Ballenden v Bryant

The Defendants 5Another contributing factor was the tactical approach taken by the defendants' counsel. At the hearing of this application, he consented to all of the declarations and orders relating to the C and D class shares that I had refused to make at the primary hearing. He did so without prejudice to his right to contend that the relief was unnecessary. I acknowledged his right but made clear that, based on what I had been told after delivering judgment on 14 December 2012, the making of the declarations and orders in relation to the C and D Class shares was convenient and did not cause prejudice to the defendants. 6The primary hearing would have taken on a different complexion if I had been unambiguously told at the outset that the defendants consented to the relief sought by the plaintiffs that I have now granted. As I have now been made aware, certain correspondence before the hearing made clear that the defendants did not oppose the relief. I did not know this. Instead, I formed the view, rightly or wrongly, that the defendants' position was one of substantial opposition to the relief sought. This was a misapprehension on my part.

The Judgment 7If the primary hearing had commenced with me making, by consent, the declarations and orders in relation to the C and D Class shares sought by the plaintiffs, and if the background context which necessitated the perceived need for that relief had been exposed and fully elucidated, my judgment and reasons would have been different. 8In my original reasons, I was critical of the plaintiffs for overlooking a particular point of law. And I used that criticism as a fulcrum for holding that the proceedings were futile. I then went on to make harsh costs orders. I should acknowledge that the defendants also overlooked the point. But as is now clear to me, there was more to the commencement of the proceedings than the misplaced need to 'set the record straight' or to 'perfect the title' to the C and D Class shares. That need may have been illusory but there were other claims and other circumstances that motivated the plaintiffs' solicitor and the position was not quite as simple as it seemed on the basis of the limited and incomplete evidence at the primary hearing. 9During the hearing of this application, there was much argument as to the effect of Schaeffer v Schaeffer (1994) 36 NSWLR 315. The question posed in argument was whether there was an available claim against the C and D Class shares by dependants and relatives of the testator, which might have made it desirable for the plaintiffs to have the declarations and orders which they sought. It is not necessary for me to determine the precise effect of the reasoning in Schaeffer v Schaeffer. What is more relevant is whether, in the light of the claims, demands and correspondence received by the plaintiffs' solicitor - and putting to one side the error in thinking that it was necessary to 'perfect the title' to the C and D Class shares - the claim in relation to the shares was otherwise reasonably brought. 10The plaintiffs' solicitor Mr Musgrave, gave the following evidence of his reasons, which I accept: The primary purpose for seeking relief in respect of the shares was to enable the plaintiffs to protect themselves from having the C and D class shares and the $800,000 paid out of their loan accounts by the Company to the estate treated as property of the estate of Dr Ballenden and to have its determination expedited to resolve in one Court proceeding the related issues arising out of the Succession Act proceedings, namely: (a) The opposition to the vesting of the C and D class shares in favour of the first and second plaintiffs by the defendant on 21 November 2011 by Ms Marie Cashman, the widow of the deceased and the applicant in Succession Act proceeding 2011/398472 and the deceased's other sons, Christian Ballenden and Benedict Ballenden, who are the applicants in Success Act proceeding no. 2011/396911 ('the Christian and Benedict Succession Act proceeding'); (b) The applicants in the Christian and Benedict Succession Act proceeding, in reliance on Schaeffer v Schaeffer (1994) 36 NSWLR 315 (see paragraphs 55-61 of my affidavit below), joined the Company as the third defendant In those proceedings in May 2012 as a means of seeking to have the C and D class shares designated as notional estate; (c) The Succession Act proceedings were put in abeyance until such time as all outstanding issues forming the subject matter of the proceedings were determined; (d) The Succession Act parties were basing their claims on the belief that the value of the estate was around $8.0M whereas the determination in favour of the plaintiffs of these proceedings would have the effect of reducing the value to around $2.0M; (e) The opposition by Ms Cashman to the defendants' conceding to the plaintiffs, shortly after the commencement of these proceedings, that the $400,000 paid to the first plaintiff by the deceased was a gift. 11The conduct of the plaintiffs' case at the hearing was not assisted by the confusing signals from the defendants. On 14 November 2012, one unclear letter was sent by the defendants' solicitors but was immediately followed by another differently worded letter. The clarity and tone of the latter bore the hallmark either of a different author or a change of mind, or both. Then on 16 November 2012, the defendants' solicitor wrote again, stating that on certain conditions, the defendants 'will only contest the issue of the $400,000.00 payment in respect of Christopher Ballenden and will not contest the issue of the "C" and "D" class shares belonging to the Plaintiffs and the $400,000.00 owing to John Paul Ballenden.' However, after 5pm on the day before the hearing, counsel for the defendants delivered written submissions in which he stated in relation to the claim regarding the C and D Class shares that the relief sought in paragraphs 1, 2, 3, 4, 5, 6, 7, 8, 10, 13, 14, 15, 16, 17, 18, 19 and 20 was opposed and should not be granted. The circumstances were ripe for confusion and misapprehension.

Exercise of Discretion 12There is no doubt that it was necessary for the plaintiffs to commence the proceedings - at the very least to resolve the issue in relation to one of the two $400,000 sums on which no agreement had been reached. The need for relief in relation to the ownership of the C and D Class shares was less obvious because the shares had been transferred to the first and second plaintiffs in November 2011. But the reasons explained by Mr Musgrave, which I have set out in paragraph [10] above, were in my view sufficient. I have reached the view that he acted reasonably. And he did so with the benefit of advice from counsel. Any responsible and prudent solicitor, with full knowledge of the facts and circumstances, might well have concluded that he should still pursue the declarations and orders in relation to the C and D Class shares - even if he had been informed of the principle of law that I explained in my principal judgment. 13These wider circumstances, and the justification for the relief in relation to the C and D Class shares, were the subject of much extensive argument and further evidence on this application. As I have mentioned, I took the view that I should make the declarations and orders in the interests of convenience. And the defendants consented. There is force in the defendants' argument that the relief in relation to the C and D Class shares is or should not be necessary, but the position is arguable. If the relief were not granted, the pursuit of claims by relatives and dependants of the testator might, in due course, prove the defendants' contention wrong. On the other hand, granting the relief that the plaintiffs seek, may put the matter beyond doubt, without causing prejudice to the defendants. Not granting the relief effectively requires me to rule in advance on the efficacy of a cause of action available to others in proceedings that are not before me. This is not desirable. 14The wider examination that has now taken place has presented a picture that is not just broader and more complete, but also one that is different. Furthermore, the uncertainty and ambiguity about the defendants' position at the commencement of the primary hearing, contributed to some misapprehension by me and an unfortunate narrowing of the plaintiffs' case. Given the arguments that have now taken place, it is clear to me that this has led me to give reasons and make orders that I would not otherwise have given and made.

Orders 15For those reasons, I make the following declarations and orders: (a) Orders and declarations in accordance with prayers 1, 3 and 4 of the plaintiffs' notice of motion filed 20 December 2012. (b) Orders in accordance with prayers 1 and 2 of the defendants' notice of motion filed 25 January 2013. (c) I re-publish my decision and reasons given on 14 December 2012 in the revised form attached hereto. (d) In lieu of the costs orders I originally made on 14 December 2012, I make the following orders: (1)An order that 75% of the costs of the first and second plaintiffs be paid by the defendants out of the estate of the testator on the usual basis; (2)An order that the costs of the third plaintiff be paid by the defendants out of the estate of the testator on the usual basis; (3)An order that the costs of the defendants be paid out of the estate of the testator on an indemnity basis. ATTACHMENT 'A' Supreme Court New South Wales Equity Division

Case Title: Ballenden v Bryant (No 1)

Jurisdiction: Equity Division - Expedition List

Catchwords: TRUSTS AND ESTATES - death of trustee - powers of trustee's executor - office of trustee does not devolve on executor - exception in the case of inactive trusts - executor has power to transfer trust property to beneficiary absolutely entitled

Legislation Cited: Administration of Estates Act 1925 (UK) Civil Procedure Act 2005 Conveyancing and Law of Property Act 1884 (Tas) Succession Act 2006 Trustee Act 1925 (UK) Trustee Act 1958 (Vic) Trustees Act 1962 (WA) Trusts Act 1973 (Qld)

Cases Cited: Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374 Ballenden v Bryant (No 2) [2013] NSWSC 454 Biddlecombe v Biddlecombe, (Supreme Court of New South Wales, Powell J, 1 July 1993, unreported) Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 Ogilvie v Littleboy (1897) 13 TLR 399 Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 Pitt v Holt [2011] EWCA Civ 197 Robson v Flight (1865) 4 De GJ & S 608

Texts Cited: Ford and Lee, Principles of the Law of Trusts, 2nd ed (1990) Heydon and Leeming, Jacobs' Law of Trusts in Australia, 7th ed (2006) Scott et al, Scott and Ascher on Trusts, 5th ed (2011)

Parties: John Paul Ballenden - first plaintiff Christopher Mark Ballenden - second plaintiff J S Ballenden Pty Limited - third plaintiff John Besford Bryant - first defendant Gordan Jeffrey Bryant - second defendant

• Counsel: C E Bevan and W Washington - for the first, second and third plaintiffs J O Anderson - for the first and second defendants

• Solicitors: WM Lawyers Pty Limited - for the first, second and third plaintiffs F C Bryant Thomas & Co - for the first and second defendants

The Facts 1 The testator (John St Clair Ballenden) died on 10 February 2010, leaving an estate whose value was only modest but which was erroneously assumed to be considerable. He also left a trail of dependants and disappointed former wives who claim that no adequate provision was made for them. I was told that seven separate family provision claims have been made on his estate pursuant to the Succession Act 2006. After the testator's death the existence of certain trust deeds emerged which falsified the assumption that the value of the estate was considerable. The testator was the trustee pursuant to the trust deeds. His sons, the first and second plaintiffs, were the beneficiaries. 2The effect of the trust deeds is that, other than the bare legal title, the C and D class shares in the testator's former family company (the third plaintiff) never formed part of his estate and were at all material times beneficially owned by the first and second plaintiffs. Although the two trusts vested when each boy turned 25 years, which occurred in 1986 and 1988 respectively, the boys were unaware of their entitlement and the shares were not transferred to them during the testator's lifetime. The value of the C and D class shares is in excess of $8 million. The value of the estate without those shares is approximately $2 million. 3The disputation in relation to the C and D class shares which has led to the commencement of these proceedings was complicated by the testator's secrecy. When the existence of the trusts was ascertained, the plaintiffs' solicitor insisted over a year ago that the C and D class shares were not part of the testator's estate and should be transferred to the first and second plaintiffs. In his letter dated 17 November 2011, he wrote: 13 It follows then that the C and D class shares should not have been declared as assets in the estate of Dr Ballenden. The bare legal title in those shares had a nil value. 14 In your capacity as co-trustee (along with Gordan Bryant) of the trustee for the C and D class shares Dr Ballenden, you should transfer the bare legal title to the C class share to [the first plaintiff] and the bare legal title to the D class share to [the second plaintiff] forthwith without deduction. 15 You as executors of the estate of the late Dr Ballenden have no lawful right to withhold the transmission of the C and D class shares to [the first and second plaintiffs] as these classes of shares do not form part of the estate. (emphasis added) 4The plaintiffs' solicitor was indubitably correct and the executors were unwittingly in error in relation to the way the shares were initially treated. They did not form part of the testator's estate and their value should not have been included in the inventory of assets. To the executors' credit however, following the 17 November letter, they promptly arranged for the first and second plaintiffs to be registered as the holders of the shares. This occurred on 21 November 2011. 5The plaintiffs' contended that the executors had no valid title to the C and D class shares because the shares did not form part of the testator's estate, and therefore the executors could not confer title on the first and second plaintiffs without following one or other of the two legal routes which I have explained in paragraph [7] below. The executors are unwilling to do what the plaintiffs' solicitor insists upon. They consider it to be unnecessary. Thus, nine months after the first and second plaintiffs became the registered holders of the shares, they commenced these proceedings. One of their objects in doing so, but not their sole object, was said to be "to perfect the title" of the first and second plaintiffs to the C and D class shares.

The Trusts 6The trust deeds pursuant to which the testator held the shares on trust for the first and second plaintiffs were executed in 1969. They contained a power to appoint a new trustee. The testator died without exercising that power. There was however a saving provision, of which in the circumstances the executors could not have been expected to have been aware. The saving provision was contained in Clause 9 which provided that: ...in default of such appointment [of new trustee] such power [of appointment] is vested in the Executor of the will of the Trustee and shall be exercised by deed. 7The executors could in theory have appointed themselves by deed pursuant to Clause 9 as trustees of the trusts for the benefit of the first and second plaintiffs and transferred the shares to them. Or they could have applied to the court for an order pursuant to Section 70 of the Trustee Act. Instead, they simply transferred the shares to the first and second plaintiffs who, as I have mentioned, became registered as the holders of the shares on 21 November 2011. They now ask rhetorically "What more could the first and second plaintiffs want?" and "What else could possibly be done?"

Death of a Trustee 8I should re-state some basic principles. The office of trustee is personal. A trustee is appointed because of the personal confidence which is reposed in his discretion and judgment. The trustee's executor on the other hand may be a person unknown, or someone in whom the requisite confidence is missing. It follows that, under the general law in New South Wales, upon the death of a trustee, the office of trustee does not devolve on the trustee's executor. 9In short, "no one can legally execute a trust unless nominated so to do by the settlor or testator or appointed so to do by direction of such settlor or testator, by Act of Parliament or by the court": Jacobs' Law of Trusts in Australia, 7th ed (2006) at [1575]. The result therefore, at least in New South Wales, is that if a deceased trustee was the sole or last surviving trustee, then if the trust is an active trust, and absent the appointment of a replacement trustee, the office of trustee becomes vacant. The trust will not fail however. There will be a bare trust until the appointment of a replacement trustee. 10Importantly, there is an exception to the principle where, as in this case, the trust is no longer active. The position is clearly stated in Jacobs' Law of Trusts in Australia at [1575] where, after referring to the principles that I set out in paragraphs [8] and [9] above, it is said: The legal representative of such a deceased trustee has no power to act in the execution of the trust although, where there are no active duties to perform, the legal representative has power to transmit the property to the persons absolutely entitled. (emphasis added) 11Ford and Lee, Principles of the Law of Trusts, 2nd ed (1990) paragraph [852] is to the same effect: ... persons upon whom the assets devolve upon the death of a sole trustee will in New South Wales and South Australia at least hold them without any powers authorities or discretions, upon a bare trust for new trustees when appointed, although they do have the power, if all the beneficiaries are of full age and capacity, to transfer the assets of the trust to them, so clothing the equitable ownership with the legal estate and thereby terminating the trust. (emphasis added) 12This principle and its exception were stated, and their rationale explained, in Robson v Flight (1865) 4 De GJ & S 608, 46 ER 1054. The Lord Chancellor said the reason is "obvious": Such trusts and powers are supposed to have been committed by the testator to the trustees he appoints by reason of his personal confidence in their discretion, and it would be wrong to permit them to be exercised by the heir at law, who may be a person unknown to the testator, or in whom he has no confidence at all. A trust which gives the trustee no other duty to discharge than simply to clothe the equitable ownership with the legal estate may indeed be performed by the heir... It depends on the question whether in the exercise, anything has to be supplied by the judgment, knowledge and discretion of the person acting in the exercise of such trust or power. 13Robson v Flight was approved and applied in this court in Biddlecombe v Biddlecombe (Supreme Court of New South Wales, Powell J, 1 July 1993, unreported). The principle applies in this case. As I have already mentioned, the trusts vested in 1986 and 1988 respectively. The first and second plaintiffs have been absolutely entitled to the C and D class shares for over 20 years. The trusts therefore have no work to do. They are not active. The executors were entitled and authorised to transfer the C and D class shares to the first and second plaintiffs. 14I should mention that in a number of jurisdictions, the practical difficulty caused by the death of a trustee has been addressed by statute: Conveyancing and Law of Property Act 1884 (Tas), s 34; Trustee Act 1958 (Vic), ss 2 and 23; Trustees Act 1962 (WA), s 45; Trusts Act 1973 (Qld), s 16. In the United Kingdom the issue is covered by the Administration of Estates Act 1925 (UK), ss 1 and 3, and Trustee Act 1925 (UK), s 18(2). In the United States, the position is as unambiguous as it is in New South Wales. The following statement appears in Scott & Ascher on Trusts, 5th ed (2011), Vol 2, pp 644-645: It is unnecessary to appoint a new trustee if the purposes of the trust have already been accomplished, so that there is nothing to do but transfer the property to the beneficiary. In such a case, the heirs or personal representatives can make the conveyance. (emphasis added)

No Utility 15On this narrow issue therefore, the commencement of proceedings served no useful purpose. The executors may not have understood the exception to the legal principle that I have explained in paragraphs [8] - [10] above but over a year ago, when requested so to do by the plaintiffs' solicitor, they transferred the shares to the persons who were absolutely entitled to them. There is now no basis whatsoever for any challenge to the entitlement of the first and second plaintiffs to be registered as the holders of the shares. None was identified in the evidence. None was articulated in submissions. A reading of the standard Australian texts on trusts would have dispelled the plaintiffs' perception that it was necessary to seek any of those declarations and orders in order to 'set the record straight'.

The $400,000 Claim 16The only other issue that I was required to determine concerned the legal status of a sum of $400,000 that the testator gave to the second plaintiff in November 2003. The defendants contend that the payment should be characterised as a loan rather than as a gift. They contend, and the plaintiffs accept, that the determination of the issue depends upon the construction of two handwritten letters dated 25 and 28 November 2003. 17The first letter was an acknowledgement and receipt written by the testator and signed by the second plaintiff. It stated: I have received the sum of $400,000.00 (four hundred thousand dollars) from the estate of my father John St Clair Ballenden as a gift which will be deducted from my portion at the settlement of the estate. (emphasis added) 18The second letter was from the testator to the first defendant. It stated: This is the note you advised me to get from Christopher for the loan of $400,000.00 signed by Christopher and his wife. Thank you for filing and retaining with the will. (emphasis added) 19The defendants' argument really depended on the construction of the first letter. It was conceded, at least implicitly, that the use of the term "loan" in the second letter could not affect the reality of what had occurred on 25 November 2003. A subsequent change of mind by the testator as to the nature of the payment of $400,000 is of no relevance in determining its legal effect. As was said in Ogilvie v Littleboy (1897) 13 TLR 399 at 400: Gifts cannot be revoked, nor can deeds of gift be set aside, simply because the donors wish they had not made them and would like to have back the property given. Where there is no fraud, no undue influence, no fiduciary relationship between donor and donee, no mistake induced by those who derive any benefit by it, a gift, whether by mere delivery or by deed, is binding on the donor. See also Pitt v Holt [2011] EWCA Civ 197 at [203] and Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374 at 382 (Young J, as he then was). 20The defendants' submission amounted to the proposition that the statement in the 25 November letter that the $400,000 was a "gift", coupled with the qualifying words "which will be deducted from my portion at the settlement of the estate" indicated that the payment was to be regarded as a loan. I do not agree. Those words do no more than indicate that the gift of $400,000 is to be taken into account, and credited against, the second plaintiff's share of the testator's estate. His ultimate share of the estate, whatever it might be, was intended to be reduced by an amount that reflected the fact that during his lifetime the testator gave him $400,000. This is a common occurrence. It does not transform the gift into a loan. 21At the date of the gift, the testator may well have overlooked the trust deeds that he executed in 1969 and may have mistakenly assumed that on his death his son would receive far more than $400,000. But this mistake does not transform the gift into a loan. It just means that the donor made a mistake. A gift does not cease to be a gift simply because the donor make a mistake. In certain circumstances, the payment may be recoverable but I should not take the issue further as the defendants did not advance a case based on the recovery of money paid on a mistake.

Orders 22The plaintiffs are substantially entitled to the relief that they seek. But not to all of it. There is no need for orders that the executors execute and deliver to the first and second plaintiffs transfers of the C and D Class shares. Nor is there any need for declarations that the 'transmission' of those shares be set aside. On that part of the claim, the plaintiffs have failed and the costs orders should reflect that fact. The precise declarations and orders that are appropriate in the light of my findings and conclusions are set out in Ballenden v Bryant (No 2) [2013] NSWSC 454. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 May 2013