Trustee Misconduct Will Not Be Tolerated By Australian Courts-
The Complete Picture in a Family Feud
Part I
An article “Trustee misconduct will not be tolerated by Australian courts”, produced on the website of Colin Biggers & Paisley Lawyers, refers to a trust that was disputed in Katrina Tjiong & Lindsay Tjiong v Richard Tjiong[1]. The trust was set up in 2003 and Richard was then the incoming executor of the estate of the plaintiffs’ father, George. The trial of The Katrina Case was held in June 2009.
The CBP article did not make any mention of a related trust that was the subject in dispute in Chang v Tjiong & Ors[2], heard by the same judge three months earlier. The Chang Case dealt with a trust that had been set up in 1976 where George in life was the first trustee. His father was the settlor who bought an apartment in Burwood, a suburb of Sydney, for the lifetime benefits of George’s mother; Palmer J. impugned George for his misconduct as trustee. The decision is reproduced in full in Part II of this article.
The Link between the Two Trusts
There is a forensic link between the two Trusts. Ironically, it was George’s misconduct as trustee in the 1976 Trust that led to the dispute in The Katrina Case where the 2003 Trust became a tool in the plaintiffs’ efforts to gain control of their father’s estate as well as the 1976 Trust.
George was the Number One Son in a Chinese family of 9 children; the family was steep in Confucius tradition dominated by age meritocracy and where women including George’s mother played a subservient role. George and his father kept the 1976 Trust arrangement to themselves. George’s father died in 1981. In the lead up to his divorce in 1984, George swore two affidavits where he declared that the Burwood property was a trust asset and he had no beneficial interest.
However, around the time of the impending divorce and after the divorce was over, George expressed to various family members that he had bought the Burwood property in a filial act for both of his parents – later his widowed mother – to live in. When George subsequently rented and then sold the trust property, he intermingled the trust funds with his own assets; and he did not alert his youngest brother Richard – the executor nominated in his will – of the existence of the 1976 Trust. And Richard first learned of the 1976 Trust when George’s divorce affidavits surfaced in 2004 after George had died.
Despite the overwhelming evidence, George’s children rejected the existence of the 1976 Trust. They went into complete denial and opposed their grandmother’s quest for the return of her legacy. They perceived that the Trust was a ruse, created by their Uncle Richard to re-direct their inheritance to the wider family and in particular to George’s widowed mother.
The 1976 Trust became the central issue in the family feud. It drove George’s two children into commencing the proceedings against their Uncle Richard in Katrina Tjiong & Lindsay Tjiong v Richard Tjiong twelve months later for his removal as executor of the deceased estate (and as it turned out, as the successive trustee of the 1976 Trust). This link between the two Trusts was lost in the trial of The Katrina Case, even though the same Judge presided over the two hearings.
The 2003 Trust
Long before the 1976 Trust was resolved in court in March 2009, Katrina and Lindsay tried to justify their proceedings against Uncle Richard by alleging, inter alia, that Richard had set up the 2003 Trust by misrepresentations.
The fact is that the trial judge’s findings of Richard’s misconduct as a trustee was made in a cascading series which commenced with the initial and initiating finding that Richard had forged his records relating to an event in 1996, which in itself is unrelated to the main issues in the trial. At the very start of the trial, the plaintiffs’ lawyers successfully persuaded the judge that Richard had forged his 1996 diary which evidenced a flight he made to Melbourne on Tuesday the 26th March 1996. Later in the hearing, the plaintiffs’ lawyers further convinced the judge that Richard had recently fabricated the entire second volume of his pilot logbook in an effort to falsify the date of the relevant flight.
As explored in “A Family Feud and the Australian Legal System”: the plaintiffs pressed for the case of Richard flying to Melbourne on an alternate next day, Wednesday the 27th March 1996, despite their knowledge of an alibi evidence from Manning Base Hospital that showed that Richard was in fact a surgeon operating in the N.S.W. North Coast hospital on that very day. The alibi evidence had been the subject of a subpoena by the plaintiffs’ lawyers, who did not submit the evidence to the court- that alibi would have proved that their submission to the court that Richard had flown to Melbourne on the 27th March to be false and misleading. This point was missed in the Court of Appeal.
In the hearing- and reflected in his decision, the judge was so incensed with his take on Richard’s pilot logbook (and his 1996 diary) that he referred Richard to the DPP for a possible prosecution for perjury. After forming his view on perjury, the trial judge was critical of Richard’s overall veracity and of the integrity of his large amount of contemporary record as evidence- his anger infected his assessment of most if not all the evidence relating to the real issues in the trial including the issues around the 2003 Trust. The flaws in the Judge’s findings on the 2003 Trust include:
- The court overlooked the evidence of a senior lawyer from Ebsworth & Ebsworth- himself inherently an officer of the Court. The lawyer had set up the 2003 Trust after due conference with Katrina and Lindsay, who at the time freely signed, in the presence of the Ebsworth lawyer, a declaration of support, comprehension and explicit request for the setting up of the Trust.
- Katrina and Lindsay claimed that their uncle had misrepresented to them of (a) the needs to set up a trust urgently in order to avoid death duty and (b) their father was facing imminent death. There was no evidence to support either of these two allegations. In fact, Katrina did not raise the issue of death duty during the ten months of protracted, voluminous and repetitious correspondences from Katrina’s lawyers- she first raised the death duty issue when she commenced legal proceedings in February 2005, and that was shortly after Katrina had first learned of the her grandfather’s reference to death duty as the main reason for his setting up the 1976 Trust. Furthermore, the Judge overlooked the email, in evidence at the trial, from Richard to the two children that death duty had ceased to apply for many years.
- The overwhelming evidence showed that, at the time they actively assisted in establishing the 2003 Trust, Katrina and her brother were very well aware of the fact that their father was not facing imminent death. They admit to having visited their father in the relevant period. On one occasion, Katrina even took her father out for an outing by car. The outing was the subject of a specific submission by Richard to the court but in the trial, the facts got deceptively side-tracked into a dispute over locations- lost in the court was the point that George was well enough to be on an outing with Katrina and on the same day he was visited by Lindsay and that both of them were aware that their father was not facing imminent death and yet participated with the establishment of the Trust without demur or protest. For abundance of clarity, if indeed Richard had misled them into believing their father was facing imminent death and they then discovered the state of their father’s health was otherwise, they would not have participated in the setting of the trust ab initio, rather than making the false protest long after the event.
The Chang Case- The 1976 Trust and the Misconduct of George the Trustee
The existence of the 1976 Trust was kept a secret by George during his lifetime, and was discovered accidentally after he had died. Opposed by her two grandchildren, George’s mother failed in her initial approaches to regain her legacy. She made a claim in court against George’s deceased estate for the return of her stolen money. Katrina and her brother did a number of things to obstruct their grandmother’s efforts but the trial of their grandmother’s claim finally eventuated in March 2009. They took on the defence in the trial- Richard the executor stood aside on the advice that the defence would fail, as indeed it did.
The trial Judge found that there was in fact a trust set up by George’s father in 1976 and that George breached his duty as trustee when he later sold the trust property and intermingled the rental and sale proceeds with his own assets. The Judge ordered that the costs of both the plaintiff and the defendants be paid out from George’s estate on an indemnity basis because of George’s failure not only in managing the Father’s Trust but also because of his failure to advise: a trustee has a duty to advise the beneficiaries of the Trust and a duty to inform his executor (in this case his brother Richard) of the existence of the 1976 Trust- it was George’s failure to advise that led to the family dispute and caused the proceedings in the court of Judge Palmer.
Katrina’s lawyers failed in a defence based on the Limitation Act that the claim was out of time. Australian courts would deal with an action for fraudulent breach by a trustee long after the breach- it is common knowledge among learned lawyers that there is no time limit for an action for fraudulent breach- and interest on the misappropriated trust funds continues to run.
The Link between the two Trusts was Lost in Court
Three months after handing his ex tempore judgment in the Chang v Tjiong case, the same trial Judge presided over the proceedings by Katrina to remove Richard as the executor- Katrina Tjiong & Lindsay Tjiong v Richard Tjiong. Unfortunately, the Judge did not get to hear the connection between the 1976 Trust and the 2003 Trust, or worse still, that the instant hearing had everything to do with Katrina’s opposition to, and denial of, the existence of the 1976 Trust and her unrealistic belief that uncle Richard had authored the 1976 Trust and that he ought to pay for his alleged complicity and contrived sins. It may seem that this unfortunate outcome is a by-product of our adversarial judicial system.
—ooOoo—
[1] [2010] NSWSC 578.
[2] [2009] NSWSC 122. Richard was then the executor of George’s deceased estate and was the first defendant. He made a submitting appearance in the hearing. Two other defendants, Katrina Tjiong and Lindsay Tjiong, had the conduct of the defence.
Part II
NEW SOUTH WALES SUPREME COURT
CITATION:
Chang v Tjiong & Ors [2009] NSWSC 122
JURISDICTION:
Equity Division
FILE NUMBER(S):
2078/06
HEARING DATE(S):
3 and 4 March 2009
JUDGMENT DATE:
4 March 2009
EX TEMPORE DATE:
4 March 2009
PARTIES:
Soei Lan Chang (Plaintiff)
Richard Tat Tjhien Tjiong (First Defendant)
Katrina May Lan Tjiong (Second Defendant)
Lindsay Kuang Djin Tjiong (Third Defendant)
JUDGMENT OF:
Palmer J
LOWER COURT JURISDICTION:
Not Applicable
LOWER COURT FILE NUMBER(S):
Not Applicable
LOWER COURT JUDICIAL OFFICER:
Not Applicable
COUNSEL:
L.J. Ellison SC (Plaintiff)
- Kennedy (Sol) (First Defendant)
M.B. Evans (Second and Third Defendants)
SOLICITORS:
Colquhoun & Colquhoun (Plaintiff)
Ebsworth & Ebsworth (Submitting appearance) (First Defendant)
O’Brien Lawyers (Second and Third Defendants)
CATCHWORDS:
TRUSTS – whether property held upon a trust in terms contained in letters between father and son – whether letters precatory – whether terms of trust contained limited power of appointment.
COSTS – proceedings arose from trustee’s failure to document terms of trust and make them apparent to executor – whether usual costs order should be made.
LEGISLATION CITED:
Limitation Act 1969 (NSW) – s.48
CATEGORY:
Principal judgment
CASES CITED:
– Baden’s Deed Trusts, Re (No 2) [1973] Ch 9
– Cutcliffe’s Estate, Re [1959] P 6
– Emmet’s Estate, In re (1881) 17 Ch D 142
– Hawkesley v May [1956] 1 QB 304
– Hodges, Re (1988) 14 NSWLR 698
– McPhail v Doulton [1971] AC 424
– Shorten v Shorten (No 2) [2003] NSWCA 60
TEXTS CITED:
– Ford & Lee “Principles of the Law of Trusts” [9150]
DECISION:
Judgment for Defendants; Plaintiff’s costs to be paid out of trustee’s estate.
JUDGMENT:
2078/06 Chang v Tjiong & Ors
JUDGMENT – Ex tempore
4 March, 2009
Introduction
1 George Tjiong, Richard Tjiong, Harry Tjiong and Soei Lan Chang are children of Mr Hok Njan Tjiong and Mrs Kwat Nio Tjiong. For the sake of convenience, and without intending disrespect, I will refer to the parents as “the father” and “the mother” and to their children and other members of the family by their first names.
2 Between 1976 and 1996, George had been sole registered proprietor of a home unit at Burwood. The parents had resided there together until 1981, when the father died, and the mother continued to reside there until 1994, when she moved out to live with family members. George rented out the unit until December 1996, when he sold it.
3 By a will made on 23 December 2001, George left the whole of his estate to his children, Katrina and Lindsay. He died on 30 January 2004 and probate of his will was granted to Richard.
4 On 28 December 2006, the mother died and probate of her will was granted to Soei.
5 Soei now brings these proceedings as Executrix of the mother’s estate. She claims that the unit at Burwood was held by George on trust for the father and that, on the father’s death, his beneficial interest passed, on his intestacy, to the mother. She seeks declarations to that effect and an order that Richard, as Executor of George’s estate, account to the mother’s estate for the nett proceeds of sale of the unit and for rental received by George while it was rented.
6 Katrina and Lindsay, as sole beneficiaries of George’s estate, have been joined as parties to the proceedings. They have been the active Defendants; Richard has filed a submitting appearance.
7 Mr M.B. Evans of Counsel, who appears for Katrina and Lindsay, submits that:
– there is insufficient evidence to establish that George held the unit on trust for the father;
– in the alternative, if there was such a trust, George did not commit a breach of that trust in dealing with the property as he did because the terms of the trust were to permit the father and the mother to live in the unit for as long as they wished and, thereafter, the proceeds of sale were for the benefit of such of the father’s family as George should appoint;
– in the alternative, if George has committed a breach of trust, Soei’s claim is barred by s 48 of the Limitation Act 1969 (NSW) or else is barred by laches and acquiescence on the part of the mother and Soei.
8 The parties have proceeded on the basis that if there was a trust, the father alone was the settlor and he alone was entitled to stipulate the terms of the trust. I will proceed on that basis also.
The facts
9 The unit was purchased in George’s name as sole registered proprietor in 1976 for the sum of $25,000. The members of the family directly involved in the purchase – that is, the father, the mother and George – are dead and no other members of the family were directly involved in the transaction. No other person directly involved has given evidence. Accordingly, a finding as to the manner in which, and the terms upon which, the unit was purchased depends essentially upon documentary evidence.
10 Apparently no one in the family raised the issue whether George held the unit upon trust until, by chance, it was brought to the attention of Richard as George’s executor that, in May 1984, George had sworn an affidavit in divorce proceedings in the Family Court stating that he did not own the unit beneficially but held it on trust. Other documents have subsequently come to light which are critical, as I shall shortly explain.
11 George was divorced in 1984. There were property settlement proceedings. In an affidavit sworn 14 May 1984 George said:
“I do not have any beneficial interest in [the unit].”
“I am the registered proprietor of [the unit]. I hold this property on trust for my mother and I do not hold any beneficial interest in the property. The property was purchased in 1976 for $25,000 for my father (since deceased) and my mother. My father provided approximately $10,000 of the purchase money, I provided approximately $5,000 and each of my brothers Harry Tjiong and Richard Tjiong provided approximately $5,000 each of the sons providing the said money by way of gift to our parents. I believe that the current market value of the Unit is to the order of $65,000.”
12 There are in evidence the originals of two copy letters said to have been written by the father to George. Both are written in a mixture of Indonesian, Dutch and English. The father was fluent in all three languages. Certified translations have been provided.
13 The first letter is dated 15 March 1976. It was written, as other evidence shows, eight days before settlement of the purchase of the unit. The letter reads:
“March 15, 1976
Dear [George],
Purchase of [the unit] is to finalise next week. Enclosed is a CTB cheque for $18,000 to you making my contribution $20,500 in total. As discussed per phone, I am now lacking $5,000. I have money which will arrive after an export shipment in 6 weeks.
[Richard] gave me $7,500 for a new refrigerator and furniture.
I have already phoned our solicitor Mrs Ballard, and confirmed that the home unit is to register in [your] name without caveat of my interests, to avoid death duty. After I go, Mamie [i..e the mother] is better to live in the home of a child. The money in Belmore St is for Mamie’s needs, and after she is gone give the remainder to Kazuko Nikaido in Yokohama. You already know her address.
Hope all is well and Margaret’s health is improving.
Love.”
14 This letter, if genuine, shows that it was the father’s intention that the unit be held, not by George beneficially, but on trust to permit both parents to live there; after the father’s death, the proceeds of sale were for the benefit of the mother during her lifetime and thereafter for the benefit of a named person who has been identified as the father’s mistress. The father’s reference to his “interest” in the unit not being protected by caveat makes this interpretation clear.
15 Next in the sequence of documentary evidence are documents emanating from the solicitors who acted on the purchase of the unit. The first is a letter dated 8 April 1976. It is addressed to George and headed “Purchase for [the father and the mother]”, and then follows the address of the unit. The letter shows that a copy was sent to the father. The first paragraph of the letter reads:
“We wish to confirm that settlement of this purchase took place in Sydney on 23 March 1976 and that your father took possession of the relevant keys, combinations and other relevant papers on that date.”
16 This letter is of critical importance. It confirms what appears in George’s affidavit and in the father’s letter of 15 March 1976, that is, that the unit was not purchased by George for his own benefit. It is inherently probable that, if the unit was held upon the terms of a trust stipulated by the father, it is because the father had paid the whole of the purchase price, as he had asserted in his letter of 15 March 1976, from his own monies and from gifts to him by his sons. Attached to the solicitor’s letter is a settlement sheet which supports the inference that the $20,500 referred to by the father as contributed by him to the cost of the unit comprises a deposit of $2,500 and the cheque for $18,000 enclosed with the father’s letter.
17 On 5 May 1976, the solicitors wrote to the father under the heading “Purchase Unit”, enclosing an insurance policy “as requested”. The letter confirms the inference that the solicitors acting on the purchase sent the insurance policy covering the unit to the father because the father was the beneficial owner of the unit.
18 On 30 June 1976, the solicitor sent the documents of title to George. This is consistent with George holding the documents of title as trustee.
19 The second letter said to be from the father to George is dated 10 October 1978. It is in the following terms:
“I think that you have a need for money to build a new house. You gave me a gift of $5,000 when I bought my home unit in 1976, if there is a need I can return the $5,000.
I have already ended the relationship with Kazuko and I have already closed my account in the Tokyo bank. Over many years, I gave her enough, a home in Yokohama and 100,000¥ every month. She is now marrying her boss at work.
My son, Roy Grant, is finishing his higher degree; he wants to do more specialist study. My spirit will rest when you and the rest of the family accept him. I cannot expect that from Mum. Take care of this child’s needs. He is very clever. I have sent him a minimum of DF1,000 every month for many years via my bank account at … . Roy has authority to withdraw money, his address is … .
My ways have offended and upset Mum. Look after her after I am gone. It is better that she live with a child. Use the money from the home unit for her. If there is any left over after she is gone, use it for Roy if he still needs it. There are also others in the family who need the money for their studies.”
Roy is the father’s illegitimate son.
20 Mr Evans says that I should not be satisfied that the letters are authentic. He says that the explanation for their production in the proceedings is not credible. His submission is in aid of the proposition that insufficient evidence of a trust has been adduced and that, accordingly, George should be found to have held the unit for his own benefit.
21 Soei says that she found the father’s letters to George in 1981, amongst letters from Roy to the father. She says that she removed them from the parents’ home so that the mother would not see the letters and be upset. The evidence shows that the Japanese lady named had been the father’s mistress in Tokyo for many years. It is clear from the evidence that this circumstance caused pain to the mother and to the family. Soei says that she did not find the letters again until 2005 and did not realise the significance of the two letters now in question until recently.
22 The Court will examine most carefully documentary evidence, said to contain statements of a deceased person, which are produced by someone seeking to benefit from those statements. The reason is obvious: such documents may be forged, but it may be hard to prove the forgery.
23 In the present case I am in no doubt whatsoever that the letters from the father to George are genuine. First, their appearance strongly supports the conclusion that they were produced at the time that they purport to have been written. The paper is aged, yellowing and creased. The typing is on a manual typewriter. If these appearances have been simulated recently then the letters are the most successful forgeries I have ever encountered. Even more telling is the content of the letters. The language in which they are expressed and the personal details referred to strongly support the authorship of the letters by the father. Finally, the essential facts to which the letters refer are supported by the independent evidence of the solicitors’ correspondence.
24 In those circumstances, I am satisfied of the truth of George’s statement in his Family Court affidavit that he held the unit on trust. By the time the affidavit was sworn, the father had died and the mother was living alone in the unit. Under the terms of his father’s letters to him, it would have been correct for George to say that he held the unit on trust for his mother.
25 Mr Evans points to an apparent inconsistency between the affidavit, where it says that the father contributed $10,000 of the purchase price of the unit and that the remainder was provided by gifts from George, Harry and Richard, and the evidence, on the other hand, of Richard, who says that he did not make a gift to the father towards the purchase price of the property. However, George may have been mistaken as to the purpose of Richard’s contribution, possibly having had different accounts from Richard and the father or possibly having forgotten the precise circumstances.
26 George’s statement that gifts were made to the father by himself and his brothers is consistent with the father’s statement that he had a total of $20,500 to contribute towards the unit. The money had come from gifts from George’s brothers and the father’s own resources. The remaining $5,000 required to complete the purchase was a gift from George himself to the father.
27 I am satisfied, therefore, that it has been proved that the whole of the purchase price for the unit was provided by the father and that both the father and George acknowledged that the unit was to be held by George as trustee upon the terms of the father’s letters to George.
The terms of the trust
28 Mr Ellison SC, who appears for Soei, submits that the unit was held by George upon a bare resulting trust for the father alone, by reason of the fact that the father had provided the whole of the purchase price for the unit. Mr Ellison says that, when the father died in 1981, his beneficial estate in the unit passed wholly to the mother on intestacy. When the property was sold in 1996 the proceeds, received in early 1997, were impressed with the trust for the mother when, on George’s death in 2004, the whole of his estate, including the proceeds of sale of the unit, was left by George’s will to Katrina and Lindsay. Mr Ellison says that a breach of trust then occurred for which George’s executor is liable, so that Richard must now restore the trust fund to the mother’s estate and must account for the rents received by George from the unit from 1994 to 1997.
29 Mr Evans submits that it is clear from the father’s letters and from George’s affidavits that there was a common intention that the unit was held by George upon an express trust, not a resulting trust, and that the terms of the express trust are to be found in the father’s letters. Mr Evans says that the terms of the trust as contained in the 1976 letter were that George was to hold the unit for the benefit of the father and the mother to live in, and for the mother’s benefit while she wished to live in it after the father’s death. The mother was then to have the benefit of the capital and any income to meet her needs during her life, and after her death, such of the capital of the fund as remained was to vest in the father’s mistress absolutely.
30 By the father’s second letter, Mr Evans says, the terms of the trust were altered. The capital and income were still to be held on trust to meet the mother’s needs during her lifetime, but upon her death the remainder was to go to such members of the father’s family as George in his discretion might appoint, having regard to their needs. Mr Evans says that the terms of the trust gave a special power of appointment to George of the remainder of the trust capital and income after the mother’s death, and that George by his will has validly exercised that power of appointment by giving the trust proceeds after the death of the mother to George’s children, who are within the class of beneficiaries nominated by the father.
31 Mr Ellison responds that the terms of the father’s letters are precatory only as between a father and a son. He says that they were not intended to be binding on George as trustee, so that there were no express terms of the trust upon which George held the property. The trust fund was therefore held on a resulting trust for the father and, now, for the mother’s estate.
32 I am unable to accept this submission. It is clear from the father’s letters, from the solicitors’ correspondence and from George’s affidavit that the unit was held upon an express trust. There is a clear, unequivocal and emphatic direction in the father’s letter of 1976 that the unit and the proceeds of its realisation are for the mother’s benefit during her lifetime and for no other purpose during that time. There is an equally clear and emphatic direction that after the mother’s death the trust property is to go to the mistress.
33 The evidence strongly suggests that the father’s family were not on good terms with the mistress. It is unlikely that the father would have wished to rely upon George’s own discretion and goodwill to ensure that after the mother’s death the mistress would receive the benefit of the property. It is inherently probable, in my opinion, that the father therefore intended that George deal with the trust property for the benefit of the mistress as a term of the trust which he had established. The words of the 1976 letter support that inference.
34 I find therefore that the terms of the 1976 letter are not precatory but establish terms of the trust upon which George held the property.
35 Mr Ellison concedes that the father, as settlor of a simple trust, was entitled to vary its terms as he did in the 1978 letter. Again, I find nothing in the terms of that letter to suggest that the father’s intentions were precatory rather than binding as terms of a trust. The directions as to the use of the trust property are clear and emphatic. The trust property is to be used for Roy if he needs it: again, that evidence indicates that the father’s family were not on good terms with Roy, so that the father would not wish to rely merely on George’s goodwill to carry out the father’s wish. The only discretion which George is given is as to which members of the family are to receive the benefit, according to need.
36 I accept Mr Evans’ submission that the terms of the trust as contained in the 1978 letter were to hold the trust property and its proceeds for the benefit of the mother during her lifetime and, thereafter, to apply it according to George’s discretion for the benefit of Roy or other members of the father’s family according to their needs. Such a power of appointment is a limited or special power. The class of beneficiaries – that is, the father’s family – is loosely defined but not to the extent that the core objects cannot be ascertained: see, for example, Re Baden’s Deed Trusts (No 2) [1973] Ch 9
37 When George died, the mother was still alive. The corpus of the trust fund – i.e. the proceeds of sale of the unit – ought to have been kept separate by George, for use in meeting the mother’s needs, if required. Apparently the fund was not kept separate and such of the proceeds of sale as remained were mingled with George’s own property. George’s failure to keep the trust funds separate was a breach of trust. However, one must ask: what are the consequences?
38 There is no evidence to suggest that, after the mother moved out of the unit, her needs required recourse to the capital of the trust fund. There is no evidence which could support a finding that George did not apply the rental of the unit to the mother’s needs. It is clear that he made some contribution to her needs until shortly after the unit was sold and the rental income ceased. It is not possible to say in the state of the evidence that the rental income from the unit was not used for the mother’s needs.
39 While George committed a breach of trust in failing to keep the capital of the trust fund separate during the mother’s lifetime, it has not been demonstrated that the mother’s needs after sale of the unit required recourse to that capital. It has not been shown that the mother’s estate has been diminished by expenses which the mother should not have had to bear had George resorted to capital of the trust fund to meet those needs. The executrix of her estate cannot now call for the trust fund to be restored because the need for its existence has ceased with the mother’s death. In those circumstances, while George has committed a breach of trust, it is a breach for which no remedy is presently required.
40 I have concluded that the terms of the trust upon which George held the property included a limited power of appointment of whatever remained in the trust fund after the mother’s death. The power was to appoint amongst George’s family, according to need. Whether the power has been exercised by George and, if so, how, arose in discussion between myself and Counsel only towards the end of final submissions.
41 I am satisfied from the terms of the father’s letters establishing the trust that he intended that George was to be under a duty to exercise the power of appointment, and that the father had no intention that the trust property should revert to him or to his estate if George failed to exercise that power. Accordingly, the power of appointment was a “trust power”; if George failed to exercise it, there would be no resulting trust in favour of the father or of his estate, but the Court would exercise the power in a manner best calculated to give effect to the father’s intention: see McPhail v Doulton [1971] AC 424, at 441B-442B, 456G, 457B.
42 If George has not exercised the power of appointment in favour of Katrina and Lindsay by his last will, or in some other way – none of these issues were explored in these proceedings – then how the power must now be exercised is a matter arising in the administration of George’s estate. Soei, in her personal capacity as a member of the father’s family, may have an interest in that issue but not, it would seem, in her character as executrix of the mother’s estate. If no resolution can be reached between the relevant members of the family as to the fate of the funds subject to the power of appointment, then new proceedings will have to be commenced by Richard as executor of George’s estate.
43 In the result, the Plaintiff has failed to show that the unit, and the proceeds of its sale, were held by George upon trust for the father alone and absolutely and that, upon his death, they were held wholly for the benefit of the mother’s estate. The Plaintiff’s Third Amended Statement of Claim will therefore be dismissed.
Costs
44 The remaining question is what is the appropriate costs order, the Plaintiff’s claims having failed. Normally, of course, the usual rule would be applied and that is that the unsuccessful party should bear the costs of the successful party. However, these proceedings arise in the administration of two estates and somewhat discretionary considerations may apply: see generally Re Cutcliffe’s Estate [1959] P 6; Re Hodges (1988) 14 NSWLR 698, at 709; Shorten v Shorten (No 2) [2003] NSWCA 60.
45 The litigation has arisen out of a trust of which George was trustee. The fact that there was a trust emerged almost by accident when someone discovered a Family Court affidavit of George, and further investigations were made which resulted in the father’s letters becoming available and the terms of the trust becoming known. It is the duty of a trustee to ensure that beneficiaries are made aware of their rights: see In re Emmet’s Estate (1881) 17 Ch D 142, at 149; Hawkesley v May [1956] 1 QB 304, at 322. A trustee can hardly comply with this duty unless he or she keeps the terms of the trust readily available so that they may be explained, or produced, to beneficiaries and made known to successor trustees: see Ford & Lee Principles of the Law of Trusts [9150].
46 George did not comply with his duties as a trustee in this regard. Ideally, he could have executed a formal declaration of trust incorporating the terms which have now been found by the Court. At the very least he could have ensured that his executor was aware of the terms of the trust imposed by his father’s letters by placing those letters in a position where they would have been easily discoverable, rather than keeping them amongst letters from Roy. Elucidation of facts in this case and of the terms of the trust ought not to have required investigation and litigation after George’s death. In a real sense, this litigation has arisen because of George’s failure to administer properly and transparently the trust of which he was trustee.
47 While the Plaintiff’s claim against George’s estate has failed, I do not think that it was a claim without merit and that the Plaintiff should not have brought it. Indeed, she should have her own costs of the proceedings out of George’s estate. While the Plaintiff should be ordered to pay the Defendants’ costs of the proceedings, she should be indemnified for those costs out of George’s estate. The practical result is that George’s estate will bear the whole of the costs of the proceedings. The costs of the Plaintiff and the First Defendant, if any, should be assessed on the trustee basis.
Orders
48 I make orders as follows:
- i) judgment for the Defendants on the Third Amended Statement of Claim;
- ii) order that the Plaintiff pay the Defendants’ costs of the proceedings;
iii) order that the First Defendant, as executor of the estate of George, indemnify the Plaintiff in respect of that costs order;
- iv) order that the First Defendant pay the Plaintiff’s own costs out of the estate of George;
- v) direct that the costs of the Plaintiff and the costs, if any, of the First Defendant be assessed on the trustee basis.
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LAST UPDATED:
9 March 2009