Should the amendment be allowed?
27 Putting to one side [61] of the Proposed Amended Statement of Claim, the amendments sought by Fewin and Mr Coshott fall broadly into two categories: those at [14.7], the heading above [45], [14.9]-[14.11], [45A], [54K(h)] and [59A]-[59B] which rely on the decision in Young v Thomson and those at [11]-[13], [13A]-[13B], [14] (chapeau), [14.1], [14.6], [14.8], [43A]-[43C], [54A]-[54J], [54K(a)-(g), (i)-(l)] and the deletion of [55]-[59] which do not. I will deal with the two categories in turn.
28 At issue in Young v Thomson was entry into of a funding agreement by Louise Thomson, the former trustee of the property of the bankrupt, Leslie James Young. The appellant, Joanne Young, was the former wife of the bankrupt and was the most substantial creditor of his estate. Ms Young made an application under s 178 of the Act to set aside Ms Thomson's decision to enter into the funding agreement and under s 179 of the Act for an order that Ms Thomson be removed as trustee and for an inquiry into her conduct. That application was dismissed by the primary judge. On appeal a Full Court of this Court held that the primary judge erred and should have set aside the trustee's entry into the funding agreement. Fewin and Mr Coshott rely on [110]-[114] of the joint judgment of Siopis and Rares JJ where their Honours, after referring to the terms of s 178 of the Act and the nature of the discretion conferred on the Court by the section, said:
110 A trustee in bankruptcy is a trustee with all the fiduciary duties of a trustee under the general law, save to the extent that any such duty is modified or excluded by the Act: Re Fuller, a bankrupt; Fuller v Wily [1996] FCA 523 (Austlii MNC [1996] FCA 1593) at [58] per Sheppard, Spender and Hill JJ. Importantly, as their Honours explained, in reliance on Jacobs' Law of Trusts in Australia (Butterworths, 5th ed, 1986) at 375 [1609] (a passage repeated in the 7th edition at [1608]), because the trustee is exercising a fiduciary power, he or she has a duty to do so honestly (i.e. in good faith), to act upon genuine consideration, "that is to take an informed view of whether or not to exercise his [or her] discretion, and not to act irresponsibly capriciously or wantonly", and to exercise the relevant power with due consideration for the purpose for which it was conferred and not for some ulterior purpose.
111 A professional trustee should be particularly careful to act strictly within the line of the trustee's duty: Partridge v Equity Trustees Executors and Agency Co Ltd (1947) 75 CLR 149 at 165 per Starke, Dixon and Williams JJ. They held (at 164) that where a trustee had a statutory discretion to allow time for payment of a debt without being liable for any loss occasioned by doing so in good faith, the power:
involves the exercise of an active discretion, not the mere passive attitude of leaving matters alone, and no relief is afforded where (as here) loss has arisen from carelessness or supineness: Re Greenwood; Greenwood v. Firth [(1911) 105 LT 509]; Godefroi on Trusts, 5th ed. (1927), p. 258.
112 Where a statutory trust exists, such as that created by the Bankruptcy Act, the trustee's powers and duties fall to be exercised in accordance with, or having regard to, the requirements of the legislation. And, that is a reason why the Court has the supervisory jurisdiction under s 178 over a trustee's acts, omissions or decisions. That jurisdiction exists so as to enable the Court to evaluate what order is just or equitable in the particular circumstances. In Adsett v Berlouis (1992) 37 FCR 201 at 208, Northrop, Wilcox and Cooper JJ held that a trustee in bankruptcy, who acts for remuneration, has a duty to bring reasonable skill to the performance of his or her duties. They said:
The discharge of a public duty imposed by the Act is to be performed conformably with the requirements of that duty, but also conformably with the trustee's obligation to administer the estate in such a manner as to maximise the return from estate assets, and thereby to maximise satisfaction of the creditors' claims and any possible surplus for the bankrupt. (emphasis added)
113 Moreover, Northrop, Wilcox and Cooper JJ adopted (37 FCR at 209) the principles identified in Halsbury's Laws of England (Butterworths, 3rd ed) Vol 38, p 967, that a trustee must:
• take all reasonable and proper measures to obtain possession of the trust property, get in all debts and funds due to the trust estate, to preserve it and secure it from loss;
• take reasonable precautions to see the property is not stolen or lost by default;
• execute the trust with fidelity and reasonable diligence;
• conduct the affairs of the trust in the same manner as an ordinary prudent business person would conduct his or her own affairs.
114 In Frost [2009] FCAFC 20 at [8] Ryan, Mansfield and Jagot JJ said that, in exercising its jurisdiction under s 178:
the Court will be slow to make orders which will have the effect of interfering in the day-to-day administration of a bankrupt's estate and, in cases involving an exercise of business or commercial judgment, will place considerable weight on the trustee's decision. Furthermore, a Court will not intervene under s 178 simply because the Judge forms a different view from that of the trustee. (emphasis added)
(original emphasis)
29 Fewin and Mr Coshott also rely on [118] where their Honours said:
For the reasons that follow, in our opinion, the primary judge erred in the exercise of her discretion to refuse to make an order under s 178(1) setting aside the funding agreement. Ms Thomson breached her duties under s 19(1)(d), (j) and (k) of the Act and her fiduciary duty to take an informed view of whether or not to exercise her discretion to enter into the funding agreement. She acted irresponsibly in doing so in circumstances where she had a conflict of interest and duty, having incurred liabilities in litigation of over $300,000 without directions, under s 177(1), from a meeting of creditors, or, under s 134(4), from the Court, that she should do so. Her evidence to the primary judge demonstrated that she had no grasp of the reasons why she had sought funding of over $100,000 in respect of the Brookfield proceedings or the issues in that litigation. Moreover, on the additional facts before the primary judge, Westpac was about to exercise its power of sale that would realise all the cash that Ms Thomson would require to conduct any litigation.
30 As submitted by Mr Prentice, there is nothing novel in these statements of principle. They draw together principles from long standing authorities. Fewin and Mr Coshott said that it was only upon publication of the reasons in Young v Thomson that they became aware of, and amended their claim to include, the additional duties now pleaded at [14.7]-[14.11] of the Proposed Amended Statement of Claim. However, the decision in Young v Thomson did not alter the position for trustees. It simply referred to and applied existing principles. It seems that it was not until the reasons of Siopis and Rares JJ in Young v Thomson drew together and applied those principles that the idea of the amendment germinated and Fewin and Mr Coshott took steps to amend the statement of claim.
31 The prospect of an amendment was notified approximately five months after commencement of the proceeding and the application to amend made a month after that. That was some considerable time after commencement of the proceeding but it was still at a relatively early stage in the proceeding given that Mr Prentice has not yet filed his evidence and the proceeding has not been set down for hearing. In those circumstances, it could not be said that Mr Prentice would suffer any significant prejudice by reason of the amendments other than the additional time that will inevitably be added to the proceeding by Mr Prentice's need to meet the amendment in terms of preparing an amended defence and any additional time required to prepare his evidence.
32 It is important and in the interests of the administration of justice that all claims relying on the same factual matrix be brought in one forum at one time. If that will be achieved by the proposed amendments then, subject to the substance and form of the pleading addressed below, it should be allowed. Fewin and Mr Coshott informed the Court that their evidence was complete and no further evidence would be required if the amendments were allowed, reinforcing the proposition that the amended claims arose out of the same facts that they relied on for the purpose of the statement of claim currently before the Court. I would infer that from their perspective the proposed amendments will not add to the length of time needed to prepare the matter for hearing.
33 The remaining question for the Court is whether, as Mr Prentice alleges, the amendments would not be allowed because they are bound to fail and/or are embarrassing.
34 Mr Prentice's principal complaint concerns the amendments at [14.7], the heading above [45], [45A], [54K(h)], [59A], [59B], [61.9.1] and [61.10.1] of the Proposed Amended Statement of Claim which he says distort s 177 of the Act by imposing an active duty on the trustee to seek consent and, as such, the claim is hopeless and bound to fail. He also contends that the amendments at [14.6] and [14.8]-[14.11] plead duties that existed before they were articulated in Young v Thomson and are not "new". Mr Prentice makes no other substantive complaint about these paragraphs.
35 At [14.7] of the Proposed Amended Statement of Claim (set out at [14] above) Fewin and Mr Coshott allege that Mr Prentice owed a duty to take an informed view of whether to exercise his discretion by seeking creditor approval or advice or directions from the Court before incurring significant liabilities or acting on a matter affecting the interests of creditors.
36 The circumstances which are said to give rise to an alleged breach of that duty are pleaded in two places. First, under the heading "Failing to obtain creditor or Court approval before acting on substantial matters affecting interests of creditors, and Inquiry into expenditure and conduct of trustee", it is alleged that each of the proceedings listed at [45] (of which there are 20) was of a substantial nature or involved substantial expenditure, such that Mr Prentice should have obtained creditor consent or sought direction from the Court before participating in them and that in each case he failed to do so, thereby breaching the alleged duty: at [45A]. Secondly, under the heading "Making substantial payments out of the estate without creditor or Court approval" at [59A]-[59B] it is alleged that Mr Prentice made certain payments to lawyers and to his firm which were of a substantial nature and in relation to which, before doing so, he ought to have, but did not, obtain creditor consent or directions from the Court.
37 As submitted by Mr Prentice s 177 of the Act does not in its terms impose a positive duty on a trustee to seek the consent of creditors. Rather, it imposes an obligation on the trustee to have regard to any lawful directions given by resolution of creditors at a creditors' meeting. Similarly, s 134(4) of the Act entitles a trustee to apply to the Court for directions in respect of a matter arising in connection with the administration of an estate - it does not impose an obligation on a trustee to do so. That said, the duty alleged at [14.7] is a duty to take an informed view of whether to exercise a discretion. At [118] of Young v Thomson Siopis and Rares JJ found that Ms Thomson had breached her fiduciary duty to take an informed view of whether or not to exercise her discretion to enter into, in that case, the funding agreement. The recourse by a trustee to s 177 and s 134(4) are ways in which he or she might come to an "informed view" in the exercise of their discretion. Accordingly, while I do not form a concluded view on the issue, in my opinion, the alleged duty at [14.7] is arguable.
38 Mr Prentice also alleges that those amendments are embarrassing because there is a failure to plead causation and damage. Fewin and Mr Coshott's response to this criticism of the Proposed Amended Statement of Claim was to suggest that Mr Prentice could seek particulars as required. I do not accept that submission. A party to a proceeding is entitled to know the case he or she has to answer. The Proposed Amended Statement of Claim does not plead causation, nor does it clearly indicate what relief is sought in relation to specific alleged breaches and the amount of their claim for damages.
39 I turn then to consider the amendments to [61] which sets out the relief sought. Putting to one side [61.5], [61.19]-[61.22] and [61.4A] which are addressed below, the amendments at:
(1) [61.9.1]-[61.10.1] arise as a consequence of the amendments to [14.7] and [59A]-[59B]; and
(2) [61.12]-[61.18] comprise declarations which in some cases lack any particularity, such that it is impossible to know or understand the precise nature of relief sought (e.g. [61.14]-[61.16]) and in other cases are difficult to reconcile with the alleged conduct which is said to breach the various duties owed (e.g. [61.12]-[61.13] and [61.17]-[61.18]).
40 Given the issues that arise concerning the lack of pleading of causation and damage I would not allow the amendment to [14.7], the heading above [45], [45A], [54K(h)], [59A]-[59B], [61.9.1] and [61.10.1]. Further, given the issues set out at [39(2)] above I will also not allow the amendments to [61.12]-[61.18] in their present form. However, I will grant leave to Fewin and Mr Coshott to amend the Proposed Amended Statement of Claim to address the issues raised. Fewin and Mr Coshott have not engaged in any conduct in relation to prosecution of the proceeding that would disentitle them from a grant of leave to amend.
41 I turn then to consider the amendments that do not rely on the decision in Young v Thomson. The first relevant amendments are at [13A]-[13B], [54A]-[54J] and [54K(a)-(g), (i)-(l)] and, in terms of relief, at [61.4A]. By those amendments Fewin and Mr Coshott allege that Mr Prentice has a duty to declare and distribute dividends and that he failed to perform this duty. The complaint made about that pleading is that it ignores the full effect of s 140 which permits a trustee to retain such sums as are necessary to meet the costs of the administration or give effect to the Act. As submitted by Mr Prentice that matter and the extent to which it applies in this case can be clarified by way of defence and in evidence. Accordingly, I will allow these amendments.
42 The next relevant amendments are at [43A]-[43C]. Those amendments are said to plead facts that have arisen since the commencement of the proceeding as permitted by r 16.51(4). No objection was taken to these amendments and I will allow them.
43 Finally, the amendments by way of deletion of [55]-[59] and at [61.5], in relation to which no objection is taken, and the minor amendments at [11]-[13], [14] (chapeau), [14.1], [14.6], [14.8]-[14.11] and [61.19]-[61.22] should be allowed.
44 For those reasons I will allow amendment of the statement of claim in part and grant leave to Fewin and Mr Coshott to re-plead to address the issues arising in relation to those amendments referred to at [40] above.
45 In oral submissions Fewin and Mr Coshott accepted that they would bear the cost of any amendment. Accordingly, I will make an order that they pay Mr Prentice's costs thrown away by reason of the filing and service of the Proposed Amended Statement of Claim in relation to the amendments which I have granted Fewin and Mr Coshott leave to re-plead and the amendments which I have allowed in their current form. Fewin and Mr Coshott should also pay Mr Prentice's costs of their application for leave to file and serve the Proposed Amended Statement of Claim.