Basil Notaras v Brinos Notaras

EX TEMPORE Judgment 1The plaintiff, Mr Basil Notaras ("Basil"), and the defendant, Mr Brinos Notaras ("Brinos"), are brothers and are the only two members and trustees of a self-managed superannuation fund called the Saraton Superannuation Fund ("the Fund"). By way of an amended summons filed on 28 April 2011, Basil seeks to remove Brinos as trustee of the Fund. Basil also seeks an order, in effect, that Brinos account for the proceeds of sale of certain shares which were held by the Fund and which represent part of the monies that were withdrawn by Brinos from bank accounts of the Fund ("Account 9432" and "Account 5284"). 2Injunctions were granted on four previous occasions to, in effect, restrain Brinos from dealing with the proceeds of sale of the aforementioned shares, from giving directions to pay those proceeds of sale to accounts other than to Accounts 9432 and 5284 or from withdrawing funds from those bank accounts. 3On 23 February 2012 and on 24 May 2012 the matter was before the Court. There was no appearance by Brinos, whose solicitors had filed a notice of ceasing to act on 6 December 2011. On 24 May 2012 the matter was set down for an ex parte hearing today and in an affidavit sworn 17 July 2012, Mr J B McCooe, Basil's solicitor, deposes to the fact that he informed Brinos of this hearing date by letter and has not received any response from Brinos. The matter was called in court and outside the court this morning and Brinos did not appear. 4Basil and Brinos are the only members in the Fund and both are currently trustees of it. Basil claims the following withdrawals from the Fund's two bank accounts were made by Brinos in the name of the brothers as trustees of the Fund, without notice or consultation with Basil: (1)$2000 on 9 December 2010 from Account 5284; (2)$3000 and $6000 on 10 December 2010 from Account 5284; (3)$11,500 on 10 December 2010 from Account 9432; (4)$41,000 on 16 December 2010 from Account 9432; and (5)$157,000 on 20 December 2010 from Account 9432. 5Basil, in his affidavit of 6 April 2011 (Exhibit A at p 31), details the destination of most of the funds that were removed from the trust accounts and deposes to the fact that none of the monies were received for the benefit of the trust or Basil. 6Basil claims that sales of the Fund's shares were made on the instructions of Brinos without notice to him and that the total of those amounts exceeded the entitlement of Brinos, as a member in the Fund, by an amount of $57,839. There is a claim in the summons for interest but Mr B DeBuse, who appears for Basil today, has indicated that he does not press that aspect of the claim. 7Basil also claims that Brinos has refused to take part in the management of the Fund since the withdrawals and will not sign documents necessary to ensure that the Fund complies with all of its obligations under the Superannuation Industry (Supervision) Act 1993 (Cth) ("the Act"), although Brinos has not said so explicitly. Ms Irene Leonardo, an accountant engaged by the Fund (who is also Basil's wife), by letter incorrectly dated 2 May 2010 but in fact sent on 2 May 2011, sent to Brinos two folders of documents which included not only past tax returns and member statements but also member statements and draft tax returns for the period from 2008 onwards which needed to be signed (although Brinos was not expressly asked to sign them): see Exhibits B1, B2 and D. Brinos responded by letter of 14 June 2011 by returning the folders and indicating he did not request them and denying responsibility for Ms Leonardo's fees: see annexure A to Ms Leonardo's affidavit of 18 July 2012. Brinos also asserted that he had never been provided with any of the documents contained in the two folders and left the matter there. Whilst it may not be correct to describe this as being a refusal to sign documents that were required to be signed, the net effect of what occurred was that no further steps were taken in relation to the finalisation of the tax returns and member statements, with a consequence that the trustees of the Fund have put themselves in breach of the Act. 8It is pertinent to note that relations between the brothers had broken down as a result of a dispute concerning a family owned property at Maroubra. That dispute was the subject of a decision of White J handed down on 27 May 2011, a judgment in Basil's favour: see Notaras v Notaras [2011] NSWSC 546 at [55]. 9I am satisfied, on the evidence before me, that Brinos has organised the sale of shares and withdrawn proceeds of shares without consultation with his co-trustee and that he has withdrawn thereby $57,839 more than he was entitled to as a member of the Fund. I further find there has been a breakdown in the relationship between the two trustees, making management of the Fund very difficult, if not impossible. I think it is appropriate that Brinos be removed as a trustee by reason of what amounts to a breach of fiduciary duty owed by him to the trust which conduct also constitutes a breach of the Act, in particular, ss 52(2)(a), (b) and (c). 10Basil seeks an order that a company of which he is sole director and shareholder be appointed as trustee in place of Brinos. That company is Bazport Pty Ltd ("Bazport"). Bazport has consented to its appointment as trustee: see Exhibit C. Mr DeBuse quite properly points out that s 17 of the Act requires each member to be a trustee or at least a director of the corporate trustee, so that the consequence of Brinos being removed and Bazport replacing him will result in the Fund having only Basil and Bazport as trustees. Bazport and Basil intend to seek from the Australian Taxation Office a ruling or exemption from non-compliance with s 17 of the Act and the orders which are sought reflect that. It is envisaged that if the Australian Taxation Office is not willing or able to exempt the Fund from not having Brinos as a member or director of the corporate trustee, then the trustees will need to have the funds transferred to an authorised superannuation fund. 11I should point out that Mr DeBuse drew my attention to the decision of Ball J in Crowle Foundation v NSW Trustee and Guardian [2010] NSWSC 647 in which his Honour helpfully considered the effect of s 70 of the Trustee Act 1925 and in particular whether the power to remove a trustee is conferred by s 70. His Honour discussed the history of s 70 and analogous provisions at [29] to [35] of the judgment and concluded that the removal of a trustee and replacement by another trustee was authorised by s 70, having regard to whether it was expedient to do so in all the circumstances and having particular regard to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trust and a faithful and sound exercise of the powers conferred upon the trustee. I respectfully adopt his Honour's view that a trustee can be removed and that the considerations are those which his Honour identified. 12A very important aspect of the matter presently before me is that, on the material presented, Brinos has been paid more than his entitlement with a consequence that he no longer has a real interest in the Fund which forms the trust assets. Whilst normally the close connection between Basil and Bazport would not make it appropriate to appoint Bazport, I think in the circumstances where only Basil now has a financial interest as a member in the Fund, it is not inappropriate that Basil remain as a trustee and that the second trustee is a company with which he is connected because Brinos' interest as a member is nominal only. 13Mr DeBuse informed me that he has not been able to find any provision in the Act which permits the removal as trustee of a member to whom all entitlements have been paid out of the trust assets and he has suggested that there is an anomaly in the legislation. If it be correct that there is no such provision, this is a matter which might need to be looked at further by the Commonwealth legislature. 14For the reasons given, I propose to make the orders sought by the plaintiff which includes a notation of an undertaking through counsel that Basil will, within 14 days hereof, inform the Australian Taxation Office of the making of these orders and that he, on behalf of himself and Basil, proposes to seek from the Australian Taxation Office ruling or exemption from the requirements of the Act. 15I therefore make orders in accordance with pars 1 to 5 of the short minutes of order, which I shall initial and date with today's date in the top right-hand corner. The plaintiff has leave to take these orders out in the Registry in due course and I shall place those orders on the file. The exhibits should be retained for a period of six weeks.