I published my reasons for judgment on this application on 1 July 2016: see Chow v Chow [2016] NSWSC 908.
In essence, I declined to review a determination by Senior Deputy Registrar Studdert that the accounts prepared by the trustees for passing by a probate registrar were not in a proper format for that purpose.
However, I noted that the primary relief sought by the beneficiaries was an accounting by the trustees in Equity. I was unable to discern what the position was concerning the furtherance of that claim by the beneficiaries. For some reason that was not apparent, the trustees appear to have responded by seeking to have their accounts passed in the probate office. I made observations concerning the apparent lack of utility in the trustees taking that course, given that it would not necessarily decide the issues that would arise if the trustees are then required to undertake an accounting in Equity.
These issues caused me concern, because the trust estate was a very substantial one, and had been administered by the trustees over a period of about 15 years. The trustees had caused professional accountants to prepare annual financial statements for the trust, in accordance with conventional accounting standards, but accounts prepared in that way did not conform to the format historically used for the purpose of the preparation of accounts to be passed in probate. The issue had become a battle of form rather than substance, as the parties were arguing about whether the trustees should be put to the cost of transforming all of the existing annual financial statements into new accounts in the conventional probate format.
That exercise, and the expense involved, might be necessary if there was a real purpose in the trustees having their accounts passed in the probate office; however, as I have said, if there was such a purpose, it eluded me. I was also concerned that these proceedings were taking a direction that would only increase costs for the parties to fight about.
I decided that these proceedings called for the application of the principles in s 56 of the Civil Procedure Act 2005 (NSW), and that it was necessary to require the parties to identify the real issues in dispute between them, and then to craft directions to enable those real issues to be determined efficiently in a cost-effective way.
I was also influenced by the consideration that a probate registrar should not be subjected to the burden of passing the accounts for a substantial trust over a 15 year period if ultimately, there was no real point in that exercise being undertaken.
In my reasons for judgment, I explained at [129] that the parties should confer for the purpose of formulating directions for the future conduct of the proceedings, in accordance with the considerations that I discussed in the judgment. I indicated that I would not make any order for costs at this stage, as I wished to consider the issue of costs in the context of the whole of the proceedings.
It is true that the trustees decided to seek orders for the passing of their accounts and were unsuccessful both before Deputy Senior Registrar Studdert and on the application for review of his determination that I have rejected. In due course, it will be appropriate to make an order dismissing the trustees' notice of motion, and if costs follow the event, the trustees will be at risk of having to bear the costs of the proceedings concerning their application for the passing of their accounts. However, as I have said, in my view it is premature at this stage to make any determination concerning the issue of costs.
I fixed a directions hearing in this matter, which took place on 15 July 2016.
On that occasion, the beneficiaries asked the Court to make orders in terms of draft short minutes of order, which included an order dismissing the trustees' notice of motion, an order that the trustees prepare new accounts for the whole of the period in the conventional probate format, an order that the trustees personally pay the costs in relation to the issue of the proper format of the accounts, and various other orders concerning earlier costs orders that the court has made.
I did not consider that the approach that the beneficiaries adopted was in accordance with the request that I had made in my reasons for judgment.
It is unfortunate, but aspects of these proceedings suggest that there is considerable ill feeling between the trustees and the beneficiaries, and that that ill feeling is influencing the course of the proceedings. My suspicions in that regard were confirmed by the use by senior counsel for the trustees of the word "spite", and senior counsel for the beneficiaries' acceptance that the relationship between the parties was "acrimonious to put it mildly". The court cannot influence the attitudes of parties to each other, but it can require that they approach the resolution of the issues in dispute between them in an efficient and rational way.
As I understand the position taken by senior counsel for the trustees, the trustees accept that, if the beneficiaries pursue their claim for an accounting by the trustees in Equity, the benefit that the trustees may gain from having their accounts passed by the probate office may not be sufficient to warrant the trustees pursuing that course.
Senior counsel for the beneficiaries informed the court that the beneficiaries' application for an accounting by the trustees in Equity remained alive, but the beneficiaries have not yet decided whether they should accept an accounting in common form, or whether they will be able to establish defaults by the trustees sufficient to justify an accounting on a wilful default basis.
He also informed the court that the principal concern of the beneficiaries was in respect of the substantial number of payments that were made by the trustees for the services of lawyers, and the substantial number of lawyers who provided those services.
The trustees have made substantial reimbursements to the trust estate in relation to expenses paid by them in the order of $3 million. A substantial proportion of those reimbursements relate to legal costs paid by the trustees.
Senior counsel for the beneficiaries was not in a position to be explicit as to whether or not those reimbursements satisfied the concerns of the beneficiaries. I did not expect senior counsel to be able to indicate the position of the beneficiaries in any precise way at this stage of the proceedings, at a directions hearing.
Senior counsel for the beneficiaries strongly pressed the court to order that all of the annual financial statements in their present form be reformatted into the form usual for the purpose of the passing of accounts in the probate office, so that the beneficiaries could consider those accounts and identify any transactions to which they wished to take issue.
He also noted that it would be necessary for the trustees to prepare and provide to the beneficiaries additional accounts for the years ending 30 June 2015 and 30 June 2016.
He acknowledged that the beneficiaries would not require the trustees to verify every single receipt and disbursement over the 15 year period.
However, with great respect to senior counsel, he was not able to explain to me why it was not possible for the beneficiaries to review the trustees' annual financial statements in their present form, at least for the purpose of identifying with as much specificity as is possible, the transactions that are of concern to the beneficiaries.
As I explained in my primary reasons for judgment, I only had, as a sample of the annual financial statements, the statements prepared by KPMG for the year ended 30 June 2008. Those statements were prepared in accordance with modern accounting standards, and while they followed a different format than was ordinarily required by the probate office (primarily because they collected transactions by type, and did not list them all chronologically as individual numbered line items), they did appear to me to be sufficiently transparent, and sufficiently supported by primary records, to allow the convenient identification by the beneficiaries of the transactions that were of concern to them.
I accept that it is possible that the format in which the trustees' accounts have been prepared may impose some limitations on the specificity with which the beneficiaries can identify transactions of concern (although the evidence has not demonstrated in any clear away the reality of that possibility).
I also accept that some of the earlier annual financial statements do not contain the same detail as do the later financial statements, and it is possible that deficiencies in the earlier financial statements exist, which will impede the ability of the beneficiaries to identify in a reasonably clear way the transactions that concern them.
However, I am not satisfied that the annual financial statements in their existing form are inadequate for the purpose of the beneficiaries identifying with the greatest specificity possible, the transactions disclosed in the financial statements that are of concern to the beneficiaries.
Senior counsel for the trustees submitted that the court should order the beneficiaries to serve points of claim within an appropriate period.
That is a desirable objective, but I am not satisfied that it would be fair at this stage to require the beneficiaries to prepare points of claim. The beneficiaries may be entitled to the provision of further information by the trustees, before they should be required to commit themselves to seeking an accounting on a common or wilful default basis. It is also possible, as I have acknowledged that the earlier annual financial statements may lack the detail necessary to enable the beneficiaries to identify all of the transactions that are of concern to them.
The primary objective must be to use the available annual financial statements to narrow the field of dispute, and to identify the issues (possibly represented by particular transactions, or transactions of particular classes) so that appropriate directions can be formulated for the efficient determination of those issues. That may require that further information be provided by the trustees to the beneficiaries.
I do not rule out the possibility that, once the real issues between the parties have been identified, it will be appropriate to require the trustees to reformat the existing accounts limited to those issues, but that should only be done if it can be shown that it will be of real benefit to the determination of the issues.
Unfortunately, the course that the proceedings have taken has had the result that the court has not had the benefit of the considered views of the parties, formulated after discussion in a spirit of cooperation, as to the directions that the court should now make.
I do not wish to impose upon the parties directions which may be inappropriate, or introduce inefficiencies into the further conduct of the proceedings. I propose to set out a template of directions that may be appropriate, formulated in a general way, and will give the parties one more chance to address the court on the appropriate directions to be made.
If the parties are able to cooperate, and to agree to more appropriate directions than those that I will suggest, they are free to submit draft short minutes of order that differ from those outlined below.
I will give the parties leave to relist the matter, as any directions that are made must assume a reasonable amount of cooperation between the parties, and there has been little evidence of such cooperation occurring.
The orders that I suggest would take the following form:
1. Dismiss the defendants' notice of motion filed on 24 August 2015.
2. Direct the defendants to provide to the plaintiffs by [insert] the annual financial statements for the year ending 30 June 2015, with appropriate supporting documents.
3. Note that the defendants agree to provide to the plaintiffs the annual financial statements for the year ending 30 June 2016, with appropriate supporting documents, as soon as is reasonably possible after those financial statements have been prepared in the ordinary course.
4. Direct the plaintiffs to inform the defendants by [insert] of any information, or categories of information, not contained in the annual financial statements for the trust prepared on behalf of the trustees, that the beneficiaries reasonably require in order to:
1. identify the transactions disclosed in the financial statements that the plaintiffs wish to challenge or are otherwise of concern to the plaintiffs;
2. determine whether the plaintiffs wish to apply for an accounting by the trustees on a common or wilful default basis.
1. Direct the defendants to respond to the plaintiffs by [insert] in order to:
1. provide to the plaintiffs so much of the information sought by the plaintiffs as is reasonably available;
2. where the information sought by the plaintiffs is not reasonably available, make alternative suggestions as to how the concerns of the plaintiffs may reasonably be satisfied;
3. identify so much of the information sought by the plaintiffs as the defendants say does not exist or ought not reasonably be provided to the plaintiffs.
1. Direct the parties to confer by [insert] for the purpose of resolving any differences that may arise out of the defendants' response to the plaintiffs' request for further information.
2. Provided the plaintiffs are given reasonably appropriate information by the defendants (such that no further order by the court will be necessary), direct the plaintiffs by [insert] to file and serve on the defendants:
1. points of claim that identify all transactions in the annual financial statements prepared for the trustees that the plaintiffs challenge, and if the plaintiffs seek an order against the defendants that they give an accounting on a wilful default basis, the grounds upon which the plaintiffs seek that order; and
2. draft short minutes of order containing directions for the further conduct of the proceedings.
1. Direct the defendants by [insert] to file and serve on the plaintiffs:
1. points of defence; and
2. a response to the draft short minutes of order served by the plaintiffs.
1. Grant leave to the parties to apply to relist the proceedings on 3 days' notice by arrangement with the Associate to Robb J.
2. Reserve all questions of costs, including the costs of the defendants' notice of motion filed on 24 August 2015, and the directions hearing on 15 July 2016.
3. Stand the proceedings over to [insert] at 9:30 AM before Robb J for further directions.
In due course, it will be appropriate to stand these proceedings over to the Registrar's list, but given the approach that I have adopted, it will be appropriate for me to case manage the proceedings until they are proceeding on a satisfactory footing. It will also be appropriate for me in due course to decide the reserved costs of the application dealt with by me.
I acknowledge that there is an element of optimism in the directions that I have suggested be made, as some level of reasonable cooperation will be necessary between the parties, if these proceedings are to proceed in a commercially sensible way.
It may also be, if the beneficiaries are permitted to require the trustees to give an accounting on a wilful default basis, that my aspiration that the issues in dispute between the parties be determined in a streamlined and cost-effective way may be unrealised, and it will be necessary for the court to revert to a more conventional procedure than it presently contemplates.
The parties are requested to inform my Associate within 14 days of the short minutes of order that they wish the court to make, and if necessary, to fix a further directions hearing.
[2]
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Decision last updated: 22 July 2016