Fay v Moramba Services Pty Ltd [2009] NSWSC 1428 | Case summary

Fay v Moramba Services Pty Ltd [2009] NSWSC 1428 | Case summary | Zoe

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5032/06 Garrick E Fay & 2 Ors v Henry Kai Tong Au & 3 Ors 3365/07 Garrick E Fay & 1 Or v Moramba Services Pty Ltd JUDGMENT 1 HIS HONOUR: The late Claude Augustus Fay died on 10 November 1998, leaving a substantial estate in New South Wales and four adult children - the first and second plaintiffs Garrick E Fay and Dallas Fay, and their sisters Sioned Fay and Louisa Young - his wife having pre-deceased him. For convenience, I shall refer to the deceased as "Mr Fay", and without intending the slightest disrespect, to his children individually by their first names, and collectively as "the children". By his last will, made on 21 December 1994 and varied by a codicil of 31 July 1996, he appointed as executors and trustees of his will the first defendant - his manager Henry Kai Tong Au; the second defendant - his solicitor Hugh Edward Halliday; the third defendant - his accountant Allan Ni Kwan Kwok and the fourth defendant - Stephen Thomas Pollitt, a banker. Clause 3 of the will gave Mr Fay's shares in Leerac Pty Ltd - which itself, as trustee of a number of discretionary trusts created by Mr Fay during his lifetime for the benefit of his family, directly or indirectly held all the shares in Moramba Holdings Pty Limited, the holding company of Moramba Services Pty Limited in which most of the assets under Mr Fay's control resided - to his trustees upon discretionary trust until a vesting day 80 years from the date of his death (or such earlier date as the trustees may determine), to stand possessed of the shares upon trust for such one or more of his children and their descendants as are living on the vesting day (in such proportions as the trustees in their absolute discretion determine), and until the vesting date to pay the income to or for those beneficiaries (in such proportions as the trustees may in their absolute discretion determine). By deed dated 28 January 1999, Garrick assigned his interest as a beneficiary under Mr Fay's will to the Bobbie Billicart Family Company Pty Ltd as trustee of the Garrick Fay Family Trust, and on 22 May 2007, by deed of removal of trustee and appointment of new trustee, the third plaintiff Justinthyme Pty Ltd was appointed trustee of that trust.

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The test for removal of trustees 20 The plaintiffs invoke the court's inherent jurisdiction to remove trustees and appoint others in their place, in order to ensure that trusts are property executed. In Letterstedt v Broers (1884) 9 App Cas 371, Lord Blackburn, speaking for the Judicial Committee, said (at 385-387) (emphasis added): Story ( Equity Jurisprudence ) says, s. 1289, "But in cases of positive misconduct, Courts of Equity have no difficulty in interposing to remove trustees who have abused their trust; it is not indeed every mistake or neglect of duty, or inaccuracy of conduct of trustees, which will induce Courts of Equity to adopt such a course. But the acts or omissions must be such as to endanger the trust property or to show a want of honesty, or a want of proper capacity to execute the duties, or a want of reasonable fidelity ." It seems to their Lordships that the jurisdiction which a Court of Equity has no difficulty in exercising under the circumstances indicated by Story is merely ancillary to its principal duty, to see that the trusts are properly executed. This duty is constantly being performed by the substitution of new trustees in the place of original trustees for a variety of reasons in non-contentious cases. And therefore, though it should appear that the charges of misconduct were either not made out, or were greatly exaggerated, so that the trustee was justified in resisting them, and the Court might consider that in awarding costs, yet if satisfied that the continuance of the trustee would prevent the trusts being properly executed, the trustee might be removed . It must always be borne in mind that trustees exist for the benefit of those to whom the creator of the trust has given the trust estate. The reason why there is so little to be found in the books on this subject is probably that suggested by Mr. Davey in his argument. As soon as all questions of character are as far settled as the nature of the case admits, if it appears clear that the continuance of the trustee would be detrimental to the execution of the trusts , even if for no other reason than that human infirmity would prevent those beneficially interested, or those who act for them, from working in harmony with the trustee, and if there is no reason to the contrary from the intentions of the framer of the trust to give this trustee a benefit or otherwise, the trustee is always advised by his own counsel to resign, and does so. If, without any reasonable ground, he refused to do so, it seems to their Lordships that the Court might think it proper to remove him; but cases involving the necessity of deciding this, if they ever arise, do so without getting reported. … In exercising so delicarte a jurisdiction as that of removing trustees, their Lordships do not venture to lay down any general rule beyond the very broad principle above enunciated, that their main guide must be the welfare of the beneficiaries.

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22 Those cases were considered by P W Street CJ in Eq (as he then was) in Guazzini v Pateson (1918) 18 SR(NSW) 275 (at 292-4). His Honour observed (at 293): In considering the interests of the beneficiaries, I have to consider the interests of all, not those of the plaintiff only, and I have to ask myself whether the facts disclosed in the case establish that it is for the welfare of the trust estate as a whole that the trustees should be removed. 23 The principles were described by Dixon J in Miller v Cameron as follows (at 580-581) (emphasis added): The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property, and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove a trustee the court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office . Such a judgment must be largely discretionary. A trustee is not to be removed unless circumstances exist which afford sound ground upon which the jurisdiction may be exercised . 24 The first relevant consideration that emerges from the above cases is the "the welfare of the beneficiaries". Indeed, in Miller v Cameron, Latham CJ (at 575) and Starke J (at 579) considered the welfare of the beneficiaries to be "the dominant consideration" and "the only guide" respectively. However, that was said in the context of a trust in which, although the trustee had significant discretionary powers, all the beneficiaries were identified and were parties seeking his removal. In the context of discretionary trusts such as the clause 3 will trust, where no beneficiary has a vested interest but only a right to due administration, the formulation of Street CJ in Eq in Guazzini v Pateson, that in each case it is ultimately a matter of what is best "for the welfare for the trust estate as a whole", is of more assistance. The essential issue in that context is whether the due and proper administration of the trust is opposed to the trustee's remaining in office. In this respect, regard must be had not only to the interests of the plaintiffs, but to those of all the potential beneficiaries. Moreover, in the context of discretionary trusts, some consideration is to be given to the confidence reposed by the settlor - and in the case, here, of the will trusts, by the testator - in his selected trustees to exercise appropriately the discretions vested in them.

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· In breach of their duties as directors of Moramba Services, have failed and neglected to institute proceedings to have the cohabitation agreement set aside (paragraph 23A); · In breach of their duties as executors and trustees of the estate to distribute the assets in a timely manner to the persons entitled, have failed and neglected to conclude the administration of the estate expeditiously by distributing the assets to the persons entitled in a timely manner for the stated reason that they could not do so for so long as the cohabitation agreement remained in force, when they knew or ought to have known that it was void or voidable (paragraph 27); · In breach of their duties as directors of Leerac (said to be owed to the children as prospective beneficiaries of the inter vivos settlements), have failed and neglected to give effect to a determination said to have been made in about 2002 that it was in the best interests of the beneficiaries that they should exercise their powers to wind up the Fay group of companies and distribute their capital and accumulated income to the beneficiaries, permitting the subsistence of the cohabitation agreement to constitute an impediment without justification and failing and neglecting to negotiate any compromise with Mrs Tripp (paragraph 27A); and · In breach of their duty as executors and trustees of the will to act expeditiously in concluding the administration of the estate, have failed and neglected to give due consideration to the exercise of their power as trustees of the clause 3 will trust to vest that trust and transfer Mr Fay's shares in Leerac to such of the beneficiaries as they should determine (paragraph 27AA). 31 In order to evaluate whether the defendants' performance in their office against those allegations, it is necessary first to appreciate what are the rights of potential beneficiaries and the duties of trustees of discretionary trusts such as those involved in this case. It often seemed implicit in the plaintiffs' case that the children had some right or legitimate expectation to have the vesting of the inter vivos settlements accelerated, and the capital distributed equally between them. That, of course, does not reflect the law. A "discretionary trust" - such as those in question here - is a trust coupled with a special power of appointment: the beneficiaries are not determined at the moment of creation of the trust - either as to identity or quantum of interest - and the choice of beneficiary, or determination of the extent of his or her interest, or both, is left to the trustee to decide [Jacob's Law of Trusts in Australia, 5th ed, 736 [2916]]. In FCT v Vegners (1989) 90 ALR 547, Gummow J wrote (at 551-2): There was some discussion by counsel of the term "discretionary trust" and related terms. A fixed trust is used to describe a species of express trust where all the beneficiaries are ascertainable and their beneficial interest are fixed, there being no discretion in the trustee or any other person to vary the group of beneficiaries or the quantum of their interests. The expression "discretionary trust" is used to identify another species of express trust, one where the entitlement of beneficiaries to income, or to corpus, or both, is not immediately ascertainable. Rather, the beneficiaries are selected from a nominated class by the trustee or some other person and this power may be exercisable once or from time to time. The power of selection is a special or hybrid power; a power exercisable in favour of any person including the donee of the power would be a general power and thus would be tantamount to ownership of the property concerned, whilst the objects of a special power would be limited to some class, and the objects of a hybrid power would be such that the donee might appoint to anyone except designated classes or groups. 32 Thus a discretionary trust does not have beneficiaries in the traditional sense, whose interests together aggregate the beneficial ownership of the trust property. Instead, there is a class of persons, usually described in wide terms, who are the objects of a power to appoint either income or corpus or both to selected members of the class. The members of the class are objects of a power, rather than beneficiaries in the strict sense. They do not have a proprietary legal or equitable interest in the trust fund [Re Smith [1928] Ch 915; Gartside v IRC [1968] AC 553; Jacob's Law of Trusts in Australia, 5th ed, 649 [2315]]. They have no beneficial interest in the trust property, and they are not persons for whose benefit the trust property is held by the trustee; at the highest they are members of a class of persons for the benefit of some one or more of whom the trustee may in due course hold property if it so determines. At best, they are potential beneficiaries, not beneficiaries. In terms accepted recently by French CJ, no object of such a trust has any fixed or vested entitlement, and the trustee is not obliged to distribute to anyone; the default distribution gives the default beneficiary no more than a contingent remainder [Kennon v Spry (2008) 83 ALJR 145, [60], [62]]. In the words of Gummow and Hayne JJ in the same case, the word "beneficiary" is inapt insofar as it suggests the existence of any beneficial interest; such a person is "an eligible object" of the trust [Kennon v Spry, [125]].

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35 In Re Hay's Settlement Trusts [1981] 3 All ER 786, Sir Robert Megarry VC said (at 792): That brings me to the second point, namely, the extent of the fiduciary obligations of trustees who have a mere power vested in them, and how far the Court exercises control over them in relation to that power. In the case of a trust, of course, the trustee is bound to execute it, and if he does not, the Court will see its execution. A mere power is very different. Normally the trustee is not bound to exercise it, and the Court will not compel him to do so. That, however, does not mean that he can simply fold his hands and ignore it, for normally he must from time to time consider whether or not to exercise the power, and the Court may direct him to do this. So where he does exercise the power, he must, of course (as in the case of all trusts and powers) confine himself to what is authorised, and not go beyond it. But that is not the only restriction. Whereas a person who is not in the fiduciary position is free to exercise the power in any way that he wishes, unhampered by any fiduciary duties, a trustee to whom, as such, a power is given is bound by the duties of his office in exercising that power to do so in a responsible manner according to its purpose. It is not enough for him to refrain from acting capriciously; he must do more. He must 'make such a survey of the range of objects or possible beneficiaries' as will enable him to carry out his fiduciary duty. He must find out 'the permissible area of selection and then consider responsibly, in individual cases, whether a contemplated beneficiary was within the power and whether, in relation to the possible claimants, a particular grant was appropriate': per Lord Wilberforce in Re Baden (No 1) [1970] 2 All ER 228 at 240, 247, [1971] AC 424 at 449, 457. I pause there. The summary of the law that I have set out above is taken from a variety of sources, principally Re Gestetner (deceased) [1953] 1 All ER 1150, [1953] Ch 672, Re Gulbenkian's Settlement [1968] 3 All ER 785 at 787, 592-594, [1970] AC 508 at 518, 524-525 and Re Baden (No 1) [1970] 2 All ER 228 at 246, [1971] AC 424 at 456. 36 Later, his Lordship continued (at 793): If I am right in these views, the duties of a trustee which are specific to a mere power seem to be threefold. Apart from the obvious duty of obeying the trust instrument, and in particular of making no appointment that is not authorised by it, the trustee must, first, consider periodically whether or not he should exercise the power; second, consider the range of objects; and third, consider the appropriateness of individual appointments. In Re Gestetner's Settlement [1953] Ch 672, Harman J said (at 688), of a discretionary power of distribution, that the trustees were bound "to consider at all times during which the trust is to continue whether or no to distribute any and if so what part of the fund, and, if so, to whom they should distribute it. 37 In a passage much relied upon by the plaintiffs, McGarvie J in Karger v Paul [1984] VR 161, described the obligation in the following terms (at 164): I regard it as an inherent requirement of the exercise of any discretion that it be given real and genuine consideration. To borrow a phrase from passage quoted in Partridge v The Equity Trustees Executors and Agency Co Ltd (1947) 75 CLR 149, at p 164, there must be the 'exercise of an active discretion'. It has been held that when the occasion for the exercise of a discretionary power has arisen, trustees, while not bound to exercise the discretion, are bound to consider whether it ought in their judgment to be exercised: Klug v Klug [1918] 2 Ch 67; In re Gulbenkian's Settlement [1970] AC 508 at p 518. I think that it goes without saying that they must give real and genuine consideration. It seems to me that it is in this sense only that the Court can examine whether the trustees gave 'proper' consideration to the exercise of the discretion. 38 However, if trustees give real and genuine consideration to the exercise of such discretions, their decisions can be impugned only on very limited grounds. As the High Court said in Attorney General (Cth) v Breckler (1999) 197 CLR 83 (at [7]), approving a statement of Northrop J at first instance and subsequently adopted by Heerey J in Wilkinson v Clerical Administrative and Related Employees Superannuation Pty Ltd (1998) 79 FCR 469 (at 480): Where a trustee exercises a discretion, it may be impugned on a number of different bases such as that it was exercised in bad faith, arbitrarily, capriciously [ In re Pauling's Settlement Trust [1964] Ch 303 at 333], wantonly, irresponsibly [ Lutheran Church of Australia South Australia District Inc v Farmers Co-operative Executives and Trustees Limited (1970) 121 CLR 628 at 639], mischievously or irrelevantly to any sensible expectation of the settlor [ In re Manisty's Settlement [1974] Ch 17], or without giving a real or genuine consideration to the exercise of the discretion [ Karger v Paul [1984] VR 161, which incudes a survey of the authorities]. The exercise of a discretion by trustees cannot of course be impugned upon the basis that their decision was unfair or unreasonable [see Dundee General Hospital's Board of Management v Walker [1952] 1 All ER 896] or unwise [ Gisborne v Gisborne (1877) 2 App Cas 300 at 307].

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39 Indeed, where a discretion is expressed to be absolute (or uncontrolled), as is the case in the clause 3 will trust, not only can its exercise not be impugned on the ground that the trustee's decision was unfair, unreasonable or unwise; additionally, bad faith may have to be shown [Attorney General (Cth) v Breckler, [7]]. Of particular relevance in this case, a refusal by trustees for no corrupt motive to exercise a purely discretionary power is no reason for removing them. In Lee v Young, under a marriage settlement the trustees had power, with the consent of the husband and wife or their survivor, to vary the securities by selling the settled stock and investing it in land, including leaseholds. The husband died, and the wife remarried; she and her second husband, desirous of increasing her income under the settlement, asked the trustees to exercise their discretion to invest part of the trust fund in purchasing certain leaseholds; although one of the trustees was content to do so, the other refused. The wife and her second husband brought proceedings for removal and replacement of the trustees. Knight-Bruce VC dismissed their application. Having pointed out that while such investment might increase the income of the plaintiffs during the second husband's life, it would diminish the available capital upon his death, his Lordship continued: One of these trustees, whether he has given a perfectly good reason or not - whether he has given every reason that he might or not - has thought fit to object to the proposed investment. I cannot say that he has not a right to object, or that there do not exist reasons which may justify him in objecting; and when I see that the language of the power has nothing in it imperative, that it does not contain any expression to the effect that the trustees are "required" to exercise it, and that there are other powers in this settlement which leave less to the discretion of the trustees than this clause, I am of opinion that this is a discretionary power; that the discretion has not been corruptly exercised; and that it has been exercised, whether for perfectly good reasons or not, whether for reasons that wholly appear or not, in a manner which the Court cannot say is improper, or upon unreasonable grounds. I therefore cannot interfere.

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42 Prior to his death, on 3 March 1998, Mr Fay wrote a letter to the defendants, relevantly as follows: Gentlemen, I am writing this letter to confirm my wishes in respect of all matters relating to the Group's accounts, finances and Company structures. I confirm my instructions that these are not to be disclosed or discussed with members of the family upon my demise. I am confident that the decisions you make will be in their best interests. 43 Then, on 3 April 1998, Mr Fay wrote a letter to his children, relevantly as follows: I believe that my current state of health has concerned you and also as to what arrangements I have put in place for the future of the Claude Fay Group and its day to day running. Henry and I have attended to the running of the business over many hears and have gradually streamlined the operation since the sale of the cellars and the liquor wholesale department in July, 1981 and the Hotel Hornsby in May, 1985. The Group has made good use of its financial resources from the sales. A balanced investment portfolio that includes properties, shares in public companies, mortgages, etc. has been created. I maintain a board of directors to constantly oversee the operation. The board members are Allan Kwok, Henry Au, Hugh Halliday and Steve Pollitt. They are also trustees of family trusts and of my estate. A formal board meeting is held monthly. The auditors of the companies are Messrs. Powell Kwok Baker & Co. Henry has worked very well with me for over 25 years. We have developed a common business approach which we shared with Bill Smith. Over the years I have indicated to Henry my intentions that he will remain in his position and continue his responsibilities upon my retirement and my demise. I have no doubt of his loyalty. I am aware of his commitment that he continue to contribute in the best interests of myself and my family until his retirement at 65 or later if he agrees. Henry is a major part of the strong management team I have selected all of whom have approved of these words. I appreciate your concern over my business affairs which is understandable. I assure you that the business will be well cared for as a going concern on my demise which I have taken into account. Whatever I have done I have always had your best interest at heart. 44 Mr Fay had expressed to Mr Pollitt the wish that after his death, Moramba Services be run separately from his estate, and that he did not want the children involved in the business of the companies. He had also expressed to Mr Halliday a wish that the companies continue in operation, at the defendants' discretion, for five to ten years after finalisation of the estate, to enable the defendants to see how the children handled the moneys received from the estate, and that he did not want the discretionary trust immediately wound up, but continued with a view to orderly distribution to such of the beneficiaries as were seen fit at the appropriate time. 45 Following Mr Fay's death on 11 November 1998, there were meetings between the children and the executors, initially on 19 December 1998. Thereafter, the children and the executors met quite regularly, until 7 November 2005.

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46 Probate of the will was granted to the defendants on 19 March 1999. Until June 1999, the defendant, consistent with the position that obtained before Mr Fay's death, caused payments under the cohabitation agreement to be made by Moramba Services but debited to Mr Fay's loan account. From 1 July 1999, they caused such payments to be made by the estate on the basis that they were personal obligations of Mr Fay and not corporate obligations of Moramba Services. 47 By March or April of 2000, the children were making inquiries, progressing to complaints, about the time being taken to finalise the estate and the trusts. By early 2000, the defendants were considering options for finalising the obligations of Moramba Services and the estate to Mrs Tripp under the cohabitation agreement. In April 2000, the defendants sought and obtained advice from Mr Walton SC in respect of the cohabitation agreement, who initially advised that it was binding. 48 At a meeting on 30 May 2000, the defendants communicated to the children that the trusts gave the defendants discretion to distribute money as and when they thought fit; that there was no fixed date for the winding up of the trusts; that they were mindful of the needs of the beneficiaries, but any winding up was subject to the resolution of the obligations to Mrs Tripp, subject to which they would expect the trusts to be wound up within the next seven years. On 22 June 2000, the defendants' then solicitors informed the children that it should be possible to wind up the estate shortly after the sale of Mr Fay's former home in Spit Road, and that - subject to resolving issues pertaining to the cohabitation agreement - it was expected that the trusts may be wound up sooner than Mr Fay had expected of the defendants. 49 At a meeting on 30 November 2000, Garrick asked when the trust would be wound up; he was advised that the estate would be finalised first, and then it was at the defendants' discretion as to when the trust (presumably a reference to the clause 3 will trust) would be wound up. 50 The defendants sought taxation advice from Mr Rodney Rosenblum, an eminent taxation lawyer. He raised some further queries about the enforceability of the cohabitation agreement. Ultimately, after some advice had been obtained in conference from Mr Grieve QC, on 21 March 2001, Mr Walton SC gave a supplementary advice, that it was reasonably arguable that Mr Fay was liable to reimburse Moramba Services for payments under the cohabitation agreement, and that the cohabitation agreement may not be enforceable against Moramba Services. 51 At a meeting on 31 May 2001, the children assented to the view that provided that the estate no longer made the payments to Mrs tripp, they were content for Moramba Services to do so. The children also expressed the view that irrespective of the legal issues, there was a moral obligation to honour their father's wishes to make provision for Mrs Tripp; and that they preferred that Mr Fay's relationship with Mrs Tripp not be aired in court. They also acknowledged the possibility that if the cohabitation agreement were challenged, Mrs Tripp might make a Family Provision application. 52 In about August 2001, at a meeting with the children's then solicitor, the defendants agreed to obtain advice from counsel regarding the legal and taxation consequences of the cohabitation agreement. On 4 December 2001, Mr Edmonds SC advised the defendants that payments by Moramba Services to Mrs Tripp would not be deemed dividends in her hands, but might be regarded as income in which case Moramba Services would have to "gross up" the payments; he suggested that Moramba Services seek to commute the liability with a lump sum payment. 53 Following a meeting between the children and the defendants and their respective solicitors Mr Ford and Mr Jones on 29 January 2002, on 30 January Mr Ford wrote to Mr Jones requesting a substantial interim distribution in the near future, a final distribution as soon as possible, cessation of reimbursement by the estate of payments by Moramba Services under the cohabitation agreement, and the refund of all moneys so reimbursed since Mr Fay's death. This led to the reimbursement to the estate of $177,716, and the execution of the deeds of indemnity to which reference shall later be made. 54 On 2 July 2002, the defendants' solicitors informed the children's solicitors that the defendants were "working towards the winding up of the trusts", but emphasised that any distribution was entirely within the discretion of the defendants. On 15 August, the defendants in their capacity as directors of Moramba Services received advice from their own solicitors as to possible courses of action for resolving the obligations to Mrs Tripp - commuting the payments to a lump sum, or purchasing an annuity to cover them; transferring the unit to the children subject to a life estate for Mrs Tripp; and transferring the car to her, together with a lump sum for associated expenses. On 8 October 2002, Mr Rosenblum obtained ATO Tax Rulings relating to the winding up of the Moramba Group and the inter vivos settlements. 55 On 12 December 2002, the 16 Hunter Street property owned by Moramba Services was sold at auction for $5.36 million; the sale was completed in March 2003. By 31 January 2003, Garrick Fay was negotiating for the purchase of a property at Moss Vale. On 21 March 2003, Lisa Fay entered into a contract to purchase the Moss Vale property with a due completion date of 30 June 2003. By 23 April, Garrick Fay had informed Mr Pollitt that he had committed to the purchase of the Moss Vale property on the basis that he was hoping to receive money from the winding up of Moramba Services, and that he understood that he would have to meet interest payments on the loan from his distributions. On 23 April, he wrote to the directors of Moramba Holdings, requesting to borrow $1.1 million to enable his wife to settle the purchase no later than 30 June 2003, comprising $981,186.50 to complete the purchase, and $118,013.50 to develop the property. His letter proposed a term of 12 months, with provision for early discharge in the event of a distribution from proceeds of any distribution from or winding up of Moramba Services and the estate. The letter stated that the contract was originally entered into on the basis of an expectation of a distribution from the sale of the Hornsby property. On 2 July 2003, Moramba Services lent Garrick and Lisa Fay $800,000, secured by mortgage on the Moss Vale property and repayable on 1 July 2004 with two instalments of interest of $25,200 each at 6.3 percent per annum.

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62 On 8 June 2004, the defendants sought advice from Mr Rosenblum as to the taxation consequences of distributions payable on the winding up of the Moramba companies and the trusts; he provided advice on 21 June. On 23 June, the children wrote to the defendants with comments on four proposals relating to Mrs Tripp that had been discussed at their meeting with the defendants on 16 June. On 31 August 2004, Bartier Perry wrote to Hunt & Hunt (for Mrs Tripp), outlining their latest proposal for a new arrangement. Hunt & Hunt responded on 29 October, seeking an indication of the benefit to the children from securing agreement with Mrs Tripp in order to enable them to assess "a proper level of fairness", and foreshadowing that their client would give the release sought to enable Moramba Services to be wound up in return for a "significantly improved offer". 63 On 18 February 2005, the defendants sought further advice from Mr Rosenblum in respect of the winding-up of the Moramba Group. In May 2005, Mr Rosenblum advised that if Moramba Services were wound up during Mrs Tripp's lifetime, she would face a significant capital gains tax liability and would likely require an indemnity from Moramba Services. At a meeting of the defendants as directors of Moramba services on 31 May 2005, Mr Halliday reported that he had spoken to Mr Rosenblum, whose advice was that to distribute the proceeds of the realisation of the assets of the Moramba Group in the most tax effective manner, it was necessary to wind up the group so that there could be a return of capital, ultimately to Leerac; but that such a winding up may cause Mrs Tripp to incur a significant capital gains tax liability for which she would likely require an indemnity from Moramba Services. On 21 June 2005, at a meeting with the defendants and the children, Mr Rosenblum confirmed that advice. As a result, the defendants decided that it was not in the best interests of the beneficiaries of the inter vivos settlements to conclude an alternative arrangement with Mrs Tripp and wind up the Moramba companies. On 28 June, Bartier Perry wrote to Hunt & Hunt stating that the defendants had decided that it was not appropriate to proceed any further with changes to the existing arrangements. 64 By letter from his then solicitor Phillip Penman dated 29 July 2005, to the solicitors for the defendants, Garrick requested that advances be made to the four children, while retaining sufficient liquidity and assets to maintain the obligations to Mrs Tripp. A number of alternative courses were proposed. The letter asserted that Garrick had acted on the basis of assurances that the voluntary liquidation of the Moramba companies was imminent in the foreseeable future. On 26 October, the defendants' solicitors responded, noting that the directors had asked them to point out "that at no time did they give any assurances as to the time of a voluntary liquidation, as it was always subject to satisfactory solutions being put in place relating to the winding up of the companies". On 7 November 2005, at a meeting of the defendants and the children with Mr Rosenblum, options in relation to the liquidation of the group and the arrangements with Mrs Tripp were discussed; none of the alternatives suggested by Mr Rosenblum was considered acceptable by the children. Subsequently, the defendants decided to invest the capital of Moramba services with external investment advisers with a view to distributing income by way of franked dividends until Moramba Services could be wound up following the death of Mrs Tripp.

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· The estate could and should have been administered and wholly distributed years ago. Although in theory the trust could subsist for many years, Mr Fay intended or desired that it (and the inter vivos settlements) should be brought to an end "within five to ten years after the estate is finalised", and the plaintiffs are now of comparatively advanced years, in poor health, and in circumstances of financial need; · By 2002, the defendants as directors of Leerac had determined to realise the assets of the Fay group of companies and vest the inter vivos settlements, by distributing the proceeds to the siblings equally; but since then, for no good or sufficient reason, they have failed to give proper consideration to the exercise of Leerac's power to accelerate the vesting (in whole or in part) of the assets of the inter vivos settlements, and/or as trustees of the clause 3 will trust to give proper consideration to the exercise of their power to accelerate the vesting of that trust and the transfer of the Leerac shares to the children; · At least until relatively recently, this appears to have been attributable primarily to the view that the cohabitation agreement was an insuperable obstacle, when it ought not have been. The defendants failed to perceive that the desired result could be obtained by having Moramba Services repay its indebtedness to Moramba Holdings, Moramba Holdings and Windsmead then wound up and their assets or their proceeds (including Moramba Holding's shares in Moramba Services) returned to Leerac and (except for the shares in Moramba Services) distributed to the children equally, with the shareholding in Moramba Services retained on the footing that that company would continue to hold the Connaught apartment and the balance of shareholders' funds as a fund sufficient to meet its obligations under the cohabitation agreement. Since that possibility was presented in the course of the hearing, the defendants have advanced no cogent reason against its adoption, but have not committed to its implementation; · Unless removed, the defendants will continue to do nothing before Mrs Tripp's demise to give effect to their 2002 decision to wind up the inter vivos settlements; · All this shows them to be guilty of a substantial and continuing failure to cause Leerac to act in the interests of the potential beneficiaries of the inter vivos settlements.

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70 The plaintiffs' initial proposition was encapsulated in the oft-repeated assertion that the estate (which, in this context, must be intended to include at least the clause 3 will trust) "could and should have been administered and wholly distributed years ago". It is beside the point whether it could have been so administered, unless it should have been so administered. While there is evidence that Mr Fay contemplated that the testamentary trust and the inter vivos settlements might be brought to an end within five to ten years after finalisation of his estate, the legal structure he created provided for those trusts to last until the specified vesting dates, unless accelerated. In any event, Mr Fay's expressed wish was not so much that the trusts be wound up within five to ten years, but that they be continued at least for that period, in order to inform a wise exercise of discretion by the defendants after that time, not necessarily one to vest the trusts there and then, nor necessarily to do so equally. While the defendants would be entitled to have regard to wishes expressed by Mr Fay as settlor, they were and are not obliged to act in accordance with them. They are under no obligation to bring the trusts to an end "within five to ten years after the estate is finalised", and, at least so long as from time to time they give consideration to the exercise of their discretion to accelerate the vesting date, are entitled to continue the trusts until they vest in accordance with their terms. The plaintiffs may be of comparatively advanced years and in circumstances of need, but they are not the only persons to be considered: they are but two of the class of eligible beneficiaries, and the defendants were and are not bound to have regard to the circumstances of the children - let alone Garrick and Dallas alone - to the exclusion of other potential beneficiaries. Their circumstances do not entitle them to have the defendants' discretion exercised in their favour. The proposition that there was some obligation on the defendants to accelerate the vesting of the clause 3 will trust - which was prima facie to endure for 80 years - or the inter vivos settlements, is simply wrong. 71 The defendants were, however, bound to give real and genuine consideration to accelerating the vesting date of the Leerac shares under clause 3 will trust. The allegation that they have not done so was formulated by a late amendment, in response to which each of the defendants gave evidence that he had given consideration to accelerating the vesting of the clause 3 will trust, and had decided not to do so pending the winding up of the Moramba Group and the inter vivos settlements - essentially because it was considered not in the best interests of the beneficiaries to transfer control of the trustee to the children at least until the inter vivos settlements and related companies were wound up, and it had been the wish of Mr Fay that the defendants (and not the children) continue to manage the affairs of the Moramba companies after his death; to vest the Leerac shares while the Moramba companies and inter vivos settlements remained in operation would be contrary to those wishes. That evidence was not the subject of challenge; instead, the plaintiffs submitted that the defendants had failed to determine, pursuant to clause 3(ii) of the will, to whom and in what proportion the Leerac shares should in due course be transferred on the vesting day, whenever it might arrive. But there is no obligation to make any such decision until the vesting day. Moreover, any such decision should be informed by the circumstances as they exist at or close to the time of vesting, and not long beforehand. Conceivably, one or more of the children might no longer be alive, or might be in the midst of matrimonial litigation, upon the vesting day when it is appointed. It would be imprudent to decide, until the vesting day is imminent, in which beneficiaries and in what proportions the Leerac shares should be vested. The allegation that the defendants have not given real and genuine consideration to accelerating the vesting of the clause 3 will trust fails: they have given consideration to it, but have decided not to do while the Moramba group and the inter vivos trusts continue in operation. 72 From that, the plaintiffs' ground moved to the proposition that the defendants (qua directors of Leerac) were bound to but did not give real and genuine consideration to accelerating the vesting date of the inter vivos settlements. However, it is manifest that the defendants (qua directors of Leerac) plainly did give consideration to accelerating the vesting of the inter vivos settlements. The correspondence, the advice sought and obtained, and the meetings which took place manifestly show that Leerac's directors gave the question anxious and earnest consideration and took legal and taxation advice in respect of it. Not only did they themselves give consideration to the matter: in addition, they sought and obtained expert legal and taxation advice as to the implications of doing so, they consulted with the children and the children's advisers, and they opened negotiations with Mrs Tripp to endeavour to facilitate that course. The defendants favoured acceleration of distribution of capital, if it could achieve a tax-effective distribution, but they were alert to the need to resolve the impediment apparently posed by Moramba Services' ongoing obligations under the cohabitation agreement. From 2000 onwards, Leerac gave careful consideration, with the benefit of legal and taxation advice, as to how it could make provision for the obligations owed to Ms Tripp. This included consideration of various plans that might be implemented during her lifetime, none of which ultimately were considered appropriate by the defendants. The case that Leerac did not give real and genuine consideration to the winding up of the inter vivos settlements cannot be sustained. 73 In reality, the plaintiffs' complaint is that having given consideration to the exercise of the relevant discretion, they have chosen not at this stage to exercise it, for insufficient reasons. As Lee v Young illustrates, even if their reasons were insufficient, that would not justify their removal. However, their reasons included: · First, the defendants as directors of Leerac considered it to be in the best interests of the beneficiaries and in accordance with the wishes of Mr Fay to manage the inter vivos settlements consistently with the manner in which they had been administered during his lifetime, and therefore not move immediately to wind them up but await completion of the administration of the estate; · Secondly, the defendants as directors of Moramba Services had received taxation advice from Mr Rosenblum that any method of distributing its assets to beneficiaries other than by a return of capital to shareholders on a winding up risked incurring a substantial additional taxation liability, and that to vest the assets in a tax effective manner required progressively the winding up of Moramba Services, Moramba Holdings and Windsmead, and the return of capital to shareholders. · Thirdly, Moramba Services owed obligations to Mrs Tripp under the cohabitation agreement, which continued for her lifetime. The defendants as directors of Leerac and Moramba Services were advised that by reason of those obligations, Moramba Services could not be wound up without making alternative arrangements acceptable to Mrs Tripp, and that so long as she wished to continue to occupy the Connaught unit as a tenant of Moramba Services there was no realistic scheme which would allow Moramba Services to be wound up. Moreover, Mrs Tripp had made unacceptable demands in negotiations for alternative arrangements - a view which the children shared - so it was not possible to conclude alternative arrangements with her. Further, the defendants as directors of Moramba Services had received taxation advice from Mr Rosenblum that paying out Mrs Tripp's rights was likely to result in her incurring a capital gains tax liability, for which she would seek indemnity from Moramba Services.

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89 In any event, to the extent that the defendants had formed an intention to accelerate the vesting date and distribute capital, it was conditional upon resolving the issues posed by the cohabitation agreement. Initially, the plaintiffs complained that the defendants should have instituted proceedings to have the cohabitation agreement set aside. It is manifest that the defendants gave close consideration to and sought advice in respect of the enforceability of the cohabitation agreement. Relevant considerations included that to take such proceedings would potentially negate the testator's wishes to provide for Mrs Tripp, and that the children were until 2005 united in the view that proceedings should not be taken to impugn the cohabitation agreement. The contention that the defendants should have impugned the cohabitation agreement was a feature of the case as late as opening addresses, but it is no longer pressed. It could not have succeeded, in the light of the uncertain advice as to whether the cohabitation agreement could be impugned, and the expressed wishes of the children that it not be challenged in the courts. 90 Next, it was contended that the defendants should have negotiated a settlement with Mrs Tripp, and in order to achieve one should have been prepared to make more generous offers than in fact were made. Thus the alleged failure to impugn the cohabitation agreement, which was initially at the heart of the plaintiffs' complaint, shifted to a complaint that the defendants ought to have negotiated a compromise with her, if necessary on terms more generous than they had been prepared to at the time. Between 2003 and 2005, considerable efforts were made to achieve some compromise with Ms Tripp. That did not eventuate, largely because the children thought that Ms Tripp was asking too much, and preferred to leave the cohabitation agreement on foot as it was. Even without having regard to those views of the children, that was a position which the defendants were entitled to adopt; but the beneficiaries were consulted, and all four children preferred at that stage not to accede to Ms Tripp's demands. The plaintiffs, who now complain that the defendants should have been more predisposed to accept Mrs Trip's demands - which were at the time regarded by all as excessive - then agreed that that course should be abandoned. This complaint is without substance.

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93 Now that this possibility has been identified, the defendants have indicated that they are willing to consider it, without committing to adopting it. It is unnecessary that they advance any reason against its adoption, because they have no obligation to accelerate the vesting date. Underlying the plaintiffs' main case was a fundamental misapprehension that there was some entitlement in the plaintiffs and obligation on the defendants to have the vesting date of the clause 3 will trust and the inter vivos trust accelerated, and the assets of each distributed equally among the four children. There was no such entitlement nor obligation. The plaintiffs' case proceeds on the misconceived basis that there is some, at least prima facie, disposition in favour of an accelerated distribution. If anything, however, the prima facie position is that the trusts will subsist until they vest in accordance with their terms. At the highest, the defendants as trustees of the will trust, and Leerac as trustee of the inter vivos trust, were required to give due consideration from time to time as to whether they should exercise their respective discretion to accelerate the vesting date in respect of the whole or part of the assets of the will trust or the inter vivos settlements. For the foregoing reasons, I do not accept that they have not done so, nor that if not removed they will do nothing before Ms Tripp's demise to effect any distribution of capital or to wind up the inter vivos settlements. I am entirely unpersuaded that the defendants will not from time to time in the future give due consideration to the exercise of the discretion to accelerate the vesting date, whether of the inter vivos settlements or of the testamentary trust, and whether in whole or in part. Accordingly, the plaintiffs' principal complaint - that the unfitness or inappropriateness of the defendants remaining as trustees of the will trust is demonstrated by their failure to give proper consideration to the vesting of the inter vivos settlements and/or the clause 3 will trust - fails. Failure to Appreciate Terms of Trusts 94 The first of the ancillary complaints - that the defendants failed to appreciate the terms of the inter vivos settlements - which is not at least distinctly pleaded, but was raised in the plaintiffs' submissions - seizes on Mr Halliday response, in cross-examination, to a suggestion that the directors of Moramba Services could resolve to declare a dividend ultimately to Leerac as ultimate parent which could then be distributed by that company to Mr Garrick Fay: I am not sure we could just make a distribution to him alone if we passed a dividend up. I don't think we could separately just pay it to him. I think it would have effected all the other trusts as well, because a dividend goes up. 95 Reference is also made to a further statement by Mr Halliday to the effect that he did not believe that Mr Garrick Fay was a discretionary beneficiary under every one of the trusts, and to a statement by Mr Kwok to the effect that his understanding was that the structure was such that Leerac was obliged to distribute capital and income, if at all, equally to the siblings.

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104 In his 3 March 1998 letter to the defendants, Mr Fay expressed the wish that matters relating to the group's accounts, finances and company structures not be disclosed to or discussed with members of the family upon his demise, and his confidence that their decisions would be in the best interests of family members. I do not accept that the evidence reveals that the defendants considered themselves "bound" by Mr Fay's wishes in this respect: Mr Halliday said that he was "mindful" of Mr Fay's request not to disclose financial affairs to members of the family; and Mr Kwok's acknowledgement that he felt it his obligation to observe Mr Fay's wish that his children not be provided with financial information concerning the assets of the discretionary trusts, in context, was not in my view an acceptance that he was bound by such wish. Mr Halliday certainly considered that Mr Fay's request not to disclose such information was a significant factor to be taken in account; and the general consensus of the defendants was to that effect. But the defendants were entitled, though not bound, to have regard to wishes expressed by the settlor dehors the trust instrument, at least so long as those wishes are not inconsistent with the trusts created by the instrument. In that context, I do not accept that their conduct in this respect bespeaks an inappropriately adversarial attitude to the beneficiaries. The Deeds of Indemnity 105 On 30 January 2002, following a meeting with the defendants the previous day, Mr David Ford, the solicitor then acting for the children wrote to the solicitors for the defendants, confirming requests made at that meeting on behalf of the children that the estate cease to reimburse Moramba Services for the payments it was making to Ms Tripp under the cohabitation agreement, and to obtain from Moramba Services a refund of all money so reimbursed to it by the estate since Mr Fay's death in relation to Ms Tripp. In essence, this was a request that, retrospectively as well as prospectively, payments to Ms Tripp under the cohabitation agreement not be treated as charges against Mr Fay and his estate and debited as such to his loan account, so that the burden of such payments be borne by Moramba Services and not by the estate. The practical consequence of that course, upon implementation, would be to shift the burden of the obligations to Ms Tripp from Mr Fay's estate to Moramba Services (and thus ultimately the trusts). In turn, this would operate for the benefit of the children by increasing the immediately distributable estate, at the expense of trusts.

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110 This was an instance in which the children were asking the defendants to depart from a settled (and prima facie appropriate) accounting practice, fundamentally for the financial benefit of the children, and potentially involving some risk to the defendants. In that context, it was not inappropriate for the defendants to perceive that there was some need to take steps for the protection of their own position. In the light of the nature of the transaction involved, the circumstance that the children were independently advised, and the advice that the defendants had received that they had no legal responsibility to advise the beneficiaries in that respect even if they might feel some moral obligation to do so arising from their personal as distinct from legal relationships, I do think this matter tells against the defendants' fitness. Impartiality and the Moss Vale Mortgage 111 The complaint that the defendants are unable to discharge their duties with impartiality following the termination of the Moss Vale mortgage is articulated in the plaintiffs' written submissions, although it is not separately pleaded. In essence, the complaint is that by their failure to wind up the estate and the discretionary trusts in a timely manner the defendants have engendered a measure of significant ill will between the siblings; that a particular cause of this is their decision to have Moramba Services make substantial loans to Garrick and his then wife Lisa on terms that they could not meet, absent a substantial capital distribution from the trusts; and that rather than implementing steps that would enable repayment of the loan, the defendants have commenced proceedings for possession of the Moss Vale property. Although Garrick and Lisa originally sought relief restraining Moramba Services from exercising its power of sale, that claim is no longer pressed, and the order for possession sought by the defendants was not opposed. Nonetheless, Garrick seeks to maintain the allegation that the defendants' decisions to have Moramba Services make the loans, and then - instead of taking steps to bring about a capital distribution to Garrick - to bring a cross claim for possession of the Moss Vale property, manifest a lack of impartiality towards him, and that it could not now be expected that Garrick would be treated impartially.

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125 I am unpersuaded that the defendants harbour such animosity towards the plaintiffs as to render them incapable of properly considering the claims of each. It would be unsurprising if, in proceedings of the magnitude of these, given the nature and gravity of the allegations that have been made against the defendants, some feelings would not have been generated. However, it should not be assumed that a trustee is unable to continue to discharge his or her duties impartially, by reason of animosity towards one or more of the beneficiaries, just because those beneficiaries have brought and prosecuted a misconceived claim alleging serious misconduct against the trustee. As the plaintiffs' submissions acknowledge, the existence of disputes between a trustee and beneficiaries is insufficient of itself to ground an order of removal [Forster v Davies 4 De G F & J 133]. Nor can mere resistance to a claim for removal be enough to manifest such an animosity as to support an order of removal; otherwise, any trustee who resisted a beneficiary's claim would need to consent to judgment, for fear that resistance would found a finding of animosity [cf Quinton v Proctor [1998] 4 VR 469, 475]. Mr Halliday 126 The plaintiffs complain (in their written submissions, though it is not pleaded) that Mr Halliday resigned as one of the trustees of the estate (other than the clause 3 trust of the Leerac shares) in August 2007, because the firm of which he is a member gave advice to the effect that legatees were not entitled to interest on unpaid legacies. Mr Halliday is a partner in the law firm Bartier Perry. Phillip Jones of that firm advised the executors on the issue whether interest accrued on legacies payable to Mr Fay's grandchildren under the will. Ms Needham SC later apparently expressed the opinion that the contrary was at least arguable and that it would be prudent to obtain judicial advice. Mr Halliday at his partners' suggestion agreed to retire as a trustee of the estate (other than the clause 3 will trust), as the situation might found a conflict of duty and interest.

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136 It is true that at first sight, the redundancy payment is striking, representing something like four year's salary, and the legal or industrial basis of his entitlement to it was not explained. However, the payment was negotiated at arm's length between two firms of solicitors, based upon a formula which took into account his level of remuneration and years of service. Although the plaintiffs complain that Moramba's decision to pay him that amount was compromised while he remained on the board, Mr Au did not participate in any board meetings in relation to his own redundancy payment. The plaintiffs sought to contrast the defendants' consultation with and deference to the views of the children in relation to the negotiations with Ms Tripp, with their failure to discuss with them the termination payment to Mr Au. The short answer is that the trustees are entitled but not bound to consult with the beneficiaries. Moreover, in the case of Mrs Tripp, what was involved was potentially a frustration of the wishes of Mr Fay to make provision for her; whereas what was involved with Mr Au was consistent with Mr Fay's wish that he retain his position and responsibilities until he was 65 or even later. 137 Even if -which I do not accept - the defendants bore some evidentiary onus on this issue, the evidence that the redundancy was negotiated at arm's length, and Mr Pettman's report as to the various payments, would sufficiently discharge it, and it would remain for the plaintiffs to show that the payments were unjustified. That they have signally failed to do. Despite the apparent enormity of the redundancy payment, there is no basis for me to conclude that it was inappropriate. 138 It is appropriate to address two other matters pertaining to Mr Au's fitness which, although not pleaded, arose in the course of his cross-examination. 139 First, Mr Au was unable to answer why, for the first time since 2006, very recently (after the judgment on the judicial advice application) the Moramba companies had declared dividends, and Leerac had made a distribution to the children - when it is plain enough that the Court's advice must have been an instrumental consideration. His answer that he was unable to remember why they now felt able to do so, when they had not done so since 2006, is very surprising; the obvious answer is the outcome of the judicial advice application. But there does not appear to be any conceivable advantage to Mr Au in not being frank on this issue, if he in fact recalled the reason for the change in position. In addition, it must also be acknowledged that Mr Au was upset and humiliated, first by having been made redundant, and subsequently by having been charged with misconduct as a trustee. During his cross-examination he became visibly upset at the attack upon him, and at the constraints that were placed upon his ability to give fulsome, not necessarily responsive, answers. In that light of those matters, I am unable to conclude his answer was dishonest. 140 Secondly, Mr Au demonstrated some difficulty in appreciating the concept of conflict of interest and duty. However, there is force in the submission that while the questions directed to him (by the Bench) were addressed to the intellectual concept of conflict of interest and duty, his answers rather addressed his own particular fact situation, so that they did not in fact bespeak a failure to comprehend the concept, but were a denial that there was one in his situation. In any event, this is not a pleaded matter. 141 Mr Fay plainly had confidence in Mr Au, particularly as a manager. He appointed a diverse group of persons as his executors, no doubt recognizing that each had his own strengths and weaknesses. Mr Au is not expected to have the same acute appreciation of legal concepts as Mr Halliday, for example. I am unpersuaded that Mr Au's evidence demonstrates that he cannot be expected properly to play his part in the administration of the will trust in the future. Leerac's payments to Corrs Chambers Westgarth 142 By a late amendment, the plaintiffs added a complaint that the defendants have caused Leerac to act in breach of the Barnes Settlements and the Lorraine Settlements by paying money to their solicitors to fund their defence in these proceedings. The raising of this complaint, and the allowance of the amendment involved, required an adjournment and reopening of aspects of the evidence. The evidence that emerged ultimately established that Moramba Services had paid some $413,294.95 to the defendants' solicitors on account of their costs in the main proceedings, and some $260,355.85 on account of its own costs in the mortgage proceedings (to which Moramba Services is a party). The mechanism used was that Moramba Services made loans to Leerac. The essential question then is whether Leerac was entitled to use moneys so borrowed to fund the defence of these proceedings by persons who are its directors, and who are sought to be removed in their capacity as trustees of the will trusts (no longer in their capacity as directors of Leerac). The gravamen of the plaintiffs' complaint is that assets of the inter vivos settlements have been improperly used for a purpose foreign to those settlements and for the benefit of the defendants, namely to fund the defence of the defendants in their capacity as trustees of the will. 143 Until an amended statement of claim was filed on 7 April 2008, a month before the commencement of the final hearing, the proceedings were brought against the defendants in their capacity as directors of Leerac as well as in their capacity as trustees of the will trusts. The earlier version of the statement of claim sought an order that in their capacity as directors of Leerac they give due consideration to winding up the inter vivos settlements. After the statement of claim was amended, that was no longer so; only their removal as trustees of the will was sought. At least until the abandonment of the claim for an order, that in their capacity as directors of Leerac they give due consideration to winding up the inter vivos trusts, it was at least arguable that the defendants were sued inter alia as their capacity as directors of Leerac, and might well have been entitled to look to Leerac for an indemnity. However, that claim was abandoned on the first day of the trial. 144 The defendants were legally advised that they could have resort to the assets of the inter vivos settlements for their costs of defending the proceedings, and that Moramba Services could advance funds to Leerac to fund their costs of the proceedings. 145 The defendants justified the expenditure on the basis that while the relief claimed against them was in their capacity as trustees of the will, much of the evidentiary material relied upon pertained to their conduct in their capacity as directors of Leerac; it was therefore in Leerac's interests to secure a finding that its directors were not guilty of any misconduct which might give rise to a claim against Leerac; and Leerac could reasonably conclude that the funding of its directors' defence was a proper trust expense within the (NSW) Trustee Act, s 59(4), or Article 113 of its Articles (which provides that the directors are entitled to an indemnity for costs incurred by them in defending proceedings where they are successful). 146 I doubt that Article 113 is engaged; it could only refer to the defence of proceedings against them in their capacity as directors. However, the reality is that the facts upon which the case against the defendants was based were facts which arose in large part from their conduct as directors of Leerac. 147 It is unnecessary (and, given that Leerac is not a party, undesirable) to decide definitively in this proceeding whether or not Leerac was in breach of trust by making the payments in question. The issue for me is whether the circumstance that the defendants concurred in permitting those payments to be made is illustrative of an attitude which makes it inappropriate for them to remain as trustees of the will trusts. For those purposes, it suffices that I conclude that it is arguable that it was in the interests of Leerac to have a finding that, as its directors, the defendants had not engaged in improprieties, and thus that for Leerac to use moneys borrowed from Moramba to fund their defence was the meeting of expenses incurred in or about the execution of the trusts, within (NSW) Trustee Act 1925, s 59(4). It is also significant for these purposes that the defendants had advice that they could resort to those funds in order to fund the defence. Leerac has since filed an application for judicial advice in respect of these payments, which is yet to be heard. 148 As a result of those considerations, the defendants' concurrence in the expenditure of Leerac's funds on their defence does not persuade me that the defendants will not duly administer the will trusts in the future. Other Matters 149 There are a number of other considerations which inform an ultimate judgment as to whether, in the interests of the administration of the will trusts, the defendants ought to be removed as trustees. 150 Foremost amongst them is the circumstance that while two of the children - the plaintiffs Garrick and Dallas - wish to have the defendants removed, the other two children, Louisa and Sioned, oppose that course and wish them to remain in office. Before the proceedings were instituted, the defendants offered to retire as trustees and appoint the four children in their place, but this course was opposed by Sioned and Louisa, who asked the defendants to remain. They continue to support the defendants remaining in office. Their wishes are entitled to at least as much weight as the wishes of the plaintiffs. One of them expressed the view that she believed that the defendants were doing the best job possible in circumstances which were very difficult. 151 Secondly, there is the circumstance that it was plainly the wish of Mr Fay that the defendants administer his estate, and he had confidence in their judgment and discretion to do so appropriately. Letters written by Mr Fay to his children on 3 April 1998, and to the defendants on 3 March 1998, and his statements to Mr Halliday and Mr Pollitt, make plain that he had confidence in the defendants' judgement and ability to administer his estate and resources; it may be doubted that he had any such confidence in the ability of his sons to do so. 152 Thirdly, the plaintiffs' arguments tended to overlook that the children are not the only potential beneficiaries. There are already a number of grandchildren of Mr Fay, who fall within the class of eligible beneficiaries under both the clause 3 will trust and the inter vivos settlements. The plaintiffs' arguments seem to proceed on the basis that only the four children require consideration, and that they can be relied on to look after their own children. But although that it is a view that might be open to the defendants to adopt, it is not a view that they must take. 153 Fourthly, Mr Fay plainly intended that the defendants have wide powers and immunities, as reflected in the "non-contest" clauses and exculpatory provisions of the inter vivos trust deeds, and the "absolute" and "uncontrolled" discretions given by the clause 3 will trust.

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154 My conclusions may be summarised as follows. 155 The plaintiffs' complain that the defendants as trustees of the will have not carefully borne in mind the welfare of the beneficiaries in the discharge of their duties, have failed to appreciate that they must have a conscientious regard for the welfare and interests of the beneficiaries, are blind to the welfare of the beneficiaries, and that one could have no confidence that either Garrick or Dallas would receive benevolent or impartial consideration for so long as the defendants remain in control; thus, it is said, they must be removed. 156 As to the plaintiffs' main case - that the inappropriateness of the defendants remaining as trustees of the will trust is demonstrated by their failure to give proper consideration to whether in their capacity as directors of Leerac they should cause the inter vivos settlements to vest, or to implement a determination already made to do so, and alternatively in their capacity as trustees of the will to cause the clause 3 will trust to vest: the proposition that there was some obligation on the defendants to accelerate the vesting of the clause 3 will trust - which was prima facie to endure for 80 years - or the inter vivos settlements, is simply wrong. 157 The allegation that the defendants have not given real and genuine consideration to accelerating the vesting of the clause 3 will trust fails: they have given consideration to it, but have decided not to while the Moramba group and the inter vivos trusts continue in operation. 158 The case that Leerac did not give real and genuine consideration to the winding up of the inter vivos settlements cannot be sustained. The defendants plainly considered and explored the possibility of accelerating the vesting of the inter vivos settlements between 2002 and 2005, and it was their preference to do so. However, there were legal and taxation issues arising from the cohabitation agreement that posed impediments to that course. For that reason, the defendants did not exercise Leerac's discretion to accelerate the vesting date at that stage. That was a decision within their remit, and one not open to review by the Court. Potential beneficiaries are not entitled to have trustees removed because the trustees do not exercise a discretion in favour of that beneficiary. The defendants were entirely entitled to determine, having given the matter due consideration, not to accelerate the vesting date, at least at this stage. The reasonableness or fairness of that decision is not open to review, and they are not liable to be removed on account of having made a decision with which the plaintiffs disagree. In reality, the plaintiffs' complaint is that having given consideration to the exercise of the relevant discretion, the defendants as directors of Leerac have chosen not at this stage to exercise it, for insufficient reasons. Even if their reasons were insufficient, that would not justify their removal. 159 While the defendants in considering whether or not to exercise Leerac's discretion to accelerate the vesting date were entitled to have regard to Garrick's financial position, the circumstances attending the Moss Vale mortgage did not oblige them to exercise that discretion: they were not implicated in the creation of any expectation or assumption that there would necessarily be an acceleration or capital distribution sufficient to fund repayment of the loan, and Garrick had no right to have their discretion exercised in his favour. 160 The intention formed by the defendants in or about 2002 to accelerate the vesting date and distribute capital to the children equally, if the issues with Mrs Tripp could be resolved and a tax-effective solution implemented, was not a decision of legal significance; it was not an exercise of any relevant discretion but a provisional intention. In any event, to the extent that the defendants had formed an intention to accelerate the vesting date and distribute capital, it was conditional upon resolving the issues posed by the cohabitation agreement. The initial contention that the defendants should have impugned the cohabitation agreement is no longer pressed; it could not have succeeded, in the light of the uncertain advice as to whether the cohabitation agreement could be impugned, and the expressed wishes of the children that it not be challenged in the courts. The subsequent contention, that the defendants should have been more predisposed to accept Mrs Trip's demands in return for a release, is contrary to the views of all, including the plaintiffs, at the time. 161 Even if the defendants are open to criticism for not perceiving the recently proposed means of achieving a capital distribution through repayment of the Moramba Services loan (notwithstanding that neither their professional advisers, nor those of the plaintiff, did so), it is a criticism that they failed to perceive a means of implementing an accelerated distribution that they were not bound to make, and it simply does not manifest a failure to consider the exercise of the discretion to accelerate the vesting date, whether of the will trust or of the inter vivos settlements. 162 The plaintiffs' case proceeds on the misconceived basis that there is some, at least prima facie, disposition in favour of an accelerated distribution. If anything, however, the prima facie position is that the trusts will subsist until they vest in accordance with their terms. At the highest, the defendants as trustees of the will trust, and Leerac as trustee of the inter vivos trust, were required to give due consideration from time to time as to whether they should exercise their respective discretion to accelerate the vesting date in respect of the whole or part of the assets of the will trust or the inter vivos settlements. I do not accept that they have not done so, and I am entirely unpersuaded that the defendants will not from time to time in the future give due consideration to the exercise of the discretion to accelerate the vesting date, whether of the inter vivos settlements or of the testamentary trust, and whether in whole or in part. 163 Accordingly, the plaintiffs' principal complaint - that the unfitness or inappropriateness of the defendants remaining as trustees of the will trust is demonstrated by their failure to give proper consideration to the vesting of the inter vivos settlements and/or the clause 3 will trust - fails. 164 As to the subsidiary complaints, they are tangential to the real issues between the parties. Some of them (failing to appreciate the terms of the discretionary trusts administered by Leerac; failing to cause Leerac to provide information concerning the discretionary trusts; inability to be impartial following the creation of the Moss Vale mortgage; and Mr Halliday), are entirely without substance. While others (procuring execution of the deeds of indemnity; invoking the non-contest clause; animus towards the plaintiffs; excessive payments to Mr Au; and Leerac's payment of funds to the defendants' solicitors to fund their defence of these proceedings), especially taken together, are cause for deeper thought, nonetheless:

[119]

· although the payments to Mr Au seem prima facie generous, the evidence does not show them to be excessive; · it would be inappropriate in these proceedings, to which Leerac is not a party, to determine whether it was a breach of trust for Leerac to contribute to the funding of the defence. The contrary is arguable - that it was in Leerac's interests to secure a finding that its directors had not acted inappropriately as such. In addition, the defendants had legal advice that they were entitled to resort to the funds held by Leerac for that purpose. Leerac has now sought judicial advice on the question. These factors suffice to warrant rejection of the contention that this matter requires a conclusion that the defendants cannot be relied upon properly to administer the will trusts. 165 Moreover, those matters have to be weighed against the wishes of the daughters, Mr Fay's confidence in the defendants, and his intention that they have wide powers and immunities. 166 Accordingly, I am unpersuaded that the defendants cannot be relied upon properly to administer the will trust in the future, or that the welfare of the trust estate is opposed to their remaining in office. That is all the more so where, as in respect of these trusts, the plaintiffs are but potential beneficiaries, whose rights are limited to having the trusts duly administered. It follows that I will not remove the defendants as trustees. 167 It therefore seems to me that, in the main proceedings (5032/06 - Fay v Au), the proceedings should be dismissed. In the mortgage proceedings (3365/07 - Fay v Moramba Services Pty Ltd), the statement of claim should be dismissed, and on the cross-claim there should be judgment for the cross-claimant for possession of the Moss Vale property. 168 The parties have sought an opportunity to be heard on the question of costs. It will also be necessary to deal with the application for judicial advice in respect of Leerac's funding of the defendants' costs of their defence. 169 My orders are: A. In proceedings 5032/06: 1. Order that the proceedings be dismissed.

Fay v Moramba Services Pty Ltd

At a glance

Court

Decision date

Before

Source

Judgment (121 paragraphs)

Parties

Cases Cited (15)

Cited By (10)