Judgment - EX TEMPORE
Revised from transcript; issued 30 November 2020
The plaintiff in these proceedings seeks to discontinue them. The defendant consents to the discontinuance. The parties are in dispute about costs.
The plaintiff and the defendant were formerly husband and wife. They were married in December 1996. They separated in March 2018 and were divorced in August 2019. They have three children, aged twenty, eighteen and sixteen.
The proceedings concern three testamentary trusts established by Mr Ballard's mother for the benefit of Mr and Mrs Ballard's children. I will refer to those testamentary trusts as "the Trusts".
Mr Ballard's mother was domiciled in Queensland. She died in July 2008. Her will appointed two of her friends, Kevin Steele and Susan Whitnill, as her executors and as trustees of the Trusts.
In April 2012 the Supreme Court of Queensland appointed Mr Ballard as trustee of the Trusts in place of Ms Whitnill. It seems that Mr Steele had by that point resigned.
According to Mr Ballard's evidence, he assumed control of the trust property in June 2013. The property at that stage consisted of the sum of about $717,000 held on term deposit. Mr Ballard transferred the money to a newly opened current account in the name of the Trusts. As I will describe in a moment, over the following years he drew down on those accounts to pay for home renovations and family expenditure. By December 2019, which is the date of the last statement in evidence, the balance had been reduced to $395,000. I was told in July this year that the balance had by that stage reduced further to $383,000.
The background of the proceedings is set out in a judgment delivered by the Chief Judge on an earlier interlocutory application in the proceedings: Ballard v Ballard [2020] NSWSC 778. For present purposes I summarise it as follows.
For the last eleven years of their married life the Ballards' family home was a house at Anna Bay near Port Stephens on the New South Wales Central Coast. Much of the expenditure of trust funds to which I have referred took place on the renovation of that house. The sum involved appears to have been approximately $300,000.
Ballard v Ballard [2020] NSWSC 1687 | Case summary | Zoe
The renovations were undertaken between 2013 and 2015. This followed Mr Ballard's diagnosis with cancer. According to Mr Ballard, he thought he would die and he wanted to ensure that his wife and family were provided with suitable accommodation. Fortunately, Mr Ballard appears to have recovered from his cancer.
The proceedings were commenced by statement of claim on 1 August 2019. They were apparently prompted by the Ballards' impending divorce and by foreshadowed proceedings in the Family Court by Mrs Ballard for division of the parties' matrimonial property. It appears that the house at Anna Bay was the major matrimonial asset.
The stated purpose of the proceedings was to protect the children's interests under the Trusts. In his affidavit, Mr Ballard acknowledged that expenditure of the trust moneys on the home renovations had been a breach of trust, but he alleged that Mrs Ballard had been complicit in it. The prayers for relief in his statement of claim included a declaration of an equitable charge in favour of the Trusts over the Anna Bay property in the amount of about $97,000 per trust ($290,000 in total). Other prayers for relief were included in the statement of claim but were later abandoned.
In December 2019 Mrs Ballard commenced her foreshadowed property division claim in the Family Court. The division of the Anna Bay property sought was for each of the Trusts to receive a 14 per cent interest in the property and for Mrs Ballard to receive the remaining 58 per cent. This division was said to be based on evidence from a valuer of the increased value attributable to the renovations. Mrs Ballard also sought, in the Family Court's ancillary jurisdiction, orders removing Mr Ballard as the trustee of the Trusts and appointing Mrs Ballard in his place.
Following the commencement of the Family Court proceedings, Mrs Ballard made application by way of notice of motion filed on 14 January 2020 to have these proceedings transferred to the Family Court to be heard together with the Family Court property division proceedings. That motion was dealt with on the papers by the Chief Judge. She delivered her decision on 19 June.
The Chief Judge considered that the jurisdiction invoked by Mr Ballard in these proceedings was of a type regularly exercised by this Court. Her Honour had been told that there was no dispute about the imposition of the charge and the case could be dealt with in short order. In the circumstances she considered that the most efficient course was for the proceedings to continue in this Court, noting that a hearing in the Family Court was some years off.
Her Honour dismissed the motion but reserved the question of costs. Four days later, on 23 June, her Honour fixed the proceedings for final hearing in the Applications List on 10 July with a half day estimate.
The proceedings duly came on before me on 10 July. Mr Ballard was represented by his solicitor, Mr Holmes. The defendant was represented by counsel, Mr Justice.
Despite what the Chief Judge had been told, there were disputes between the parties about the relief to be granted.
On behalf of Mr Ballard, Mr Holmes sought to increase the total amount of the charge to $320,000. This figure was based on withdrawals from the trust account, but it was unclear whether all of those moneys had been used for renovations of the property. Mr Holmes also sought to have the charge cover not only the amounts paid in breach of trust, but also interest on those amounts.
For his part, Mr Justice, on behalf of Mrs Ballard, consented to the imposition of a charge for the figures originally sought (presumably these figures corresponded with the 42 per cent which Mrs Ballard had accepted in the Family Court proceedings as representing the Trust's proper proprietary entitlement). But Mr Justice opposed the attempt to increase the amount sought. He also opposed the inclusion of interest in the amount secured by the charge. On his argument, the interest liability was a personal one deriving from Mr Ballard's breach of trust and should be borne by him personally.
Furthermore, it became apparent to me in preparing for the hearing that there was more to resolving the proceedings than just dealing with these disputes. There were fundamental difficulties arising from the way in which the proceedings had been constituted and the relief formulated. I will outline three of them.
First, as beneficiaries of the Trusts, the children were vitally concerned in the outcome of the proceedings. The relief sought would define finally the extent of the Trust's financial interests in the Anna Bay property, leaving the rest of the property to be fought over by the children's parents; yet they were not represented in the proceedings. The youngest had not even attained the age of eighteen.
The agreement between Mr and Mrs Ballard as to the imposition of a charge, such as it was, only underlined the problem. The children's interest was to maximise the share of the property held by the Trusts. It was far from clear that their interests had been properly considered.
Secondly, the evidence showed that the money which had been spent on renovations did not account for all of the money which had been withdrawn from the Trust's accounts. Mr Ballard had apparently withdrawn moneys from the account to meet expenditure on the children (such as medical or dental expenditure) or to pay moneys over to them, presumably as some sort of allowance. Mr Justice also observed in his submissions that there had been expenditure on legal fees.
It seems that, to the extent that the propriety of these payments had been considered at all, it had been thought that they were justifiable based on the terms of the schedule to the will which gave the trustee power to apply moneys in each Trust for the maintenance, education or advancement of the children. Clause 6 of the will, however, provided that the children's trust entitlements did not vest until the oldest turned twenty-six. In the meantime, the moneys were to be invested and the income was to be distributed under a complicated formula, partly to Mr Ballard's mother's friend, Mr Steele, and partly to charity.
If this provision meant what it apparently said, then the powers of maintenance, education and advancement in the schedule had not yet come into play. Payments to or for the benefit of the children would therefore have been breaches of trust in which Mr Steele and the putative charitable beneficiaries would have had an interest. The terms of cl 6 also underlined the need to invest the trust assets so as to earn income from them.
The third point was that, upon full consideration, it had become clear that Mr Ballard's abandonment of any claim to relief apart from a declaration of charge was unsatisfactory. Mr Ballard had invoked the Court's jurisdiction over the administration of trusts. Clearly, it would not be enough for the Court simply to impose a charge. The trustee had ongoing obligations to hold the trust moneys in authorised income-producing investments.
The parties appear to have assumed that if the declaration of trust was made, no further action would be taken until the property division proceedings had been completed, at which point the Anna Bay property might be sold or, alternatively, Mrs Ballard might continue to live there with the children. Clearly, this failed to take account of the trustee's obligations. Arrangements would have had to be put in place, presumably involving the immediate sale of the property, so as to ensure that the Trusts were properly administered in accordance with their terms. This, of course, pointed up the need to determine exactly what those terms were.
At the beginning of the hearing I raised some of these points with Mr Holmes and suggested that judicial advice appeared to be necessary, if not overdue. Mr Holmes ultimately accepted this and the proceedings were adjourned.
On Mr Ballard's behalf, Mr Holmes then commenced separate proceedings seeking judicial advice. Those proceedings have given rise to their own complexities. An initial difficulty is that Mr Holmes appears to have assumed that the application was properly made under the applicable NSW Trustee legislation: Trustee Act 1925 (NSW), s 63. However, it may be the applicable law and procedure is that of the corresponding provision in the Trusts Act 1973 (Qld): Application of Rinehart: 2020/142504 [2020] NSWSC 1624 at [111]-[113].
On 15 September, these proceedings came before me again and Mr Holmes accepted the inevitable, announcing that they would be discontinued. The parties eventually agreed a timetable for the preparation of written submissions for today's hearing.
Meanwhile, directions hearings in the judicial advice proceedings have continued. Most recently, I was told that Mr Ballard has purportedly exercised a statutory power under the Queensland trustee legislation to appoint new trustees. The contemplation is that those new trustees will now pursue an application for judicial advice. Following the receipt of that advice, they will take any further proceedings which need to be brought against Mr Ballard (or Mrs Ballard). It seems likely that the children and, perhaps, others interested in the trusts established under the will, such as Mr Steele and The Queensland Attorney General (as protector of charities), will eventually be joined to those proceedings so that their interests can be properly protected in determining the Trust's entitlements, both proprietary and personal, by way of compensation for the breaches of trust which have occurred.
Mr Holmes and Mr Justice, on behalf of their clients, both accept that these issues will need to be determined before the property division proceedings can take place in the Family Court. As I understand it, owing to the state of the Family Court's lists, there would be plenty of time for that to happen.
The Uniform Civil Procedure Rules 2005 (NSW) provide, by r 42.19(2), that a plaintiff who discontinues proceedings must bear the costs of those proceedings unless the Court otherwise orders. Mr Holmes contended that this was a proper case for the Court to order otherwise, and that there should be no order as to costs. If the Court was against this submission, the costs awarded against Mr Ballard should not include the costs of Mrs Ballard's transfer motion. These contentions were opposed by Mr Justice.
In his written submissions, Mr Holmes identified three reasons which, he suggested, justified the discontinuance of the proceedings without costs. I will deal with them in turn.
First, Mr Holmes stated that Mr Ballard was no longer able to afford to prosecute the proceedings. But there is no actual evidence of this and, as a result, it is not clear whether Mr Ballard is actually unable to meet the costs of continuing the proceedings or is simply unwilling to do so.
In any event, I do not think that if Mr Ballard is in fact financially unable to continue the proceedings that would make any difference. In commencing proceedings, a plaintiff assumes the burden of funding through to the end. Rarely, if ever, could a supervening inability to continue to fund the proceedings which results in their abandonment be a justification for depriving the successful defendant of his or her entitlement to costs.
Secondly, Mr Holmes' submissions stated that Mr Ballard did not wish to maintain the proceedings because he was no longer going to be the trustee. The submissions stated that Mr Ballard's role as trustee had brought him into conflict with his children. It referred to things said by Mrs Ballard in her affidavit in these proceedings which suggested that conflict had arisen over requests by the children for money from Mr Ballard. According to Mr Holmes' submissions, Mr Ballard wanted to get rid of the conflict by ceasing to act as trustee.
It is true that Mr Ballard's removal of himself as trustee (assuming it to be effective) means that he can no longer maintain these proceedings. But it was Mr Ballard who chose to start the proceedings as trustee. He did not seek judicial advice before doing so. He now finds himself in the position where, as a result of the way in which the proceedings have been constituted and the prayers for relief formulated, his continuation as plaintiff is untenable. His predicament is a consequence of his own actions and the actions of his lawyers on his behalf. Mrs Ballard is no way responsible.
In passing, I note that according to what I was told at a recent directions hearing in the judicial advice proceedings, relations between Mr Ballard and his children remain awkward. Apparently, he did not consult the solicitor acting for the children before making the purported appointment of the replacement trustees and the children do not approve of the persons purportedly appointed.
This may not affect the validity of the purported appointment. I make no finding on the rights and wrongs of the issue. But it does underline that all I have is what is stated in Mr Holmes' written submissions. There is no actual evidence by way of affidavit from Mr Ballard to verify what those submissions say about his plans and intentions.
The third factor identified by Mr Holmes was that Mr Ballard intended "to make available" his share of the Anna Bay property "towards discharging or reducing his liability" to the Trusts. Mr Holmes submitted that this removed the need for proceedings (and also, incidentally, released Mrs Ballard of what Mr Holmes characterised as an "accepted liability" to the Trusts).
I am not sure what Mr Holmes' disclosure of Mr Ballard's purported intention actually means in practice. The extent of Mr Ballard's (and Mrs Ballard's) liability to the Trusts will need to be determined in the judicial advice proceedings, or separate proceedings which follow from them. It is impossible to say at the moment what those liabilities are. Nor do I know what the property is worth. Also, it is not clear to me that Mrs Ballard accepts that Mr Ballard is entitled to as much as a half share of the property. As I have mentioned, in the Family Court proceedings Mrs Ballard appears to be claiming the whole of the property, apart from that to which the Trusts may be entitled. In any event, it seems to me that Mr Ballard's stated position is, in substance, an abandonment of the claim that he is making in these proceedings.
I have already referred to the difficulties with the proceedings exposed at the hearing on 10 July. In my view, it is clear that Mr Ballard should never have commenced these proceedings in the form in which they were commenced. Nor, once the transfer application was refused, should he have brought the proceedings on for hearing in their unsatisfactory state.
Whatever Mr Ballard's subjective belief may be, the decision to abandon the proceedings is inevitable and flows from fundamental deficiencies in the way in which they were instituted and later conducted. Once Mr Ballard appreciated that he had been guilty of significant breaches of trust he should have sought judicial advice. Had he done so, all of the waste of costs which has ensued could have been avoided. It may be hard on Mr Ballard, but he must accept responsibility for that waste, including the costs Mrs Ballard incurred in defending the proceedings.
But in my view, the costs of Mrs Ballard's transfer motion are in a different category. It is fair to say that Mr Ballard's case was presented to the Chief Judge on the motion as being much clearer and simpler than it in fact was. But the parties continue to accept that the trust issues will be determined in this Court, and before any property division carried out by the Family Court. The motion failed because it was better for the trust issues to be determined in this Court in advance of the property division being carried out by the Family Court. That remains the case. I do not think that Mr Ballard should have to pay Mrs Ballard's costs of the motion.
The orders of the Court are:
1. Order that there be no order as to the costs of the defendant's notice of motion filed 14 January 2020.
2. Grant leave to the plaintiff to discontinue the proceedings.
3. Order that the plaintiff otherwise pay the defendant's costs of the proceedings.
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Decision last updated: 30 November 2020