Fay v Moramba Services Pty Ltd

LEGISLATION CITED : (NSW) Civil Procedure Act 2005, s 14 (NSW) Uniform Civil Procedure Rules, rule 7.11

3365/07 Garrick E Fay (first plaintiff/first cross defendant) Dallas Fay (second plaintiff) Lisa Fay (second cross defendant) Moramba Services Pty Ltd (defendant/cross claimant) 5032/06 PARTIES : Garrick E Fay (first plaintiff/first cross defendant) Dallas Fay (second plaintiff/second cross defendant) Justinthyme Pty Ltd (third plaintiff/third cross defendant) Henry Kai Tong Au (first defendant/first cross claimant) Hugh Edward Halliday (second defendant/second cross claimant) Allan Ni Kwan Kwok (third defendant/third cross claimant) Stephen Thomas Pollitt (fourth defendant/ fourth cross claimant)

COUNSEL : Mr D E Grieve QC w Ms J F Merkel (plaintiffs) Mr P W Flynn (defendants)

SOLICITORS : Whittens Lawyers & Consultants (plaintiffs) Corrs Chambers Westgarth (defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EXPEDITION LIST

3365/07 Garrick E Fay & Anor v Moramba Services Pty Ltd 5032/06 Garrick E Fay & 2 Ors v Henry Kai Tong Au & 3 Ors JUDGMENT (ex tempore) 1 HIS HONOUR: By their further amended Statement of Claim filed on 7 April 2008, the plaintiffs in proceedings 5032/06 Garrick E Fay, Dallas Fay and Justinthyme Pty Limited claim, first, a declaration that the defendants Henry Kai Tong Au, Hugh Edward Halliday, Allan Ni Kwan Lkwok and Stephen Thomas Pollitt, are in breach of their duty to give real and genuine consideration to winding up the trusts of the Will of the late Claude Augustus Fay and a number of inter vivos trusts established by Mr Fay of which a company Leerac Pty Ltd is now the trustee, and the distribution of the capital of the testamentary trusts and the inter vivos trusts, and have neglected to ascertain that notwithstanding a lifetime interest of one Zona Catherine Tripp those trusts can be wound up forthwith; secondly, an order requiring the defendants - who, as well as being trustees of the testamentary trusts, are directors of Leerac - to give real and genuine consideration to winding up the testamentary trusts and the inter vivos trusts; thirdly, a declaration that, in their capacities as trustees of testamentary trusts and as directors of Leerac as the trustee of the inter vivos trusts, the defendants have acted in breach of their general law duties as trustees; and fourthly, an order that the defendants be removed as trustees of the estate and new trustees appointed in their place. 2 The proceedings are set down for hearing to commence on 19 May 2008. Leerac is not a party to the proceedings. Uniform Civil Procedure Rules ("UCPR"), rule 7.11, relevantly provides that in proceedings relating to a trust all trustees must be parties. At a directions hearing on 2 April, the defendants raised an issue, which they had previously agitated in correspondence, as to the constitution of the proceedings, suggesting that the proceedings were insufficiently constituted by reason of Leerac not being a party. The plaintiffs responded that they would at the hearing seek an order dispensing with any requirement that Leerac be a party - if, indeed, it were a necessary party. As I thought that such an application at the hearing, and its potential outcome, may result in a great deal of time being wasted, I granted leave to the plaintiffs to file a motion seeking such relief as they may be advised in relation to the constitution of the proceedings, to be returnable today. The direction was framed in these terms to admit that as well as seeking the dispensing order, the plaintiffs, if so advised, might, in the alternative, seek to join Leerac. However, the only application which the plaintiffs make, by their Motion filed on 4 April 2008, is an order pursuant to (NSW) Civil Procedure Act 2005, s 14, dispensing with the requirement of UCPR, rule 7.11, that Leerac be a necessary party to the proceedings. 3 The plaintiffs in their submissions say that they move for that order with some diffidence, on the basis that - at least in circumstances where they have foreshadowed that the second order claimed in the amended Statement of Claim will not be pressed - it is doubtful that the proceedings could be said to be "proceedings relating to any trust" within rule 7.11. 4 It is unnecessary for me to determine on this application whether these are proceedings relating to a trust such as to attract the rule. If I were to conclude that they were not, then there would be, in any event, no reason to make the order sought. For the purposes of the application, however, I must assume that rule 7.11 is attracted. And it seems to me that there is at least some force in the argument of the defendants that the relief claimed in order 1(b) - which alleges breaches by the defendants, in their capacity as directors of Leerac, of their duties in connection with the inter vivos trusts - and order 3 - which is a declaration of breaches of duty by the defendants as directors of Leerac as trustee of the inter vivos trusts - shows a sufficient connection between the proceedings and the inter vivos trusts that the proceedings could be said to be "proceedings relating to a trust" so as to attract the operation of rule 7.11. Assuming for present purposes that the proceedings can be so characterised, and thus attract the rule, the question is whether there is any sufficient reason to make an order dispensing with its application. 5 The defendants point out that the relief claimed in paragraph 3 necessarily impacts on Leerac, as to an extent does that claimed in paragraph 1(b). It may turn out that on the final hearing, I am persuaded that Leerac is not a necessary party. Again, I do not need to decide the issue at this stage, although it seems to me that there is some force in the observation that the Court would not likely grant that relief in the absence of Leerac being a party. 6 As I apprehend the plaintiffs' submissions, both written and oral, they boil down to the proposition that the trust deed constituting each of the inter vivos trusts contains a provision, the purport of which is that a beneficiary who brings a claim against the trustee other than for wilful default is deemed not to be and never to have been a beneficiary, to be incapable of taking any benefit, and to be liable to repay any benefit received to that point. For convenience, this provision has been referred to as clause 17, the number which it bears in the trust deeds. The plaintiffs, in paragraph 8 of their written submissions, advance a number of reasons why clause 17 does not operate in the circumstances. If those submissions are correct, then the result would be that if Leerac be joined, and were Leerac to raise a clause 17 defence, that defence would fail. There may be very good reasons to doubt the validity of clause 17: it may well be, although I am far from deciding at this stage, that it is contrary to public policy. In any event, it well may be that, as the plaintiffs contend, it does not apply in this case, even if valid, since the plaintiffs' allegations are of wilful default. However, the plaintiffs' seek dispensation from any requirement to join Leerac, essentially to ensure that there is no chance of their falling foul of clause 17, if it proves to be valid. It seems to me that, if valid, the plaintiffs ought not be permitted to evade its operation simply by obtaining a dispensation from joining Leerac in the first place, if it were otherwise a necessary party. 7 In short, I can see not the slightest reason for dispensing with the requirement that a necessary party be a party to the proceedings. I am certainly not of the view that the presence of clause 17 is such a reason. It may well be, as I have said, that the plaintiffs establish that clause 17 is invalid or is not attracted in the circumstances, but if the relief they seek is relief of which Leerac should have notice, and by which it is necessary that Leerac be bound, then I do not see how the existence of clause 17 provides the slightest basis for dispensing with any such requirement. 8 The defendants are not obliged to bring an application for summary dismissal if they prefer to contest the issue at the final hearing. It is plain that the plaintiffs wish to litigate the case on the basis that they will take their chances that Leerac is not a necessary party rather than seeking to join it. An application to join Leerac at the hearing will face formidable hurdles. 9 It seems to me that not the slightest reason has been advanced for dispensing with the application of the rules. I dismiss the motion with costs. **********

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