Re Barrett (1889) 43 Ch D 70

Re City Equitable Fire Insurance Co Ltd [1925] Ch 407

Finamore v Slater & Gordon (1994) 11 WAR 250

Grljusich v Grljusich, unreported; SCt of WA; (Seaman J); Library No 930253; 6 May 1993

Le Mesurier v Connor (1926) 29 WALR 66

Midland Bank Trust Co Ltd v Green [1979] 1 All ER 726

Re Morish (1939) SASR 305

The Perpetual Executors Trustees and Agency Co (WA) Ltd v The West Australian Trustee Executor and Agency Co Ltd (1942) 44 WALR 29

Singh v Atombrook Ltd [1989] 1 All ER 385

Smith v Carbone Bros Pty Ltd, unreported; FCt SCt of WA; Library No 960369; 17 July 1996

Re Stevens [1898] 1 Ch 162

Re Vickery [1931] 1 Ch 572

White v City of London Brewery Co (1889) 42 Ch D 237

Re Youngs (1885) 30 Ch D 421

1 KENNEDY J: This matter was relisted before me, following a decision of the Full Court setting aside orders made by a Master of this Court on what were said to be certain "preliminary" issues concerning the taking of the accounts in these proceedings pursuant to a consent order made on 12 February 1996 by a Registrar. The Full Court allowed the appeal for the reason that the Master had no jurisdiction to hear the application before him. Part of that application sought an account on the basis of wilful default.

2 There is no formal application before me. All that I have is a statement at the end of the plaintiffs' written submissions that they seek the following orders:

1. That the account of the defendants be taken on the basis of wilful default.

2. That the taking of the accounts be before a Master of the Supreme Court and

3. That the costs of the account be reserved to the Master.

At my request, the plaintiffs have filed a memorandum of a proposed amendment to their statement of claim. They subsequently filed a minute of a proposed amendment to the prayer for relief.

3 It is convenient to repeat by way of background some of the facts set out in my reasons for judgment in these proceedings delivered on 11 January 1996.

4 Mate Grljusich ("the deceased") died on 31 May 1985. On 16 July 1985, probate of his will dated 5 November 1962 was granted by this Court to the defendants, the executors and trustees named therein. It is convenient to refer to the defendants individually as "George" and "Tom" respectively, and to refer to them together as "the trustees".

5 By his will, the deceased gave all his estate to his trustees upon trust for sale and conversion, and he empowered his trustees to postpone the sale, calling in and conversion of any part of it so long as his trustees should think fit, notwithstanding that it might be of a terminable or wearing out nature or might consist of a hazardous investment. No reversionary interest was to be sold unless the trustees saw special reason for so doing. The residuary estate was directed to be held upon the following trusts, that is to say, to pay the net annual income arising therefrom to the wife of the deceased, Pera Grljusich ("Mrs Grljusich"), during her life so long as she should remain his widow, and after her death or remarriage to hold as well the capital as the income thereof upon trust for his children as tenants in common in equal shares absolutely.

6 There were six children of the deceased's marriage, George, Tom, Donald Kevin Grljusich ("Don"), Frances Nellie Gava ("Frances"), John Peter Grljusich ("John") and Ann Mary Lloyd ("Ann"). George and Tom are the eldest children of the marriage. Mrs Grljusich died on 3 November 1993, and Don died on 11 December 1993. Frances and John are the plaintiffs in these proceedings. Ann and the estates of Don and of Mrs Grljusich are not parties to the present proceedings. The absence of the estate of Mrs Gljusich as a party is of some importance, having regard to the fact that she held a life interest in her husband's estate.

7 The statement of assets and liabilities filed by the trustees at the time of their applying for probate showed as assets in the estate a property at 266 Hamilton Road, Spearwood, where the family home was situated and where the deceased had operated a market garden, and personal property to the value of $27,968.74. The property at 266 Hamilton Road, Spearwood was valued at $90,000.00. Of the personal property, monies standing to the credit of the deceased in savings, cheque and term deposit accounts amounted to $25,468.74. Funeral expenses and the cost of a memorial were stated to be $8,813.28. The source of their payment was not identified.

8 Putting on one side the real estate, which constitutes the most valuable part of the estate, and which, I assume, still remains to be disposed of, each child of the deceased, on the assumption that the funds of the estate had continued to be invested on fixed deposit, would have been entitled to less than $5,000 on the death of their mother. She was entitled to the income up to the time of her death, and any income accrued due to that time formed part of her estate. Notwithstanding the value of the beneficiaries' respective interests, the administration of the estate has generated a substantial amount of litigation, no doubt at considerable cost to each of the parties. There can be no doubt that the total cost must now significantly exceed the value of the personal estate. Common sense in the resolution of the family's disputes has been noticeably absent.

9 In the principal proceedings, instituted on 19 December 1991, Frances and John sought the removal of George and Tom as trustees of the estate of the deceased. They based their claim on a number of grounds. They alleged that the trustees had failed to render an account, that they had dealt with trust moneys in breach of trust, that they had failed to invest funds subject to the trust and failed to record interest from those funds in the trust accounts, that they had failed to keep trust funds separate from their own funds and had paid income derived on behalf of the estate into personal bank accounts and paid expenses incurred on behalf of the estate from their own personal bank account, that George from the date of death of the deceased had enjoyed the trust property at 266 Hamilton Road, Spearwood rent free without accounting to the trust for the same, that the trustees had failed to act impartially for the benefit of all the beneficiaries and to carry out the terms of the trust, that they had failed to file any income tax returns on behalf of the estate from the date of death of the deceased, that the trustees' animosity towards Frances and John had interfered with the conduct of the trust, and that the trustees were financially improvident and unfit to act as trustees. It is to be observed that, on the basis of the statement of claim, the primary loser was the widow of the deceased, whose estate, as already noted, is not a party to these proceedings.

10 The principal relief claimed by Frances and John against the trustees was for:

"(a) Full and proper account of their dealings with the said Estate together with particulars of what the said Estate come (sic) to their hands now consists;

(b) An order for all necessary and proper enquiries and directions for the taking of such account;

(c) An order that the Defendants be removed as Trustees of the said Estate and fresh Trustees be appointed."

11 The pleadings make no reference to wilful default. Nor did the prayer for relief seek to have the accounts taken on the basis of wilful default.

12 Following the issuing of the writ, on the application of the plaintiffs, filed on 12 February 1992, an acting Master of this Court ordered that the trustees should, on or before 11 March 1992, file and serve the following account in Form 46 of Atkin's Court Forms 2nd ed vol 1, duly verified by affidavit, that is to say, an account and inventory of the estate of the late Mate Grljusich from the date of his death on 31 May 1985 to 22 January 1992. That was an order for a common account.

13 On 6 March 1992, the trustees filed accounts, verified by their affidavit, in purported compliance with the order, detailing receipts and payments up to 22 January 1992. There is nothing to indicate that those accounts have ever been passed. Presumably they have not, because it appears, although it is by no means clear, that the plaintiffs are now claiming that they should be taken on the basis of wilful default.

14 The action came on for hearing on 14 August 1995 and concluded on 18 August 1995. Judgment was delivered on 11 January 1996.

15 In my reasons for judgment, having detailed the general history of the administration of the estate, I said:

"What should have been a straightforward administration of a deceased estate has been dogged to an extraordinary degree by disputes and dissension. There have been obvious breaches of trust by George in his using the estate's property as security for a bank loan, of which he obtained the exclusive benefit, and in the application of part of the capital of the estate for his own benefit, notwithstanding that subsequently, at a time when he was about to enter into a composition with his creditors, he arranged, from borrowings, to refund the amounts which he had received. He has endeavoured to diminish the seriousness of his breaches, although it must have been obvious to him, had he given reasonable consideration to what he was doing, that he was acting in breach of his trust."

I concluded that the removal of the trustees would be best for the welfare of the trust estate as a whole. The trustees could no longer be regarded as impartial, their judgment having been clouded by their conflict with the other beneficiaries. I was satisfied that the only way in which the estate could be wound up satisfactorily would be by having appointed a trustee or trustees independent of all the beneficiaries to undertake the task. Necessarily, there was a cost attaching to the appointment of professional trustees.

16 In the formal judgment, dated 19 January 1996, it was ordered that the trustees be removed as trustees of the will of the deceased, that Glenn Robert Featherby and Campbell Theodore Ansell be appointed as new trustees of the will, and that all the assets then subject to the trusts of the will be vested in the new trustees. By para 5 it was ordered that:

"The solicitors for the parties do submit a minute of consent orders in relation to the taking of further accounts with liberty to apply."

17 On 12 February 1996, pursuant to O43 r16 of the Supreme Court Rules, by consent, a Registrar ordered:

"1 The defendants on or before 16 February 1996 file and serve the following account in form 46 of Atkin's Court Forms second edition volume 1 duly verified by affidavit, that is to say: an account and inventory of the estate of the late Mate Grljusich from 22 January 1992 to the date of the affidavit.

2 On or before 16 February 1996 the defendants do produce all vouchers in support of the inventory and account for inspection by the plaintiffs and their solicitors and agents at the offices of Duesburys, Chartered Accountants of 36 Ord Street West Perth.

3 On or before 16 February 1996 the defendants do deliver to Glen (sic) Robert Featherby and Campbell Theodore Ansell all books, documents and records in respect of the property comprised in the estate of Mate Grljusich deceased and of the dealings and transactions of the defendants therewith.

4 The plaintiffs within 14 days after service upon them of the said account have liberty to file and serve upon the defendants their surcharges, falsifications and objections (if any) thereto.

18 The form of the order was not referred back to me, and was not required to be so referred. In purported compliance with the order, a further account was filed by the defendants. Items in the accounts have been challenged by the plaintiffs and application was made to a Master to determine a number of the issues which remained in dispute. Certain orders were made by him, but, as already noted, it was subsequently held by the Full Court that he had no jurisdiction to determine the issues, and the orders made by him were therefore quashed - Gava v Grljusich, unreported; FCt SCt of WA; Library No 970492; 18 September 1997.

19 As Ipp J pointed out in his reasons for judgment in the Full Court at 3-4:

"The procedure involved in the taking of accounts is well known and is described in detail in Atkin's Court Forms vol 1 at 612 to 613. Where a Registrar (or Master) is appointed to take accounts she will hear evidence generally, and, in particular, will allow cross-examination of witnesses in regard to disputed items. When the evidence is concluded, and submissions have been completed, she will make decisions as to the merits of the items claimed to form part of the accounts and come to a conclusion as to the overall amount found to be owing.

Notwithstanding this long-established practice the parties, in a series of applications to various Masters of this Court, applied for orders relating to the resolution of certain "preliminary" issues concerning the taking of the accounts. Pursuant to these applications various orders were made. In particular, by orders dated 16 May 1997, the learned Master purported to resolve preliminary issues concerning the principles to be applied in the taking of accounts and whether or not particular items should be allowed as disbursements in the accounts."

20 The Full Court was informed during the course of argument that the applications had been made to the Master pursuant to the general order for liberty to apply contained in the judgment. As Ipp J observed, this approach was entirely misconceived. The taking of the accounts had been referred to a Registrar, and the liberty to apply contained in the order was a liberty to apply to the trial Judge, or, if necessary, another Judge of this Court.

"In an attempt to salvage something from the wreckage of the misplaced procedures that have been undertaken, the parties invited this Court to express some guidance as to the future conduct of the matter, and, in particular, in regard to two issues of principle that were raised by the grounds of appeal."

22 The first of those issues was whether the accounts should be taken on the basis that there had been a wilful default on the part of the trustees. In relation to this issue, it should be said at once that the statement of claim, which had been amended on at least five occasions, did not plead any wilful default as such. The prayer for relief sought only an order for a common account, and the consent order was for a common account only. The earlier order for an account, which in fact covers the critical period, was also for a common account only.

23 It appears to me that the plaintiffs' present claim for an account on the footing of wilful default has proceeded on a misunderstanding as to the nature of such an order. A case of wilful default is distinct from one concerning an active breach of trust. Breaches of trust in relation to the misuse of funds were relied upon by the plaintiffs in their statement of claim to justify the removal of the defendants as trustees. They were not relied upon for the purpose of an account.

24 In Re Wrightson [1908] 1 Ch 789, Warrington J, in an administration action, said at 799-800:

"It seems to me that, in regard to a breach of trust, that is to say, an active breach of trust, in its active and proper sense, the plaintiffs are not entitled to relief at the trial, except in regard to that which is alleged in the pleadings and proved at the trial.

It is said that, if I take this view, I am acting counter to a well-known class of authorities with regard to wilful default. I do not think so at all; and I will explain why. It is well known, of course, that in a case of wilful default, which is quite distinct from active breach of trust, if wilful default is pleaded and if a case is established, then the accounts are directed on that footing. But why is that? It is because there are two perfectly distinct classes of accounts which are directed in cases of this kind - one is the common account, and the other is the account on the footing of wilful default; and if it is shown that a trustee has been guilty of wilful default, then the second of those forms of account is adopted, and not the first. That is all. If I may put it shortly, what I mean is that there is a kind of character attaching to a trustee which is referred to by the expression 'wilful default'; and, if it is proved that he is a trustee coming under that character, then that particular form of account is directed, and not the other. But in the case of a breach of trust there is no general form of account which is substituted for the common account. In cases of breach of trust relief is given in respect of those specific breaches of trust which are proved, and in respect of those only; and it seems to me that is the true distinction between the line of authorities which have been cited with regard to wilful default and those which apply to the present case. As to the former class of cases, there is no question that the rule is that, if wilful default is alleged and if an instance is proved, then the trustees are not in a position to claim to have against them the ordinary account only, but the account must be directed on the footing of wilful default. In my judgment that rule does not apply to cases of breach of trust."

25 The same point was made by Brightman LJ in Bartlett v Barclays Trust Co (No 2) [1980] Ch 539. At 547, he said:

"Wilful default by a trustee in this context means a passive breach of trust, an omission by a trustee to do something which, as a prudent trustee, he ought to have done - as distinct from an active breach of trust, that is to say, doing something which the trustee ought not to have done. If an instance of such wilful default is pleaded and proved, as are a number of such instances in the present case, the court is entitled to order an account on the footing of wilful default. It is otherwise if the plaintiff has merely alleged an proved one or more active breaches of trust. That does not necessarily entitle a plaintiff to a roving commission, which would be afforded by an account on the footing of a wilful default. The distinction between wilful default, in the sense of a wrongful omission entitling the plaintiffs in appropriate circumstances to an account on the footing of wilful default, and an active breach of trust not so entitling the plaintiffs, can be seen by comparing the judgments in In re Stevens [1898] 1 Ch 162 and In Re Wrightson [1908] 1 Ch 789."

See also Russell v Russell [1891] VicLawRp 139; (1891) 17 VLR 729 at 732; Snell's Equity, 29th ed at 284-285; Lewin on Trusts, 16th ed at 668-669; Pettit, Equity and the Law of Trusts, 6th ed at 582-583; Dal Pont and Chalmers Equity and Trusts in Australia and New Zealand, at 535-536; and John E Stannard, Wilful Default (1979) 43 The Conveyancer and Property Lawyer 345 at 348.

26 Counsel for the defendants did briefly raise the issue of whether this case in reality raised a case of wilful default, but the matter was not fully argued before me, and in view of the history of this matter, I would be reluctant to dispose of the plaintiffs' claim on this ground alone.

27 The well established rule is that a plaintiff, in order to be entitled to an account on the basis of wilful default must allege in his pleading, and prove, at least one example of wilful default on the part of the defendant - see Sleight v Lawson [1857] EngR 462; (1857) 3 K & J 292; 69 ER 1119.

28 In Job v Job (1877) 6 Ch D 562, Sir George Jessel MR said at 564:

"The rule, then, at law as well as in equity, now is that an executor or administrator is in the position of a gratuitous bailee, who cannot be charged with the loss of his testator's assets without wilful default; and a further rule is that though he is liable in equity in case of wilful default, he cannot be charged with it unless an account is ordered against him on that footing: you cannot charge him with wilful default without making out a case; and therefore under the old practice, unless wilful default was charged in the bill, you could not so charge him in the accounts. I think, however, that under the new practice an order charging him with wilful default may be made at any time on a proper case being made."

29 In Mayer v Murray (1878) 8 Ch D 424, Sir George Jessel, at 426-427, explained his decision in Job v Job as follows:

"I will here say a word upon the case of Job v Job which was recently before me and which, I understand, has led to some misapprehension. I there said that in an administration action an order charging an executor with wilful default may be made at any time during the progress of the action. Now an order charging an executor with wilful default could not be made unless he was so charged in the pleadings: therefore the charge, unless originally pleaded, must be introduced by amendment - that is, of course, by amendment at any stage of the action at which amendments may be made, that is, before judgment. The general rule is that in every case an order charging wilful default must be based upon a charge of wilful default in the pleadings."

30 In Re Symons (1882) 21 Ch D 757, Fry J was concerned with a case in which he said there was clearly in the statement of claim a charge of wilful default against the executors in their not receiving some personal estate which they might have got in, and a charge of breach of trust in their accepting on the unpaid purchase monies of real estate which they had sold, interest at a lower rate than the purchasers were bound to pay. Importantly, in addition to the claim for administration and for ordinary accounts and enquiries, the plaintiff claimed an order that the defendants should make good to him the difference between the amount actually received by them on account of interest on the purchase-monies and the amount which should properly have been received by them for interest. The plaintiff also claimed such further or other relief as the circumstances of the case might require. Fry J, at 761, accepted that if wilful default is charged in the pleadings, and evidence of it is adduced, accounts and enquiries on that footing may be directed at any stage of the proceedings. It is clear, however, that Fry J, in his reference to "any stage of the proceedings", intended to mean at any stage of the proceedings before judgment, as he expressly adopted the passage in the judgment of Sir George Jessel in Maher v Murray quoted above.

31 The plaintiffs sought to rely on Re Tebbs (dec) [1976] 2 All ER 858, but that was a very different case from the present. A claim had in that case been made in the pleadings for an account to be taken on the footing of wilful default and an act of wilful default had in fact been admitted by the executors in respect of certain land owned by the estate in question. The past conduct of the trustees had not been such as to give rise to a reasonable prima facie inference that other breaches of trust not yet known to the beneficiary or to the Court had occurred, and an order was made that an account be taken as to the land on the footing of wilful default, and that an account be taken of the rest of the testator's real and personal estate in common form, with liberty to apply in the event of evidence of further wilful default being produced. That judgment was very different from that which the plaintiffs sought and obtained in this matter.

32 Reliance was also placed upon Barber v Mackrell (1879) 12 Ch D 534, which was a case in which Fry J agreed, after a seven year delay, to add to and alter a decree pronounced by consent. But in that case, the Judge was in fact really only directing the accounts, which the parties had already taken, to be put upon the file, and directing that those accounts be taken upon the footing upon which the parties had hitherto taken them. An appeal against this decision was dismissed, although for reasons other than those given - see in particular the judgments of James LJ at 542 and Brett LJ at 547.

33 In Smith v Armitage (1883) 24 Ch D 727, Denman J was concerned with an action in which there were allegations of wilful default and improper conduct on the part of the defendant. At the trial, counsel for the plaintiffs proposed to abstain from giving any evidence in support of the allegations in the statement of claim and asked the trial Judge to make an ordinary administration decree, excluding altogether the questions of wilful misconduct, leaving them to be disposed of afterwards. Denman J held at 729-730 that the plaintiff was bound to go on unless he could establish a strong ground to induce the court to try the case piecemeal.

34 The plaintiffs also sought to rely upon re Barclay [1899] 1 Ch D 674. That case did not, however, concern a claim for wilful default.

35 In summary, the position is as follows. The original statement of claim filed on 19 December 1991 pleaded that the defendants had misappropriated certain funds. It is this conduct upon which the plaintiffs now seek to rely for an account on the basis of wilful default. The prayer for relief, however, claimed a common account and not an account on the basis of wilful default.

36 The order for the initial account, as claimed in the summons and as granted on 12 February 1992, was clearly for a common account. That account was filed promptly thereafter and various proceedings have taken place in relation to that account. At the hearing of the action, no reference was made at any time to the further account being taken on the footing of wilful default and the parties agreed on the order for a common account which was made by a Registrar on receipt of their consent. The defendants filed an account promptly after the making of that order. There is nothing before me to indicate that the defendants have not co-operated in the accounting process since the issuing of the writ.

37 Counsel for the plaintiffs now claims it has been discovered that the estate is bankrupt as a result of the defendants having made payments of certain costs out of the trust fund. I do not have any of the relevant material before me; but, even if this be the case, whether the payments were correctly or incorrectly made is simply a matter for determination on the taking of the account. The evidence is that the capital was restored by George, and whether or not the trustees were entitled to pay any or what expenses from the trust fund will be a straight-forward matter to determine.

38 If the leave now sought by the plaintiffs to amend the statement of claim were to be granted, it is inevitable that the defendants would have to be granted leave to reopen their case and, if necessary, to adduce further evidence, the claim for wilful default not having been raised or determined at the earlier hearing. Accepting that it is open to the Court to grant amendments to pleadings after judgment, a very strong ground indeed would be necessary to induce the Court to reopen the hearing at this stage. In my opinion, it is now far too late to amend the pleadings and to permit an account which had already been examined over a considerable period of time prior to the decision of the Full Court, changed to an account on the basis of a wilful default. I would dismiss the plaintiffs' "application" for an accounting on the basis of the defendants' wilful default.