First Plaintiff v First Defendant

2 In support of their summons, Paul and Deborah rely on an affidavit of Jennifer Ann Maher made 10 November 2020 and affidavits dated 19 November 2020 made by Paul and Deborah. I will refer collectively to these affidavits as the 'new evidence'. The application to re-open is opposed by the trustee and Michael. They rely on the affidavits of Phoebe Harmony Langridge dated 26 November 2020 and 3 December 2020 and affidavits made by Michael and Mr Sampson, both dated 26 November 2020.

3 In my judgment delivered on 28 October 2020, I decided, amongst other things, that the purported exercise by the trustee of its discretion in relation to the distribution of the trust's income for the financial years 2015, 2016 and 2018 miscarried because, in those years, the trustee did not take an informed view about whether or not to exercise its discretion in relation to the making of income distributions to Deborah or Paul.

4 Despite these findings, I rejected Paul and Deborah's submission that the trustee should be removed as trustee of the trust. I concluded that, although a number of the matters raised by Paul and Deborah gave rise to reservations about the suitability of the trustee continuing in office, those reservations were not of such a degree and character to cause me to lose confidence in the trustee's future administration of the trust having regard to the interests of the beneficiaries, the security of the trust property, the proper execution of the trust and the faithful and sound exercise of the powers conferred on the trustee.

5 Paul and Deborah seek leave to re-open the case, in relation to their claim that the trustee be removed, so that the Court can consider the new evidence and reconsider its assessment of the likely future conduct of the trustee. As they state in their written submissions, 'the evidence sought to be admitted should be allowed because it shows that the Court's conclusion, that in future years the Trustee would give real and genuine consideration to the exercise of its discretion, including making inquiries of the Plaintiffs, was based at least in part on an incorrect inference as to what would occur in FY 2020'.

6 The key elements of the new evidence proposed to be adduced by Paul and Deborah may be summarised as follows:[2]

(a) On 10 March 2020, the trustee made a resolution to distribute $125,000 of its income to Deborah. Deborah received a cheque in this amount from the trustee on 13 March 2020. This distribution of income was confirmed in a further resolution made by the trustee on 18 May 2020.

(b) By the resolution made on 18 May 2020, the trustee also resolved to distribute the balance of the income for the year ended 30 June 2020 to Michael.

(c) Since the conclusion of the trial, neither Mr Sampson nor Michael have made any enquiries of either Paul or Deborah in relation to the distribution of income for the year ended 2020.

7 In their affidavits filed in opposition to the application to re-open, Michael and Mr Sampson deposed to the following matters:

(a) From Paul's evidence given at trial, as at May-June 2020, they were aware that Paul had established a successful manufacturing business and had always been financially independent of his parents throughout his adult life.

(b) As at May-June 2020, they were aware of Deborah's pending claim for further provision from Eva's estate under Part IV of the Administration and Probate Act 1958 and that Paul had not made any such application. Eva's estate is in excess of $9 million.

(c) From Deborah's evidence given at trial and from affidavits filed by her in her application under Part IV of the Administration and Probate Act 1958 for further provision from Eva's estate, they were aware of Deborah's health issues and financial position, including her income over many years, her superannuation and her cash position.

(d) That they were aware that an income distribution in the sum of $125,000 had been paid to Deborah in March 2020.

(e) That, as at May and June 2020, the South Yarra apartment had been distributed to Deborah as a capital distribution from the trust.

8 Paul and Deborah submitted that the new evidence demonstrated that the trustee had made no enquiries of them about their circumstances since the conclusion of the trial.

9 In their written submissions, Paul and Deborah submitted that:

(a) the acceptance in my reasons for judgment of the relevance of the trustee making enquiries as to the beneficiaries' circumstances each year; and

(b) the reasons for my finding that the discretion had miscarried in three years because of a lack of information,

demonstrated 'an implicit acceptance by the court of the need for such enquiries as a necessary step in consideration of exercising its discretion to make a distribution' (my emphasis). In oral submissions, senior counsel for Paul and Deborah clarified that they sought to rely on the new evidence because of their understanding from the reasons for judgment that, unless it has adequate information, the trustee was required to enquire into the circumstances of the beneficiaries (my emphasis). They contended that the interests of justice militated in favour of the reception of the new evidence to show that, despite the greatly changed circumstances across the world occasioned by COVID-19, the trustees made no enquiries of them.

10 Paul and Deborah submitted that they were unsuccessful in their application for removal of the trustee because of my conclusion that there was no proper basis to find that there was a real risk or likelihood that the trustee would not make future discretionary contributions of capital or income to Deborah. They submitted that this indicated that the Court accepted that the trustee would make enquiries in each future year as to the circumstances of at least Deborah.

11 In particular, Paul and Deborah sought to rely on the new evidence because, 'despite Michael Owies giving sworn evidence that he now understood a duty to make such enquiry and despite the trustee expressly relying on that sworn evidence in its closing submissions', the new evidence shows that no such enquiry was made prior to the distribution for financial year 2020. This was said to be a very significant difference from his sworn evidence: what Michael had sworn would occur, did not in fact occur. Paul and Deborah argued that that was a matter which, in the interests of justice, should cause me to revisit the exercise of my discretion as to whether the trustee should be removed. The fact that no enquiries were made of them was a relevant matter to consider in determining whether the trustee should be removed because it goes to whether the trustee understands its duties and whether it will act in good faith. It was submitted that the inference which I drew as to how the trustee would conduct itself in the future was based on factually incorrect evidence.

12 Paul and Deborah also argued that the trustee's decision to make its final income distribution resolution for the 2020 financial year on 18 May 2020 meant that the trustee deprived itself of the opportunity to make any enquiries before the end of the 2020 financial year. They submitted that, by 18 May 2020, the health and economic effects of the pandemic were widely known to be serious and worsening and the trustee knew that Paul was self-employed in a small business and Deborah was in precarious health. A prudent trustee in those circumstances giving real and genuine consideration to its income distribution for the 2020 financial year would have waited until much closer to 30 June 2020 before making any income distribution and would have made enquiries of their circumstances.

13 As stated by Starke J in Texas Company (Australasia) Ltd v Federal Commission of Taxation, the Court 'has full power to rehear or review a case until judgment is drawn up, passed, and entered'.[3] Judgment has not been entered in this case.

14 The decision to grant leave to re-open and adduce further evidence is discretionary. It was uncontroversial that the circumstances in which a court may grant leave to re-open a case are as summarised by Kenny J in Inspector-General in Bankruptcy v Bradshaw:[4]

The authorities indicate that, broadly speaking, there are four recognised classes of case in which a court may grant leave to re-open, although these classes overlap and are not exhaustive. These four classes are: (1) fresh evidence; (2) inadvertent error; (3) mistaken apprehension of the facts; and (4) mistaken apprehension of the law. In every case the overriding principle to be applied is whether the interests of justice are better served by allowing or rejecting the application for leave to re-open.

As is apparent, Paul and Deborah rely on the 'fresh evidence' ground.

15 In Flash Lighting Co Ltd v Australia Kunqian International Energy Co Pty Ltd (No 4), Robson J, citing the judgment of Habersberger J in Reid v Brett,[5] identified that the following criteria should be taken into account in determining whether to exercise the discretion to grant leave to re-open the evidence where an application relies on fresh evidence:[6]

(a) whether the further evidence is so material that the interests of justice require its admission;

(b) whether the further evidence, if accepted, would probably affect the result of the case;

(c) whether the further evidence could, by reasonable diligence, have been discovered earlier; and

(d) whether any prejudice would ensue to the other party by reason of the late admission of the further evidence.

16 I am not persuaded to exercise my discretion to grant leave to Paul and Deborah to re-open their case to lead further evidence. The further evidence is not so material that the interests of justice require its admission; nor do I consider that the evidence, if accepted, would probably affect the result of the case.

17 Central to Paul and Deborah's application to re-open is the proposition that the trustee's failure to make any enquiries of them since trial is inconsistent with specific evidence which Michael gave at trial. In considering the application, it is therefore important to clearly identify the relevant evidence given by Michael.

18 When asked in cross-examination what, as guardian, he took into account in signing the 2017 variation, Michael gave the following evidence:

... I took into account what my father wanted, and I concede that - I make the concession, Your Honour, that if I was the guardian then it was my responsibility to enquire about all objects that could be - that could have a distribution. I accept that. I accept that. I know that now.

Senior counsel for Paul and Deborah submitted that this evidence played into the exercise of my discretion not to remove the trustee.

19 Although Michael's evidence was part of the overall matrix of facts to which I had regard in exercising my discretion in relation to removal, Paul and Deborah attribute that evidence with a significance not borne out by my reasons for judgment dated 28 October 2020. Those reasons contain only one reference to Michael's evidence as follows:[7]

The trustee also argued that, even if the Court found that there had been a breach of trust, there was no evidence to suggest that the current directors would act capriciously in making income resolutions, nor any evidence to suggest that they would not give genuine consideration to all of the beneficiaries. The trustee referred to Michael's evidence that, in making future distributions of income from the trust, he would make enquiries of Paul and Deborah's circumstances (in his capacity as Guardian). The trustee also relied upon Mr Sampson's evidence that the purpose of the trust was that it 'may provide some income to the beneficiaries in accordance with the resolutions of the trust deed'

This paragraph appears in the section of my judgment in which I summarise the submissions of the trustee on the question of removal. The following section of my judgment headed 'Consideration' sets out the manner in which I did in fact exercise my discretion not to remove the trustee; it contains no reference to Michael's evidence.

20 Furthermore and in any event, there are aspects of Michael's evidence referred to above, as well as the circumstances of the trial, which, at a minimum, have the real possibility of undercutting the significance of the fact that Michael made no direct enquiries of Paul or Deborah in relation to an income distribution for the 2020 year.

21 First, in his evidence upon which Paul and Deborah rely, the concession made by Michael concerns his responsibilities as guardian, not as a director of the trustee. Secondly, in his evidence, Michael acknowledged his responsibility to 'enquire about all objects'. He did not, in terms, refer to his responsibility to make direct enquires of each of the potential objects of a distribution. As a matter of language, the making of enquiries by a person about another does not necessarily require the former person to make communications directly with the latter.

22 Thirdly, aside from how Michael's evidence might be interpreted, as I stated in my reasons for judgment, 'the task of determining whether there was any failure by the trustee to give real and genuine consideration will depend upon a consideration of, amongst other things, the information which the trustee had when it resolved to make each of the relevant income distributions ...'.[8] The trustee was obliged to have sufficient information to enable it to give good and genuine consideration in the exercise of the income distribution power; the discharge of that duty did not necessarily require the trustee or its directors to make enquiries, directly or otherwise, of Paul and Deborah. Sufficient information about Paul and Deborah could come to the attention of the trustee indirectly.[9]

23 In relation to the income distribution made by the trustee for the 2020 financial year, it is evident that, as a result of the conduct of the trial in February 2020, Michael and Mr Sampson, as directors of the trustee, received substantial information about Paul and Deborah's then health and financial circumstances. Michael and Mr Sampson have also deposed to other information about Paul and Deborah which they acquired after the trial.[10] In these circumstances and in light of the other matters to which I have referred above, I am not satisfied that there is any probability that the further evidence sought to be adduced by Paul and Deborah would probably affect the result of the case.

24 My conclusion in this regard is not altered by the general circumstances relating to the COVID-19 pandemic as in May-June 2020. There is no evidence about how the pandemic may have affected Paul and Deborah, or that the trustee was on notice of or aware of its potential effect on them. In those circumstances, there is no proper basis to conclude that, before making any income distribution for the 2020 year, the trustee was under a positive duty to enquire of Paul and Deborah about how the pandemic may have affected them.

25 The summons filed by Paul and Deborah on 12 November 2020 is accordingly dismissed.

26 Within 14 days, the parties are to file any proposed order as to costs. Absent agreement on costs, the parties may make submissions on costs at the hearing on 26 February 2021.

[1] In these reasons for judgment, I use the abbreviations as defined in my reasons for judgment dated 28 October 2020.

[2] Noting that the hearing of the evidence at trial concluded on 13 February 2020, with closing submissions delivered on 26 February 2020.

[3] [1940] HCA 9; (1940) 63 CLR 382, 457.

[4] [2006] FCA 22, [24].

[5] [2005] VSC 18, [41].

[6] [2018] VSC 823, [123].

[9] See for example [314] of my reasons for judgment.

[10] As summarised in [7] above.