a trustee. The second power and role of Peter Yunghanns is that of guardian. He has the same powers and roles with respect to both the David Brian Yunghanns Trust Fund and the Sarah Jane Yunghanns Trust Fund. It is alleged by David Yunghanns and Sarah Mahon that as a consequence of the role of Peter Yunghanns with respect to both trusts his consent is required before certain steps can be taken by the trustee. It is asserted by them that at all relevant times Peter Yunghanns was and is the controlling mind of Merim.
It seems that there is no dispute between the parties in the Merim proceeding that Merim owns the three issued shares in a company known as Ballan Pastoral Co Pty Ltd and which in turn owns a large rural property south of Ballan in Victoria. Up until recently the primary issue in the proceeding was whether Merim owns the shares in Ballan Pastoral Co Pty Ltd as trustee of the two trusts or in some other capacity.
The proceeding was commenced in June 1999 in the Commercial List. It was fixed for trial to commence on 8 November 1999, was stood over and re-fixed for 7 February 2000 but subsequently adjourned off and refixed to be heard at the same time as the Candoora and Rentiers proceedings.
Very shortly before the second trial date of 7 February 2000 an event of some apparent significance occurred. On 28 January 2000 Merim and Peter Yunghanns executed two deeds. One deed related to the David Brian Yunghanns Trust Fund and the other to the Sarah Jane Yunghanns Trust Fund. The two deeds executed on 28 January 2000 were executed by Merim and Peter Yunghanns purporting to exercise a power of nomination under the two trust fund deeds of 30 April 1973. By virtue of the deeds of nomination executed by Merim and Peter Yunghanns on 28 January 2000, Merim and Peter Yunghanns purported to nominate another entity, M & M Taylor Nominees Pty Ltd as a beneficiary of each of the two trust funds. It appears that M & M Taylor Nominees Pty Ltd is the trustee of another trust fund called the Jessie Yunghanns Trust Fund.
The first of the amending deeds executed on 28 January 2000 purported to nominate M & M Taylor Nominees Pty Ltd as a beneficiary of each of the David Brian Yunghanns Trust Fund and the Sarah Jane Yunghanns Trust Fund. The second amending deed executed on 28 January 2000 purported to appoint M & M Taylor Nominees Pty Ltd as the beneficiary entitled to the relevant trust funds, that is, the assets constituting the trust fund upon the vesting of that trust fund. In other words, M & M Taylor Nominees Pty Ltd by virtue of the deeds executed on 28 January 2000 purportedly became the beneficiary under both the David Brian Yunghanns Trust Fund and the Sarah Jane Yunghanns Trust Fund to the exclusion of all others.
Under the second amending deed, Merim and Peter Yunghanns, purported to vest or appoint a vesting date for each of the David Brian Yunghanns Trust Fund and the Sarah Jane Yunghanns Trust Fund as at 29 January 2000. On 7 February 2000 the first and second defendants, Merim and Peter Yunghanns sought and were granted leave to file an amended defence pleading the events that had occurred at the end of January 2000 and, in particular, the alleged vesting of each of the David Brian Yunghanns Trust Fund and the Sarah Jane Yunghanns Trust Fund on 29 January 2000. As a consequence, the plaintiffs, David Yunghanns and Sarah Mahon sought and were granted leave to amend their statement of claim to plead that the events that occurred at the end of January 2000 were invalid and, further, that the plaintiffs were entitled to relief by way of the setting aside of the deed of nomination and deed of appointment executed on 28 January 2000 as being invalid acts by the trustee Merim. The plaintiffs sought and were granted leave, also, to join M & M Taylor Nominees Pty Ltd as a third defendant to the proceeding.
The Merim proceeding has been the subject of ongoing interlocutory disputes and directions as it heads towards the joint trial date on 29 January 2001.
The Rentiers Proceeding
The Rentiers proceeding consists of the consolidation of a number of earlier proceedings between David Yunghanns and Sarah Mahon and Peter Yunghanns and their associated corporate interests.
There are 12 plaintiffs to the Rentiers proceeding. The first to eleventh plaintiffs are various companies associated with Peter Yunghanns: Rentiers Pty Ltd ("Rentiers"), Rentiers Machinery Pty Ltd ("Rentiers Machinery"), Amara Pty Ltd ("Amara"), Kremfour Pty Ltd ("Kremfour"), Palassa Pty Ltd ("Palassa"), Croxlea Pty Ltd ("Croxlea"), Industrial Engineering Pty Ltd ("Industrial Engineering"), Ballan Pastural Co Pty Ltd ("Ballan Pastural"), Tenet Pty Ltd ("Tenet"), Gitland Pty Ltd ("Gitland") and Mardasa Nominees Pty Ltd ("Mardasa"). Peter Yunghanns is the twelfth plaintiff and was a director of Rentiers, Rentiers Machinery and Amara. It is alleged that Peter Yunghanns controlled Kremfour, Palass, Croxlea, Industrial Engineering and Tenet. He is also the director of Gitland and Mardasa and another company, Riddoch Estate Pty Ltd ("Riddoch").
There are nine defendants to the Rentiers proceeding. The first to sixth defendants are various companies alleged to be controlled by David Yunghanns and Sarah Mahon: Wingara Wine Group Pty Ltd ("Wingara"), Sunnycliff Investments Pty Ltd ("Sunnycliff Investments"), Sunnycliff Orchards Pty Ltd ("Sunnycliff Orchards"), Candoora No. 19 Pty Ltd ("Candoora"), Ligon 211 Pty Ltd ("Ligon") and Schadenfreude Pty Ltd ("Schadenfreude"). David Yunghanns and Sarah Mahon are the seventh and eighth defendants respectively to the Rentiers proceeding. Margaret Yunghanns, the former wife of Peter Yunghanns is the ninth defendant. Following an order made by Gillard J on 12 November 1999, Rentiers served a consolidated statement of claim exceeding some 100 pages in length. In summary and for present purposes it is sufficient to describe the allegations and relief sought as follows:
·Peter Yunghanns owns or has a beneficial interest in all of the shares in Schadenfreude and as a result of various trust and transfer arrangements Candoora holds the issued capital of Schadenfreude on trust for Peter Yunghanns.
·In 1992 the shareholders in Ligon, including Peter Yunghanns, transferred their shares in Ligon to Candoora as trustee of the Yunghanns children trust and as a result of subsequent transactions Ligon held all of the issued capital in Wingara.
·Wingara, being a wholly owned subsidiary of Ligon in turn has wholly owned subsidiaries being Sunnycliff Investments and Sunnycliff Orchards.
·From about 1967 Peter Yunghanns and a number of his associated companies including some of the plaintiffs and some of the defendant companies conducted a business involving the development of vineyards, orchards, grape and citrus growing, wine making and associated operations. The business also included ownership through the various corporate entities of valuable land at Coonawarra in South Australia and Iraak in Victoria.
·Following the orders made by consent in June 1996 in the Family Court of Australia Peter Yunghanns and Margaret Yunghanns agreed upon the division of their matrimonial property and for the payment of spousal maintenance by Peter Yunghanns to Margaret Yunghanns. (The orders made by the Family Court of Australia have already been recited). The consent orders made by the Family Court on 26 June 1996 affected the business conducted by Peter Yunghanns through the various corporate entities.
·The plaintiffs in the Rentiers proceeding allege that various fiduciary duties owed by some of the defendant companies, principally those associated with Wingara were breached, that David Yunghanns and Sarah Mahon have exercised their powers as shareholders of Candoora to assume control of Candoora, Ligon, Wingara, Sunnycliff Orchards and Sunnycliff Investments to the exclusion of Peter Yunghanns, conducted and managed Schadenfreude contrary to the interests of Peter Yunghanns.
·Broadly speaking as a result of alleged breaches by the Wingara Group of alleged fiduciary duties it is alleged that the members of the Rentiers group have suffered loss and damage.
·There are additional claims made under s.52 of the Trade Practices Act 1974 and s.11 of the Fair Trading Act 1955 together with various debt claims made by some of the plaintiff companies against some of the defendants.
A critical component of the Rentiers proceeding are the allegations concerning the basis upon which the Family Court orders were made by consent on 26 June 1996 and the extent to which those orders properly affected the various corporate interests of Peter Yunghanns and his associated entities.
All these proceedings provide the context for the application for the appointment of the receiver.
COMPLAINTS AGAINST THE TRUSTEE
Peter Yunghanns on behalf of the infant raises a number of concerns in relation to the conduct of each of the Candoora, Merim and Rentiers proceedings by the adult children David Yunghanns and Sarah Mahon and also the manner in which the trust itself has been used. These concerns include concerns as to the manner of the conduct and management of the accounts of the trust.
Complaint is made that the paternity and entitlement of the infant have been denied. It is said that David Yunghanns and Sarah Mahon have not sought to explain or depart from the assertions made in an affidavit of David Yunghanns sworn 1 April 1998 and filed in the Family Court proceeding or to explain or depart from the assertions made in an affidavit of David Yunghanns sworn 4 June 1998 and filed in the Family Court proceeding. In those affidavits David Yunghanns asserted that ownership of the Wingara Group passed from Peter Yunghanns to David Yunghanns and Sarah Mahon pursuant to the orders made in the Family Court on 26 June 1996 and that they are the only beneficiaries entitled to the benefit of the property The Yunghanns Children's Trust.
Further complaint is made that the same assertions are contained in a letter from David Yunghanns to Peter Yunghanns dated 23 February 1998,[1] a letter from David Yunghanns to Mr Charles Abbott dated 21 April 1998[2] and a memorandum to "All Staff" dated 6 May 1998.[3] Similar assertions are made by Sarah Mahon in a letter to her father dated 11 May 1998.[4]
[1] Exhibit PNY 28
[2] Exhibit PNY 29
[3] Exhibit PNY 30
[4] Exhibit PNY 31
Further, the point is made that in its amended defence to the further amended statement of claim in this proceeding, the defendant, Candoora, admits that the aforesaid assertions contained in the affidavits of David Yunghanns were made.[5] These assertions are consistent with the admission in the amended defence paragraph 20.
[5] See paragraphs 18(c), (d) 19 and 20 of the amended statement of claim and paragraphs 18, 19 and 20 of the amended defence dated 4 April 2000.
It is also complained that Candoora, through David Yunghanns and Sarah Mahon has tried to delay this application. It has not given appropriate undertakings concerning exclusion of the infant. David Yunghanns and Sarah Mahon expressly state in the amended defence that they do not consider the plaintiff to be entitled to receive benefits from this trust and that they intend to exclude him as a beneficiary. In this respect it is complained that they are using the income of Wingara to fund their disputes with their father and their own interests.
It is to be observed that in the context of the litigation David Yunghanns and Sarah Mahon do not admit the paternity of the infant. Originally the paternity was admitted but the admission was subsequently withdrawn in the pleadings. However, there is no suggestion that the infant is not a child of the marriage. Mr A.J. Myers QC who appeared with Mr A. Young for the plaintiff submitted in the course of argument that the challenge to paternity by Candoora through David Yunghanns and Sarah Mahon demonstrated the unsuitability of the trustee to remain trustee because it does not admit that the infant is a primary beneficiary of the trust.
It is to be observed, further, that there is a legal presumption that the child is a child of the marriage between Peter Yunghanns and his second wife. In addition, there is no specific factual rebuttal of the legal presumption that the infant was born to that marriage. Furthermore, it is to be observed that no appeal was lodged by David Yunghanns and Sarah Mahon to the judgment and orders made by Gillard J on 4 November and 15 December 1999.
As part of the complaint against Candoora the issue was raised of the payment of legal costs from the trust funds. Peter Yunghanns deposed that since February 1998 lengthy and expensive legal battles have occurred between David Yunghanns, Sarah Mahon and Peter Yunghanns in relation to debts of the Wingara Group. He deposes that his legal costs in relation to these various disputes exceed the sum of $1.5m and he assumes, therefore, that David Yunghanns, Sarah Mahon and the companies in the Wingara Group have incurred costs of a similar amount. Management accounts of the Wingara Group were exhibited for the period ending 30 June 1998 disclosing legal costs had been incurred in the sum of $498,000 together with consulting fees in the sum of $138,000. The accounts reveal also that substantial sums in the nature of legal costs have been paid.
There is the further factor that the defence of David Yunghanns and Sarah Mahon contains allegations that are colourful if not controversial in the context of all the proceedings between the Yunghanns' family members. In paragraph 17 of the defence David Yunghanns and Sarah Mahon allege that there is "palpable animosity" between the parties said to arise from the institution of the Family and High Court proceedings. Further, in paragraph 18(3) of the defence an allegation by the plaintiff that David Yunghanns asserted on oath that the trust property belonged to him and Sarah Mahon, the assertion is admitted but the fact is denied.
In paragraph 21A of the defence David Yunghanns and Sarah Mahon admit using Wingara and its funds to pay legal costs on the basis that they are the sole beneficiaries of the trust. They also allege that they have had to advance capital to pay legal costs.
It was submitted on behalf of the infant that the further observation can be made particularly in light of the matters alleged in paragraph 24 of the defence, especially sub-paragraphs (7) and (12) that David Yunghanns and Sarah Mahon make allegations against their father Peter Yunghanns. In so doing they appear misconceived that this proceeding is brought for the benefit of the infant and is unrelated in that respect to the role of the father, Peter Yunghanns. It can be observed, further, that David Yunghanns and Sarah Mahon appear to have acted in disregard of the ramifications of the order of Gillard J made on 4 November and 15 December 1999 in this proceeding. It is complained that effectively, notwithstanding those orders, they have continued to treat the trust as if they were entitled to treat the assets of the trust as their own, for example, their use of clause 26 of the trust deed to enable them to pay legal costs incurred by them in the conduct of their own legal proceedings.
It is appropriate to give consideration to the relevant parts of the trust deed itself.
THE YUNGHANNS CHILDREN'S TRUST DEED
Primary beneficiaries
Clause 1.1.11 defines "primary beneficiary" as meaning "the person or persons named and described or defined as such in the schedule".
The schedule describes "primary beneficiaries" as "All the children of PETER NICHOLAS YUNGHANNS living at the date of making this Deed or born hereafter and prior to the Vesting Day as tenants in common in equal shares".
General beneficiaries
Clause 1.1.12 of the deed defines "General Beneficiaries" as meaning the primary beneficiaries, the siblings, spouses and children and remoter issue of the primary beneficiaries and any of the trustees of a trust in which a general beneficiary has an interest, any corporation or legal entity which is owned by or in which a general beneficiary has an interest and any corporation organisation, association or body of persons established for religious, charitable, educational or non-profit purposes. The clause also refers to any additional persons defined in the schedule. However, the schedule does not include such definition.
The Vesting Day
Clause 1.1.17 defines "the Vesting Day" as meaning the earlier date of the date specified in the schedule as the vesting day, the 80th anniversary of execution, 20 years after the death of the last descendant of King George V, such earlier day as the trustees with the consent of the guardian but otherwise in their absolute discretion at any time appoint or if there is no guardian such earlier day as the trustees may in their absolute discretion at any time appoint. The schedule does not specify the vesting day.
Guardian
Clause 1.1.18 of the deed of trust defines "guardian" as meaning the person or persons named in the schedule or such other person as may be appointed from time to time pursuant to the deed. The schedule nominates as guardian and also as appointor Dariway Pty Ltd.
Powers of the trustees
Clause 3 of the deed sets out the powers of the trustee in relation to the application of the trust fund. Clause 3.1 provides that the trustees in their absolute discretion are empowered to apply the whole or such part of the net income of the trust fund by paying so much of the income as the trustees think fit to a beneficiary. Clause 3.2 empowers the trustees to hold so much of the income of the trust fund as they shall not pay pursuant to clause 3.1 for other beneficiaries. In other words, the effect of clause 3.2 is that in the event of default of appointment such beneficiary is the taker of default of appointment. Clause 3.5 provides that notwithstanding the provisions of the deed the trustees may in their absolute discretion appoint the whole or part of the net income of the trust fund for the benefit of all or one or more exclusive of others of the beneficiaries in such proportions and in such manner as the trustees in their absolute discretion think fit.
Clause 6.1.11 empowers the trustees in their absolute discretion to pay sums out of the capital of the trust to any of the beneficiaries before the vesting day. Clause 6.1.12 empowers the trustees to loan sums out of the trust fund to the beneficiaries in their absolute discretion at any time before the vesting day. Clause 6.1.14 allows any beneficiaries to have custody of or use of any immovable property or chattels forming part of the trust fund as the trustees think fit.
Clause 21.1 empowers the trustees at any time prior to the vesting day to exclude a person who would otherwise be a beneficiary for the purposes of the deed from the class of beneficiaries defined by the deed.
Obligations of the trustees
The trust deed defines the obligations of the trustees. They include clause 14.0 wherein the trustees are required to keep complete and accurate records of all receipts and expenditures on account of the trust fund and after each accounting period to prepare a written accounting report promptly and to provide a copy thereof upon request to the primary beneficiaries.
Clause 16.1.11 requires that any exercise by the trustees of any power discretion or authority conferred by the deed may be made in writing signed by all of the trustees or by a resolution duly passed at a meeting of the trustees.
Special powers of the trustees
Clause 26.4 prohibits the trustees from making an appointment under clauses 1.12, 3.4, 21.1 or 21.2 or from exercising any of its powers under clauses 6.11 and 21.3 or from revoking any appointment for the purposes of clauses 1.12, 3.4 and 21 without first obtaining the consent in writing of all the primary beneficiaries who are sui juris.
Guardian
Clause 26.1 empowers the guardian to appoint another person or corporation as guardian or joint guardians.
Among the many concerns of the plaintiff is that at this point in time there is no appointor under the deed as Dariway was removed by the consent orders of the Family Court made in June 1996. There is concern that the infant may be removed as a beneficiary at any time by the trustees. There is further concern that the income and capital of the trust fund has been used for the benefit of David Yunghanns and Sarah Mahon contrary to the interests of the infant, alternatively, such moneys are being used to an extent that the potential interest of the infant in the trust fund is being prejudiced. In effect, there is concern that the trustees consider they are entitled to treat the assets of the trust as if their own. In summary, it is said on behalf of the infant that he has a vested equitable interest in the trust at this point in time but is extremely vulnerable because at the stroke of a pen he may be removed as a beneficiary of the trust deed.
In the context of the provisions of the trust deed it is relevant to observe that the application for special leave to appeal against the judgment and orders of the Full Court of the Family Court brought by David Yunghanns was dismissed on 26 May 2000 together with an order for costs against the applicant. On 2 June 2000 the remaining aspects of the proceeding before the Family Court were considered with respect to costs. On that date the Family Court ordered that David Yunghanns, Sarah Mahon and Margaret Yunghanns personally pay the costs of the proceeding. It seems on the evidence before me that the costs order made by the Family Court on 2 June 2000 will be in the range of approximately $500,000.
THE CONDUCT AND MANAGEMENT OF THE TRUST ACCOUNTS
The next concern expressed on behalf of the infant relates to the accounting figures retained and produced by the trustees of the trust[6]. The accounting evidence before me was the subject of qualifications by the auditors of the trust accounts. On one view an examination of the accounts renders arguable the assertion that the trust has been held for the benefit of the beneficiaries and used as a tool for the dispute between the adult children, David Yunghanns and Sarah Mahon against their father, Peter Yunghanns. This observation is made in the context of a trust asset controlled by persons who are hostile to the infant and the father, Peter Yunghanns. Furthermore, the accounting evidence reveals that the non‑current liabilities of the trust appear to be in the order of $45m consisting of a debt of $20m alleged to be owed to Peter Yunghanns and the balance of moneys are owed to the Bank of South Australia and Credit Lyonnais. It is arguable on the basis of the financial evidence before me as to whether the economic entity is a going concern. Further, there is no reference in the financial figures of directors' benefits or the amount of directors' remuneration. In an affidavit David Yunghanns deposed that he was paid remuneration but did not specify the amount.
[6] Exhibits pNY 10 and 11
A further complaint made on behalf of the infant is that when requests were made for production of accounting material the response was inadequate. In a letter dated 11 May 2000 a request was made on behalf of the infant for inspection of documents. It transpired that inspection was provided only of trust documents but not the companies associated with the trust. There were also allegations that when Peter Yunghanns attended the solicitors of the defendants in order to inspect documents there were difficulties in relation to inspection and production of the same. It is not necessary for me to immerse myself in the details of the dispute concerning discovery and inspection of documents whether as part and parcel of discovery in the proceeding or as part of the fulfilment of the trustee's obligation to provide accounting information when required as contained in the trust deed. There were other accounting and financial matters raised by Mr Myers QC on behalf of the infant including the accounts for the nine month period up to 31 March 2000 for Candoora[7]; financial material relating to Ligon[8] including accounting documents that on their face indicate that the profit before tax position of Ligon has deteriorated.
[7] PNY 77
[8] PNY 78
The primary legal submission of the plaintiff in support of the application is that the assets of the trust are being wasted, that the subject matter of the litigation must be preserved pending the hearing and determination of this proceeding and that the present trustee of the trust is preferring the interests of its own directors, David Yunghanns and Sarah Mahon, over the interests of the beneficiaries as a whole and so as to dilute or diminish the assets available to the infant Yunghanns. The plaintiff seeks the appointment of an independent court officer to administer the affairs of the trust pending the hearing and determination of these proceedings. An undertaking as to damages is proffered.
THE LEGAL PRINCIPLES: APPOINTMENT OF A RECEIVER OF THE ASSETS OF A TRUST
The general legal principle is that if misconduct, waste, or improper disposition of assets can be shown, or if it appears that the trust property has been improperly managed, or is in danger of being lost or if it can be satisfactorily established that parties in a fiduciary position have been guilty of a breach of duty there is a sufficient foundation for the appointment of a receiver: Kerr on Receivers, 17th Ed. at pp.13-14. It is further observed in Kerr (at 5):
"Object of appointment. A receiver can only be properly appointed for the purpose of getting in and holding or securing funds or other property, which the court at the trial, or in the course of the action, will have the means of distributing amongst, or making over to, the persons or person entitled thereto.[9] The object sought by such appointment is therefore the safeguarding of property for the benefit of those entitled to it.[10]"
[9]Evans v Coventry (1854) 3 Drew 75; see, too, Wright v Vernon (1855) 3 Drew. 112.
[10]Tullett v Armstrong (1836) 1 Keen 428; Owen v Homan (1853) 4 H.L.C. 997, 1032.
As observed in Halsbury Laws of England 4th ed. (Vol. 39, para 827), the general ground on which the court appoints a receiver is ultimately in every case the protection or preservation of property for the benefit of persons who have an interest in it. The basis upon which a receiver may be appointed has been regarded by the courts on even as wide a basis as when the circumstances render it just and convenient: see Manchester and Liverpool District Banking Co v Parkinson (1888) 22 QBD 173, CA.
The court may appoint a receiver of trust property where that is necessary for the well being of the trust: see Ford & Lee, The Principles of the Law of Trusts (2nd ed) at [1739]. In Jacobs' Law of Trust in Australia (6th ed. at [2306]) the situation with respect to trusts is conveniently summarised:
"The court also has jurisdiction to appoint a receiver of the trust property. Although the case law predominantly is concerned with private trusts, the court may, on the application of the Attorney‑General, in appropriate circumstances appoint a receiver to a charitable trust.[11] If the occasion for an appointment to the assets of a private trust is refusal by one or more of the trustees to act, the court will move if there is before it the consent of those trustees who are acting as such, and of the beneficiaries; but, it seems, the court will otherwise not intervene.[12] A receiver may be appointed on the application of one of the trustees[13] or of any beneficiary[14] where the appointment is required for the safety of the trust property, the basis of the jurisdiction being the jeopardy of that property.[15] Thus, an appointment may be made if the trustees fail to get in the trust property[16] … "
[11]A-G v Schonfeld [1980] 3 All ER 1; [1980] 1 WLR 1182.
[12]Brodie v Barry (1811) 3 Mer 695, 36 ER 267; Browell v Reed (1842) 1 Hare 434, 66 ER 1102; Tait v Jenkins (1842) 1 Y and CCC, 62 ER 985; Cole v Muddle (1852) 10 Hare 186 at 190, 68 ER 892.
[13]Re Fowler (1881) 16 Ch D 723.
[14]Middleton v Dodswell (1806) 13 Ves 266, 33 ER 294; Richards v Perkins (1838) 3 Y and C Ex 299, 160 ER 716; Swale v Swale (1856) 22 Beav 584; 52 ER 1233.
[15]Middleton v Dodswell supra; Barkeley v Reay (1842) 2 Hare 308, 67 ER 127.
[16]Richards v Perkins, supra.
In Halsbury's Laws of Australia, Vol. 27 para. 430 the relevant principles are further summarised, as follows:
"The court may, on the application of a beneficiary[17] or one of the trustees[18], appoint a receiver if the security of the trust property is in jeopardy[19]. This may be so because:
[17]Swale v Swale, supra
[18]Re Fowler; supra.
[19]Middleton v Dodswell, supra; Barkley v Reay; Re Gradfan Pty Ltd (in liq); Nilant v Miling Nominees Pty Ltd (1996) 20 ACSR 689 at 702-3 per Steytler J, SC(WA).
(1)the affairs of the trust are in disorder and the appointment is necessary to secure continuity of management[20];
(2)the trustees cannot agree in circumstances which put the trust property in jeopardy;[21]
(3)the trustees deny or dispute the trust;[22]
(4)a trustee has died or is incapable, or for any other reason requiring the protection of trust property.
As receivership is equitable in nature, the remedy is flexible and can be moulded to the needs of the situation."
[20]Attorney-General v Schonfeld, supra.
[21]Day v Croft (1840) 2 Beav 488; 48 ER 1271; Swale v Swale, supra; Hart v Denham [1871] WN 2, CA; In the Estate of Just (dec'd) (No 1) (1973) 7 SASR 508 at 415-15 per Jacobs J.
[22]Sheppard v Oxenford (1855) 1 K & J 491; 69 ER 552.
In Attorney General v Schonfield [1980] 1 WLR 1182, Megarry VC said at 1187:
" … the power to appoint a receiver is purely equitable in its origin; indeed it was one of the oldest remedies of the Court of Chancery. The remedy is one to be moulded to the needs of the situation: within proper limits, a receiver may be given such powers as the Court considers to be appropriate to the particular case."
A similar position was adopted in Attorney‑General v St Cross Hospital (1856) 8 De GM&G 38, 41-42; see, also, Picarda The Law Relating to Receivers, Managers and Administrators (2nd ed.) at 6 footnote 4.
Further, in Picarda it is observed (at 284):
"The equitable remedy of receivership is available against both executors and trustees where the circumstances make it appropriate. The criteria for the appointment of a receiver to displace these fiduciaries are almost identical. Primarily it is jeopardy or the risk of jeopardy that justifies an application to the court. Assessing the degree of jeopardy or risk involves a qualitative judgment. A proper case must be made out: the court will not dispossess an executor or a trustee of the trust estate in favour of a receiver on slight grounds. The testator or other creator of the trust is presumed to have known what he was about; and normally the court respects the expressed wishes as to who should administer the trust estate.
What then constitutes a proper case? The cases warrant the assertion that it should be a strong case,[23] and it must be borne in mind that receivership is a drastic and not inexpensive remedy, with the possibilities of further expensive applications to the court for directions.
Misconduct is obviously a prime ground for the appointment of a receiver where the misconduct is sufficiently grave. A strong case is necessary.[24] Where one of several executors or trustees is guilty of misconduct the court will not, as a general rule, appoint a receiver on the interlocutory application of the beneficiaries without the consent of all the other trustees,[25] though it seems that the court might dispense with the consent of a trustee living abroad, or one who had practically ceased to act.
On the other hand wherever all the executors or trustees are, or a sole executor or trustee is, guilty of such conduct as to endanger the property, the court will appoint a receiver.[26] Thus in Clarke v Heathfield (No 2)[27] trustees of a trade union who were thwarting court orders and putting union funds to the jeopardy of substantial depletion were removed and replaced by an interlocutory receiver.
If part of a trust fund has been lost, that is prima facie evidence of a breach of duty by the trustee, sufficient to justify the interference of the court by the appointment of a receiver for the purpose of preserving the remainder of the fund on the interlocutory application of a beneficiary.[28] The fact that a sole executor or trustee is under some personal disability[29] or is of such a character as is likely to lead to the jeopardy of the trust fund is sufficient ground for the appointment of a receiver, as for example if he is of violent conduct and drunken habits.[30] If the maladministration is sufficiently serious the absence of any corrupt motive is by the by. Thus in Whitehead v Bennett[31] a sole trustee who had been guilty of improvident expenditure and wilful waste in converting farming lands into a race course was guilty of conduct justifying his replacement by a receiver."
[23]Middleton v Dodswell, supra; Smith v Smith (1836) 2 Y & C Ex 353; Bainbridge v Blair (1835) 4 LJ Ch 207.
[24]Middleton v Dodswell, supra; Browell v Reed, supra.
[25]Tidd v Lister (1820) 5 Madd 429.
[26]Anon (1806) 12 Ves 4; Richards v Perkins, supra; Brooker v Brooker (1857) 3 Sm & G 475; Rawson v Rawson (18640 11 LT 595; Harris v Harris (1887) 56 LJ Ch 754, 35 WR 710.
[27] [1985] ICR 606. An earlier ex parte appointment was upheld by the Court of Appeal: Clarke v Heathfield [1985] 1 ICR 203, CA.
[28]Evans v Coventry (1854) 5 De GM & G 911, 3 Eq Rep 545.
[29]Brooker v Brooker (1857) 3 Sm & G 475 at 477.
[30]Everett v Prythergch (1841) 12 Sim 363.
[31] (1845) 6 LT OS 185, 10 Jur 3; and see Re Moxley's Goods [1916] 2 IR 145.
Further, s.37(1) of the Supreme Court Act 1986 (Vic) empowers the court to appoint a receiver when it is "just and convenient" to do so. In National Australia Bank Limited v Bond Brewing Holdings Limited [1991] 1 VR 259 at 539 the Appeal Division of the Supreme Court of Victoria said:
"The appointment of a receiver is one of the oldest remedies of the Court of Chancery, and a very useful remedy it is. But its very efficiency means that a corresponding caution must attend its employment. Where a receiver is sought to protect property of which no one is in actual possession, no one will be ousted by the appointment and probably no great harm will be done."
At p.546 the Court said:
"The result of the authorities is that it may not now be possible to state with confidence the limits of the power to grant injunctions. But we would say that, just as an injunction may be granted for the protection of some legal or equitable right where no lesser remedy will meet the case, so may a receiver be appointed."
Halsbury's Laws of England, 4th Ed. Vol. 39, paragraph [831] states:
"A receiver is also appointed on the application of any beneficiary if the appointment is required for the safety of the trust property or the due administration of the trust, but not otherwise.
…
The safety of the trust property and the due administration of the trust are deemed to be imperilled where the trustee has been guilty of losing or wasting or neglecting the trust property or improperly disposing of it or of some other breach of trust, or becomes a bankrupt or insolvent, or is out of the jurisdiction or is guilty of gross misconduct.
…
A receiver may also be appointed where a trustee undertakes an obligation inconsistent with his duty as such, or where co-trustees disagree among themselves or act separately."
In Evans v Coventry (1854) 5 DE G M & G 911 the House of Lords considered an application to appoint a receiver to an insurance fund of which the plaintiff was a beneficiary. The court held that a receiver should be appointed. Lord Justice Knight Wood held that in a case of waste on the part of a trustee (in that case caused by the theft of funds by the treasurer of the insurer) an application for an injunction and receiver to the fund followed as a matter of course.
In Brooker v Brooker (1857) 3 SM & Giff 474 the court appointed a receiver as a matter of course to the estate of the late William Brooker on the application of the deceased's wife as executor of the estate paid money to herself contrary to the terms of the deceased's will. The Vice Chancellor, Sir John Stuart said:
" … the Court always, under such circumstances, has been in the habit of interposing, on an application made summarily, in order to protect the property."
In the Earl of Talbot v Hope Scott (1858) 4 K & J 138 the court appointed a receiver to the estate of the Earl of Talbot pending the determination of the next true peer where the trustees of the estate received rents from the property of the trust when they were duty bound to hold the estate upon trust for sale. A receiver was appointed to preserve the subject matter of litigation as to who was the next true Earl of Talbot. In Sheppard v Oxenford (1855) 1 K & J 492 the court appointed a receiver to assets held in trust for the plaintiff where the trustee denied the existence of a trust and sought to exclude or deny the plaintiff's claim to an interest in the subject matter of the trust. In Oldfield v Cobbett (1835) 4 LT CH 271 the court appointed a receiver where there was a threat of waste by the named executor of an estate. Furthermore, the courts have held that a receiver will be appointed to protect a person's right to be paid out of a particular fund: Kearns v Leaf (1864) 1 Hem & M 681; 71 ER 299.
Mr Myers QC submitted that in considering whether or not to appoint a receiver I should apply the same test as is applied in the granting of an interlocutory injunction in that if I am satisfied that there is an arguable case then I should turn and consider the balance of convenience. So far as the balance of convenience is concerned Mr Myers submitted that there were a number of particular matters arising from the evidence before me that weigh the balance in favour of the appointment of a receiver.
First, the misapprehension that is revealed through the affidavits and pleadings by David Yunghanns and Sarah Mahon that they are the owners of Wingara and their constant refusal to accept that The Yunghanns Children's Trust is a trust for all the children of Peter Yunghanns not merely the children alive at the time of the creation of the trust. Second, the correct assertion in an affidavit of David Yunghanns sworn 10 May 2000 that there has not been any distribution from the trust to David Yunghanns or Sarah Mahon. This assertion is to be contrasted with the fact that elsewhere in the affidavit material but, in particular, in the records of account of the trust it is apparent that there has been a distribution from the trust from time to time to pay the legal fees of David Yunghanns and Sarah Mahon in relation to the whole plethora of Yunghanns' proceedings.
Third, the matters alleged in the relevant affidavits and defence denying the paternity and entitlement of the infant. Fourth, the fact of failure to give discovery and inspection of trust documents. Fifth, the fact of failure to provide particulars in this and other proceedings. Sixth, the failure to provide accounts upon request. Seventh, the fact that after an inspection carried out by Peter Yunghanns at the offices of the solicitors for David Yunghanns and Sarah Mahon and a request was made for particular documents only a few of the documents were provided on request. Eighth, the substantial benefits obtained by David Yunghanns and Sarah Mahon through the payment of costs from time to time including costs orders against those persons. Ninth, the fact of the lack of candour in describing benefits paid to David Yunghanns by the trust.
Tenth, the proposition put to Peter Yunghanns approximately one year ago purportedly by David Yunghanns that if he could arrange a variation of the trust and payment of a specified sum then all his legal "troubles" would cease. Mr Myers submitted that it was quite improper for a trustee or a person controlling the trustee to make such a suggestion. Eleventh, ongoing suggestions that the businesses were going well when in fact the most recent accounts produced show that the profits of the business are not profitable or not as profitable as they once were. Lastly, the large increase in interest payments revealed by the accounts recently made available by Candoora.
Mr Myers urged that it was desirable to have "someone impartial" who would make rational business decisions. He submitted that it was desirable that that person be a person with undoubted business skills such as an official liquidator. Insofar as it may be suggested that the receiver if appointed would be vulnerable to overbearing or pressure from the warring parties it was submitted that a receiver can always return to the court and seek directions and advice.
In Glazier Holdings Pty Ltd v Australian Mens Health Pty Ltd (unreported judgment of Young J of the New South Wales Supreme Court dated 30 April 1998 the learned judge observed (at 4-5):
"The basic authority that a receiver is an officer of the court appears to be an Irish equity case of Hutchinson v Massareene (1809) 2 Ball & Beatty 55 (a report which is not available in Sydney). That decision was followed by Lord Eldon in Angel v Smith (1804) 9 Ves 335; 32 ER 632 and also in Davis v Marlborough (1819) 2 Swans 108, 118; 36 ER 555, 559.
However, the furthest Lord Eldon seems to go is to say that receivers were like an officer of the court. In one sense they were like trustees, in that they owed fiduciary duties, but they were unlike trustees in that they had no property vested in them. They were, however, considered to be officers of the court in the United States. In Davis v Gray (1872) 83 US 203 at 217-218, Swayne J, giving the decision of the court, said that:
'A receiver is appointed upon a principle of justice for the benefit of all concerned … [The receiver] is virtually a representative of the court, and of all the parties in interest in the litigation wherein he is appointed. He is required to take possession of property as directed, because it is deemed more for the interest of justice that he should do so than that the property should be in the possession of either of the parties in the litigation. He is not appointed for the benefit of either of the parties, but of all concerned. Money or property in his hands is in custodia legis. He has only sch power and authority as are given him by the court, and must not exceed the prescribed limits. The court will not allow him to be sued touching the property in his charge, nor for any malfeasance as to the parties, or others, without its consent; nor will it permit his possession to be disturbed by force, nor violence to be offered to his person while in the discharge of his official duties.'
I do not think that the status of the receiver is stated with any greater clarity than in that passage. The receiver seeks directions of the court as an officer of the court. However, his status as an officer of the court is not quite the same as other officers. I said in Moclair v Moclair, 18 December 1986, unreported, following Re St George (1887) 19 LR Ir 566, that receivers are officers of the court and they should resort to the court for guidance when they think it is desirable to do so. I stand by what I there said, but I think it should be appreciated that there is a difference between a liquidator, who is doing the work that last century the court did itself in the Master's Office, or even with a trustee, in that those people have unlimited functions, whereas a receiver has a very limited and usually relatively mechanical function. Instead of making a broad statement that receivers may always seek the opinion of the court, it would be better to put the proposition more narrowly, that if a receiver within his own limitations requires the guidance of the court, then normally he should have it.
Accordingly, I do not consider that many of the cases dealing with the sort of advice that is given to trustees, on the one hand, or liquidators, on the other hand, necessarily apply in the case of applications by receivers to get advice.
There are, of course, statutory rights for certain receivers under the Corporations Law to obtain the directions of the court under s.424 of the Corporations Law. This is not relevant to the present receiver.
However it should be noted that even under that section the court does not give advice: Re North City Developments Pty Ltd (1990) 20 NSWLR 286; Re Geneva Finance Ltd (1992) 7 WAR 496.
One must first look to see the order appointing and empowering the receiver to see what his limitations are. Traditionally courts have made orders appointing receivers only upon security, so that disappointed parties have access to a fund should the receiver not carry out his fiduciary duties.
It has become customary to appoint official liquidators as receivers without security on the basis that their professionalism probably means that they will not create situations where they will be sued. However, the prime reason for granting security is that receivers are liable for breaches of fiduciary duty and it follows that they are not entitled to be completely indemnified against each step in carrying out their duties."
Conclusions
From the authorities and texts three principles can be distilled and applied to the present case.
First, the courts will appoint a receiver of trust property (on an interlocutory and/or permanent basis) where that property is in jeopardy through misconduct, waste, improper disposition, breach of the trustee's duty or the unsuitable character of the trustee. Second, the case in favour of appointment of a receiver must be a strong one but in assessing the risk to the trust the courts will apply a qualitative judgment. Third, a receiver will be appointed to preserve the benefit of a person who has an interest in trust property.
I apply each of the three stated principles to the present case. I am satisfied that the trust property is at risk. There are a number of factors that lead to this conclusion.
Since approximately 1998, the date of the lock out of Peter Yunghanns, the parties have been engaged in ongoing litigation warfare where it seems every point has been taken, every possible procedural obstacle mounted and little or no legal expense spared. An overview of the proceedings in the Family Court, the Federal Court and the High Court demonstrates the point. However, when account is taken of the three proceedings in this court, the Candoora, Merim and Rentiers proceedings, the extent of the warfare is appreciated. A cursory glance of the volume and extent of the affidavits and exhibits in the latter proceedings underscores the approach taken by Peter Yunghanns against David Yunghanns and Sarah Mahon and vice versa. Even though I have not observed any of the parties in the witness box the level of ill-feeling and the "winner take all" attitude of the parties is apparent.
Into this setting the Yunghanns infant was conceived and born. In my view he is the actual or potential victim of the financial consequences that might befall the trust pending determination of the Candoora, Merim and Rentiers matters at trial. The animosity between the parties overshadows the cradle of the vulnerable Yunghanns infant. In view of the animosity as demonstrated by the pleadings and affidavits a basis is laid for the strong case necessary to support the appointment of the receiver.
The next factor, is the risk of the application of the trust funds to pay the legal costs of David Yunghanns and Sarah Mahon and their associated interests. It is apparent from the accounting material produced during the course of the application before me that legal costs have been paid from the trust funds to date. There is furthermore the pending legal costs that have been awarded against David Yunghanns and Sarah Mahon in other jurisdictions. In my view it is inappropriate that those funds be paid from the trust fund until the entitlement of the parties is determined. The observation can be readily made in light of the litigation history of each of the Candoora, Merim and Rentiers matters that if the proceedings continue at their present level culminating in a trial in 2001 with a present projected estimate of 12 weeks a large slice of the trust funds will be eaten up in funding that litigation. Ultimately it may be the case that David Yunghanns and Sarah Mahon are properly entitled to the funds paid in the past and sought to be applied in the future from the trust fund. That is not a matter to be determined at this point. It is enough that I be satisfied, and I am so satisfied on a strong basis that funds have or will in all likelihood be paid in the future from the trust fund thereby reducing the entitlement of the Yunghanns infant.
A further factor in assessing the level of risk arises from the matters revealed from the account records themselves. There has been a demonstrable reluctance on the part of the trustee to disclose proper accounting records of the financial affairs of the trust. Pursuant to the trust deed the Yunghanns infant has an entitlement to such records. The trustee has demonstrated a reluctance to accord with its obligations with respect to production of accounting information to the point that verges on obstruction.
The next factor is the manner of conducting the trust funds generally which is commensurate with David Yunghanns and Sarah Mahon treating the funds as if they were their own. This attitude is reflected in pleadings and affidavits before me.
Finally, there is the factor of adult sibling rivals. David Yunghanns and Sarah Mahon have demonstrated by their conduct hostility towards a rival beneficiary, the infant Yunghanns. So much is borne out by the denial from the outset of the institution of the Candoora proceeding of the legitimacy of the infant compounded by the manner in which this proceeding has been conducted to date.
Each of these factors of their own would possibly be insufficient to support a strong case for the appointment of a receiver. However, when considered together they enable a qualitative judgment to be made that there is a strong case that the trust is actually or potentially in jeopardy such that the actual or potential entitlement of the infant Yunghanns is at risk. I am satisfied, therefore, that it is appropriate to exercise the discretion in favour of the appointment of the receiver. In so doing I am conscious of the fact that the appointment would be for a confined period bearing in mind that the trial date for this proceeding together with the Merim and Rentiers proceeding is fixed to commence on 29 January 2001.
As already observed Mr Myers QC for the plaintiff urged that the approach I ought adopt is the same or similar to that applied by the courts in determining whether to grant a interlocutory injunction. That is to say that I ought determine whether there is an arguable case or a serious question to be tried and if so satisfied I should then turn to consider the balance of convenience. In Bond such approach was clearly stated by the Appeal Division of this court. However, consideration of the authorities in relation to the appointment of a receiver over trust assets does not reveal that the same approach is applied with respect to the granting of interlocutory injunctions. For the reasons stated I am satisfied that a strong case has been made out that the trust is at risk as to is the actual or potential risk of the Yunghanns infant. In any event, if the proper test was that I be satisfied that there is a serious question to be tried, for the reasons stated with respect to the strong case position, I am so satisfied. Turning to the matter of the balance of convenience, in my view it is all one way. If ultimately David Yunghanns and Sarah Mahon are found to have wrongly applied trust moneys in particular moneys for the purposes of legal costs and the trust is dissipated the interest of the infant is at risk.
The final matter to be considered is whether or not an undertaking as to damages should be required. It is not apparent from the authorities in relation to the trust cases as to whether an undertaking is required by the courts. Nevertheless, in the context of the overall litigation that is underway between the Yunghanns parties and given that Peter Yunghanns brings this application in the context of a hostile relationship with his adult children David Yunghanns and Sarah Mahon I consider it is appropriate that an undertaking be required. Mr Myers QC for the plaintiff proffered such undertaking and it will be a condition attached to the making of an order appointing a receiver.
It follows from these reasons that a receiver will be appointed. I was provided with the next three names on the Supreme Court List of approved liquidators and orders will be made accordingly.
---
86
0
0