Drinkwater & Ors v Gedrot Holdaway Pty Ltd & Ors

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4053/01 PETER WESTGARTH DRINKWATER & Anor v GEDROT PTY LTD & Ors JUDGMENT 1 On 16 October 2001, Bryson J made a mareva order restraining the defendants, amongst other things, from disposing of assets within or outside the jurisdiction until the final disposition of the proceedings. The liquidator of the fifth defendant, Excelsior Parade Properties Pty Ltd (in liquidation), seeks a variation of that order to allow him to deal with funds held in an account in the company's name with Newcastle Permanent Building Society Ltd ("NPBS") in accordance with the trust or trusts on which the funds are held. 2 The material facts are set out in the judgment of Bryson J. In summary, Gedrot Pty Ltd as trustee of the Geoffrey Kyrwood Family Trust and Gavros Pty Ltd as trustee of the Terrence Kyrwood Family Trust held equally all the units in the Kyrwood Unit Trust of which Geoffrey Kyrwood and Terrence Kyrwood were the trustees. In previous proceedings, the court ordered Gedrot and Gavros to purchase the shares held by Peter Westgarth Drinkwater and John Francis Drinkwater in Caddyrack Inc. Those shares were not purchased and Caddyrack was liquidated and deregistered. Gedrot and Gavros were replaced as trustees of the Family Trusts by Bolton Point Investments Pty Ltd and Brighton Avenue Investments Pty Ltd respectively and they took transfers of the units in the Unit Trust. The parents of Geoffrey Kyrwood and Terrence Kyrwood transferred land at Excelsior Parade, Toronto, to them. They had already declared that the land would be held in trust for the Unit Trust and the two Family Trusts. The fifth defendant was purportedly appointed as the trustee of the Unit Trust. Geoffrey Kyrwood and Terrence Kyrwood transferred the land to the fifth defendant alone as trustee of the Unit Trust. The land was mortgaged and ultimately sold and $131,784.52, portion of the purchase price, was deposited to an account in the name of the fifth defendant with NPBS. The fifth defendant was subsequently wound up. 3 The purpose of the application is to enable the liquidator to recoup his costs and expenses from the account with NPBS. I was informed by counsel that the fifth defendant held no other property than the land and its proceeds of sale. 4 In Re G B Nathan & Co Pty Ltd (in liquidation) (1991) 24 NSWLR 674, where a liquidator held investments on trust, McLelland J considered the question whether he was entitled to recoup his expenses and charges from the trust property. In Re Suco Gold Pty Ltd (in liquidation) (1983) 33 SASR 99 the Full Court of South Australia considered the position of the liquidator of a trustee of a trading trust and held that the liquidator's expenses were incurred in discharging the duties imposed by the trust and, as such, were covered by the trustee's right of indemnity against the trust assets. McLelland J pointed out, at 686, that the case before him did not, to any significant extent, involve the company in carrying on business as a trustee or incurring debts in that capacity. At 688-689 his Honour said: "Where, as appears to be the position in the present case, the company holds assets on what are virtually bare trusts for other persons, there seems to be no sufficient reason why the liquidator should not simply cause the company to comply with any demand by the beneficial owners to transfer the assets to them, thus giving effect to, and terminating, the trusts. In such a case, the work of the liquidator in causing those assets to be transferred to those entitled to them wears the double aspect of work properly carried out for the purposes of the winding up, as well as work carried out in the "administration" of the trusts."

His Honour went on to say that a liquidator's costs, attributable to work in winding up the affairs of the company which could not be paid out of non-trust property, should be the subject of an allowance out of the trust assets. 5 Mr Ashhurst, who appeared for the plaintiffs, pointed out that there was no direct authority that this principle applied to the liquidator of a constructive trustee and, if the fifth defendant was validly appointed trustee of the Unit Trust, he submitted it held the land partly on constructive trusts for the trustees of the two Family Trusts in accordance with the declaration of trust of Geoffrey Kyrwood and Terrence Kyrwood upon which they took the transfer of the land. 6 In Sjoquist v Rock Eisteddford Productions Pty Ltd (1996) 19 ACSR 339 at 343 there appears this passage: "So far as the costs and expenses of Mr Dean-Willcocks as liquidator of REP are concerned, it is in accordance with accepted principle as discussed in Re Suco Gold Pty Ltd (in liq) and Re G B Nathan & Co Pty Ltd (in liquidation) that the liquidator of a corporate trustee in circumstances of the kind exemplified in this case be entitled to be indemnified out of the trust assets held by the company in liquidation in respect of his proper costs and expenses."

That passage might be seen to support the proposition that the principle there stated was applied to the liquidator of a constructive trustee. However, what was in question was whether the liquidator of REP was entitled to be indemnified for his costs and expenses in acting in relation to the REP trust and REP was, at all material times, trustee of that trust. The liquidator, under the misapprehension that REP was trustee of another trust, caused it to purport to appoint a new trustee to that trust. It was not, however, the subject of the claim to indemnity with respect to the costs in question. 7 The question remains whether the principle ought to be applied to the liquidator of the trustee of a constructive trust. Mr Ashhurst submits that to do so would lead to the court giving its aid to a person who did not come to it with clean hands, someone illegally holding the property of another. Mr Newlinds, who appeared for the liquidator, responded that not every constructive trust arose in circumstances of illegality or impropriety. Nonetheless, the constructive trust is a remedial remedy often imposed in circumstances of illegality or impropriety and I take the view that an arguable case is made out that the principle ought not to be applied in the instant circumstances. 8 Mr Ashhurst argued that the fifth defendant had not being validly appointed as trustee of the Unit Trust. The Trustee Act 1925, s 6(1) provides that a new trustee may by registered deed be appointed in place of a trustee. Section 6(13) provides, with an exception irrelevant for present purposes, that the section applies only if and as far as a contrary intention is not expressed in the instrument creating the trust and shall have effect subject to the terms of that instrument and the provisions therein contained. Clause 16(c) of the Unit Trust Deed provided that the trustees might be removed and another trustee might be appointed by resolution of the unit holders at a meeting duly convened under which notice had been given to the trustees if such resolution was passed by a majority of unit holders present in person or by proxy and holding between them not less than fifty percent of the units then issued. By a deed of confirmation of appointment and retirement of trustee, clause 16(c) was recited as was the holding of a meeting of unit holders at which a unanimous resolution was passed removing the old trustees and appointing the fifth defendant as new trustee in their place. The deed was executed by each of the unit holders. 9 In consequence, I accept the submission of Mr Newlinds, that upon the evidence available to me, the fifth defendant was validly appointed trustee of the Unit Trust. 10 In 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liquidation) (1999) 30 ACSR 377 Finkelstein J, having analysed the authorities, expressed the view at 385 that it was unlikely that a liquidator should be indemnified out of trust assets where the company did not act solely as a trustee or at least did not act in that capacity to a significant extent. In that event, his Honour said, the liquidator would be required to estimate those of his costs that were attributable to the administration of trust property and only those costs would be charged against the trust assets. 11 Mr Ashhurst argues that there is insufficient definition of the basis upon which the liquidator incurred his costs and whether in general administration or in administration of the trusts and in those circumstances indemnity against the trust assets should be refused. 12 In light of the division of view in the authorities on this point, I accept that Mr Ashhurst has an arguable case on this issue and in the absence of definition of the amount of costs attributable to the administration of the trusts, I am not prepared, on the evidence before me, to find that the liquidator is entitled to reimbursement from the account at NPBS. 13 There is a further reason for my refusal to grant the relief sought. As Bryson J said in his reasons for judgment at par 17: "There is a strong, indeed unqualified prima facie case that all the proceeds of sale are trust property of the Family Trusts of which Gedrot and Gavros are trustees and of the Unit Trust in which they hold units in their character as trustees of the Family trusts."

It follows that some fraction only, as yet unascertained, of the funds with NPBS is the trust property of the Unit Trust from which the fifth defendant, assuming it to have been validly appointed as trustee, had a right of indemnity. Whether that indemnity should extend to the property held by the fifth defendant as constructive trustee is a matter for future argument. 14 Since the purpose of the application for variation of the order of Bryson J is to allow the liquidator access to the NPBS account to recoup his costs, I am not persuaded that the order should be varied to allow that access for the above reasons. 15 This morning I dismissed par 1 of the fifth defendant's notice of motion. I now publish my reasons for that order.

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