Gillespie v Gillespies Cranes Nominees Pty Ltd

Supreme Court of NSW|2022-09-16|Before: Parker J

Motion filed 20 June 2022 by Second to Seventh Defendants Helen Ann Gillespie (First Applicant/Second Defendant) Peter Timothy Gillespie (Second Applicant/Third Defendant) JPD Equipment Pty Limited (Third Applicant/Fourth Defendant) GCN Operations Pty Limited (Fourth Applicant/Fifth Defendant) Gilljo Pty Limited (Fifth Applicant/Sixth Defendant) Ainley Pty Limited (Sixth Applicant/Seventh Defendant) Robert Gillespie (Respondent/Plaintiff)

Motion filed 20 June 2022 Robert Gillespie (Applicant/Plaintiff) Gillespies Cranes Nominees Pty Limited (First Respondent/First Defendant) Helen Ann Gillespie (Second Respondent/Second Defendant) Peter Timothy Gillespie (Third Respondent/Third Defendant) JPD Equipment Pty Limited (Fourth Respondent/Fourth Defendant) GCN Operations Pty Limited (Fifth Respondent/Fifth Defendant) Gilljo Pty Limited (Sixth Respondent/Sixth Defendant) Ainley Pty Limited (Seventh Respondent/Seventh Defendant)

Motion filed 20 June 2022 by Second to Seventh Defendants J Hewitt (First to Sixth Applicants/Second to Seventh Defendants) HK Insall SC/AJ Macauley (Respondent/Plaintiff)

Motion filed 20 June 2022 by Plaintiff HK Insall SC/AJ Macauley (Applicant/Plaintiff) JAC Potts SC (First Respondent/First Defendant) J Hewitt (Second to Seventh Respondents/Second to Seventh Defendants)

Motion filed 25 August 2022 by Plaintiff HK Insall SC/AJ Macauley (Applicant/Plaintiff) JAC Potts SC (First Respondent/First Defendant) J Hewitt (Second to Seventh Respondents/Second to Seventh Defendants)

Solicitors: Motion filed 20 June 2022 by First Defendant Speed and Stracey Lawyers (Applicant/First Defendant) Hugh & Associates - Lawyers (First Respondent/Plaintiff) Pitcher Partners Legal NSW Pty Limited (Second to Seventh Respondents/Second to Seventh Defendants)

Motion filed 20 June 2022 by Second to Seventh Defendants Pitcher Partners Legal NSW Pty Limited (First to Sixth Applicants/Second to Seventh Defendants) Hugh & Associates - Lawyers (Respondent/Plaintiff)

Motion filed 20 June 2022 by Plaintiff Hugh & Associates - Lawyers (Applicant/Plaintiff) Speed and Stracey Lawyers (First Respondent/First Defendant) Pitcher Partners Legal NSW Pty Limited (Second to Seventh Respondents/Second to Seventh Defendants)

Motion filed 25 August 2022 by Plaintiff Hugh & Associates - Lawyers (Applicant/Plaintiff) Speed and Stracey Lawyers (First Respondent/First Defendant) Pitcher Partners Legal NSW Pty Limited (Second to Seventh Respondents/Second to Seventh Defendants) File Number(s): 2021/88721 Publication restriction: Nil

Judgment

On 7 September I delivered reasons for judgment in earlier interlocutory proceedings before the Court: Gillespie v Gillespies Cranes Nominees Pty Ltd [2022] NSWSC 1184, to which I refer as "J1". This judgment should be read as a continuation of that one.
The matter came before the Court for a second interlocutory hearing on 8 September. Following argument, I announced my conclusions and the general form of orders to be made to give effect to those conclusions. Following a further hearing on 16 September, and further consultations between the Court and the parties, I made orders on 23 September. This judgment sets out the reasons for my decision.
During the 8 September hearing, the parties pointed out to me a number of corrections to my 7 September judgment, which I note in what follows. None of these corrections make any difference to the reasoning in my 7 September judgment.
My 7 September judgment followed a hearing on three motions before the Court. Details of the motions are set out at J1 [3]. The orders I made following that hearing did not dispose of those motions. In fact, they have resulted in a fourth motion which was the subject of the hearing on 8 September. The task before the Court is to deal with that motion and to make orders disposing of the earlier three motions, including the costs of the motions.
The proceedings concern the affairs of a discretionary trust known as the Gillespie Family Trust ("the Trust"). At the time the subject transactions took place, John Gillespie ("John") and Peter Gillespie ("Peter") controlled the Trust's affairs through the first defendant, Gillespies Cranes Nominees Pty Limited ("the Trustee"). That company was (and remains) the trustee of the Trust; John and Peter were the directors. John has since died and his widow, Helen Gillespie ("Helen") is the second defendant. Peter is the third defendant. Companies associated with John and Peter are the fourth to seventh defendants. The second to seventh defendants are commonly represented and I refer to them as the "Director Defendants".
At J1 [6] I stated that the Trust was established for the members of the family of the late Bill Gillespie ("Bill"). While that is correct, the Trust was actually established after Bill's death. Counsel for the Trustee informed me that the defendants would be contending that the Trust had been a vehicle for John and Peter. No doubt the circumstances in which the Trust was established will be the subject of evidence in due course.
The plaintiff in the proceedings is Robert Gillespie ("Robert"). He is a younger brother of John and Peter. There is a fourth brother, David Gillespie ("David"). Bill's widow, Betty Gillespie (Betty"), is also still alive. Neither Betty nor David is currently a party to the proceedings.
At J1 [10] I referred to two of the members of the family, Karen Benjafield ("Karen") and Susan O'Keefe ("Susan") as daughters of Bill's wife, Betty. In fact, they were daughters of both Bill and Betty, and thus full sisters to John, Peter, David and Robert.
Robert's complaint is principally concerned with five transactions, or series of transactions, which he claims were effected by John and Peter through their control of the Trustee and involved breaches of trust. I summarised those claims, which have been referred to as claims 1 to 5, at J1 [12]-[23]. Robert also seeks the removal of the Trustee as trustee of the Trust (claim 6: see J1 [24]).
For the purposes of this judgment, it is only necessary to say something about claims 1 and 2. As will be seen below, there was no separate debate about claims 3 to 5.
Claim 1 concerns the distribution of income from the Trust for the years 2008-2009 to 2019-2020: see J1 [12]. The trust deed provided that, in default of any contrary resolution by the Trustee, the annual income of the Trust was to be divided equally among Betty, John, Peter, David and Robert, who were defined as the "Principal Beneficiaries". But the Trustee was empowered instead to resolve, in the exercise of its discretion, to distribute the income to other members of the family or companies associated with them (defined in the trust deed as "Beneficiaries").
In the years in question the income was all distributed to Beneficiaries other than the Principal Beneficiaries. Robert's claim is that no resolutions, or at least no valid resolutions, were passed in the relevant income years. Thus, the Principal Beneficiaries were entitled to the income, and the distributions to the other Beneficiaries were in breach of trust.
Robert seeks recovery of some, but not all, of the distributions from the recipients. His claim in this regard is currently confined to Beneficiaries associated with John and Peter. He also claims recovery from John and Peter personally, on the ground that, for the purposes of the second limb of Barnes v Addy (1874) LR 9 Ch App 244, they were accessories to the relevant breaches of trust. Alternatively, they are said to be personally liable for "procuring" those breaches.
Claim 2 arises out of resolutions by the Trustee concerning the proceeds of compensation received by the Trustee from the compulsory acquisition of Trust property at Rozelle in September 2017 (an amount more than $55 million). Those resolutions first purported to amend the trust deed and then, relying on the purported amendment, distributed the proceeds (defined in the resolutions as the Trust's "compensation right") out of the corpus of the Trust. The distribution was made mainly in favour of John and Peter, each of whom received 44% of the "compensation right". David, Robert, Karen and Susan each received 3%. Robert also challenges these resolutions.
At J1 [19], I stated that Robert's primary contention was that there was no power under the trust deed to make the amendments to the trust deed which facilitated the distribution. This was incorrect; Robert does not dispute that there was power to make the amendment, but contends the resolution was a fraudulent exercise of the power. Robert also alleges the distribution resolution was improper and a breach of trust.
Again, Robert makes claims against some, but not all, of the recipients (confining the claims to John and Peter) and seeks compensation from John and Peter as accessories to, or procurers of, the alleged breach of trust.
Robert's statement of claim also seeks monetary compensation under claims 1 and 2 from the Trustee for breach of trust. But it seems that the Trustee has few if any remaining assets which would be available to meet awards of compensation against it.
Claim 2 is a derivative claim, in the sense that, if successful, it will result in the repayment of monies or retrieval of assets which would form part of the corpus of the Trust. So too are claims 3, 4 and 5.
As pleaded, there were personal, as well as possibly derivative, aspects to claim 1. Robert's statement of claim sought monetary judgments against the Trustee; against the Beneficiaries sued as recipients; and against John and Peter as accessories for one-fifth of the allegedly wrongful income distributions. These prayers for relief reflected the idea that, as one of the five Principal Beneficiaries, Robert could sue for "his" one-fifth share of the income distributions. But the statement of claim also sought orders requiring the Trustee to "make good" the assets of the Trust, which would apparently require the distributions to be recouped in whole.
For reasons given at J1 [94]-[108] I thought that claim 1 gave rise to derivative claims on behalf of the Trustee. Although any proceeds recovered would not form part of the corpus of the Trust, they would still be Trust assets, to be administered collectively for the benefit of the five Principal Beneficiaries. Moreover, it would not be open to Robert to pursue a personal action if a derivative action were also to be pursued on behalf of the Trustee. Although some of the analysis upon which these views were based were tentative, they do not appear to be questioned by any of the parties.
The three motions which were the subject of my judgment of 7 September all concerned the form of Robert's statement of claim. The principal issue concerned the derivative claims. The Director Defendants applied to have the claims against them summarily dismissed, or to have relevant parts of the statement of claim struck out. The Trustee likewise applied for the striking out of parts of the statement of claim (at J1 [3] I stated that the Trustee likewise sought summary dismissal, but this was incorrect: see below at [80]). Robert's motion sought leave to amend the statement of claim.
I concluded that the derivative actions against the Director Defendants were maintainable and should not be summarily dismissed. But I considered that before such claims could be pursued any further, Robert needed to obtain a representative order authorising him, in the interests of the Trust, to bring, and to continue, derivative actions on the relevant claims.
This resulted in a further motion which is now before the Court. By that motion, Robert seeks the necessary orders from the Court to be able to continue the derivative actions on claims 1 to 5.

Application for representative order

Robert's notice of motion sought a separate hearing and determination on the question whether there were "special circumstances" which justified him in pursuing the derivative actions on behalf of the Trust. The notice of motion was formulated on the assumption that the existence of "special circumstances" justifying a derivative action is an element of the cause of action, to be separately pleaded, and to be the subject of an order for a separate hearing under Uniform Civil Procedure Rules 2005, r 28.2 if it is to be decided in advance of the trial.
For reasons I gave at J1 [80]-[83], I do not agree with that characterisation of the issue. In my view, the making of a representative order involves the separate exercise of the Court's administrative jurisdiction over trusts. Usually that jurisdiction would be invoked by originating summons or by notice of motion in existing proceedings. I therefore do not think that the "special circumstances" relied on by a plaintiff needs to be pleaded, although fair notice must of course be given to the respondent parties of the grounds for the plaintiff's application.
The "special circumstances" relied upon by Robert had however been pleaded in the statement of claim, and the notice of motion had been filed, before my 7 September judgment was delivered. Given the views that I have expressed, I thought it inappropriate to make an order for separate determination of a preliminary question. Instead, I dealt with the motion on the footing that it sought the making of a representative order. This procedural point made no difference to the practical conduct of the application.
The Director Defendants opposed the making of any representative order in favour of Robert as plaintiff. Their contention was that "special circumstances" had not been established and the application should be refused. The Trustee did not formally take a position on the application but argued that if the Court were minded to make a representative order, it should only do so on certain conditions.

Alternative application for leave to bring company law derivative action

The first point taken by counsel for the Director Defendants was that an application for leave to bring a company law derivative action on the claims (Corporations Act 2001, s 237) was available but no such application had been made. At the hearing prior to my judgment of 7 September, it had been argued that the effect of s 236(3) of the Corporations Act was to exclude any trust law derivative action in a case where, as here, the trustee is a corporation. I had accepted in my judgment that a company law derivative action is available where the trustee is a company but had rejected the argument that s 236(3) deprives the Court of power to authorise a derivative action by way of representative order as part of the Court's jurisdiction over the administration of trusts. Counsel for the Director Defendants of course accepted that the parties were bound by my decision, but nevertheless submitted that the availability of a company law derivative action was a reason why "special circumstances" were not established in the administrative jurisdiction.
Counsel for the Director Defendants pointed out that Robert was a director of the Trustee from 1984 to 1994. As a former director, he had standing to make an application to bring a derivative action in the Trustee's name. Counsel submitted that an application for a representative order should not be entertained unless such an application had first been made.
In support of this argument, counsel relied on the principle that equity supplements the law, and equitable relief will not be granted except where relief at law is for some reason inadequate. Counsel submitted that for the purposes of this principle an order under the Corporations Act is a form of relief at law, and a trust law representative order is a form of equitable relief. There was no suggestion that a statutory order would be inadequate. It followed, so the submission ran, that a trust law representative order was not permissible.
I do not think that this submission is sound. The rule that equity will not intervene unless relief at law is inadequate is a rule that applies in equity's auxiliary jurisdiction, and it applies to substantive claims for relief. The making of a representative order is a procedural remedy which is discretionary in nature (as also is the making of an order under s 236 of the Corporations Act).
Furthermore, as I pointed out at J1 [44]-[45], the making of a representative order is only one of a suite of possible orders which the Court has available to it in the administrative jurisdiction to deal with the problem which arises where there is a claim available on behalf of a trust against an alleged wrongdoer and that claim is not being pursued by the trustee. The selection of the appropriate order is a matter for judgment depending upon the circumstances of the case and should not be constrained by rigid rules.
The availability of a company law derivative action for the bringing of an action on behalf of the trust may in some cases be a relevant factor in the exercise of the Court's discretion. But in my view the Court is not obliged to require an application for such an order to be made before it can make a representative order in the administrative jurisdiction.
In the present case, I think that the availability of an application for a company law derivative action is of little weight. It is over twenty-five years since Robert was a director of the Trustee. His connection with the company is vestigial. Moreover, an application under the Corporations Act would give rise to many of the same issues which arise on the application for a representative order in equity. Given the already protracted nature of these proceedings, I see no advantage to anyone in delaying the resolution of the issue further.

Case against Director Defendants

For the purposes of the hearing on 8 September, the parties concentrated on the evidence in support of claims 1 and 2. It seemed to be accepted that if the Court was disposed to make a representative order appointing Robert to bring derivative actions under those claims, then a similar order would follow for claims 3, 4 and 5.
The Trust was established in 1981. It was "purchased" from a company specialising in "shelf incorporations" and "shelf" discretionary trusts. As is usual for such a purchase, the "purchase" included a register book designed to hold, among other things, minutes of trustees.
For the years up to and including 1988, there is a minute, in each case bearing the date shortly before the end of the financial year, appointing the income to specified beneficiaries. Those income distribution minutes then cease. There are no income distribution minutes at all up until 2014-2015. Thereafter the minutes resume, but for 2015-2016 and 2016-2017 the minutes refer to clause 2B of the trust deed, which was not introduced into the trust deed (according to the minutes) until June 2018.
The evidence also shows that requests were made by Robert's solicitors to the Trustee for copies of any minutes for the years after 2008-2009 dealing with income. None have been produced.
On an application of this sort, the Court does not, of course, make any final determination of the facts. For claim 1, counsel for Robert submitted that on the evidence presented, there were no minutes of any resolutions for the years 2008-2009 to 2014-2015 and the minutes for 2015-2016 and 2016-2017 were false. Neither counsel for the Trustee nor counsel for the Director Defendants disputed that, on the evidence before the Court, those inferences were available. Nor did counsel seek to lead any evidence by way of explanation of the evidence or rebuttal of the inferences.
As to claim 2, the minutes of two resolutions (one to amend the terms of the trust deed, and the other to make the distribution: see J1 [18]) were in evidence. The resolutions are recorded as minutes of two separate meetings, held fifteen minutes apart. They are lengthy and clearly were professionally drafted.
The first resolution merely recited that the Trustee "wished to" make the variations and amendments to the trust deed "pursuant to" its powers under the deed. The second resolution contained a more detailed recital. It relevantly stated: … IT WAS NOTED that: 1. On 15 September 2017, by notice in the New South Wales Government Gazette, Roads and Maritime Services compulsorily acquired the [Rozelle property] ("Property") … 2. By reason of the gazettal referred to in 1: … e) This Company has received advice that a Capital Gains Tax event occurred in relation to the Property on 15 September 2017 and that, as a consequence, it is in the interests of the Trust and the Beneficiaries of the Trust as a whole, from a Capital Gains Tax perspective, that this Company in Its capacity as the trustee of the Trust appropriates, and makes particular Beneficiaries specifically entitled under the Income Tax Assessment Act 1997 to, the Compensation Right (including the capital gains specifically arising from the compulsory acquisition of the Property) on or before 30 June 2018 - notwithstanding that no monies have yet been received in respect of the Compensation Right and the Realisation Costs are yet to be incurred. 3. Given that the Property, formerly the most valuable asset of the Trust, has been compulsorily acquired and that there is no intention to acquire a replacement asset for the Trust, the Company wishes to bring about the vesting of the Trust Fund, following the appropriation of the Compensation Right to particular Beneficiaries, so that once the Compensation Right is realised and Realisation Costs incurred, the Trust can cease operation.
Counsel for the Director Defendants drew attention to the recital in the second resolution that the distribution of the "compensation right" was "in the interests of the Trust and the Beneficiaries of the Trust as a whole". Counsel submitted that this was affirmative evidence that the transaction was a legitimate one, and there was no evidence to cast any doubt on that.
I do not accept this submission. In the first place, I find the phrase "in the interests of the Trust and the Beneficiaries of the Trust as a whole" confusing. Clearly enough, the distribution of the capital gain to individual Beneficiaries who would be entitled to a discount on that capital gain when paying tax individually will reduce the overall incidence of tax payable on the gain. But even if this can properly be seen as being in the interests of the "Trust as a whole" (and I am not sure that it necessarily can), it says nothing about the way in which the capital gain should be divided up.
It seems to me that the relevant "interests of the Trust" lie in the proper administration of the Trust monies in accordance with the terms of the Trust. I say the "proper administration" in order to emphasise that it is not merely a question of the existence of a power to make distributions. The exercise of a discretion to make those distributions must also be exercised within lawful limits, and in particular the limit imposed by the doctrine of fraud on a power. Seen in this context, the recital in the second resolution is no more than a statement of opinion based on unstated factual, and perhaps legal, premises.
It is clear that the ultimate issue under claim 2 will depend upon John's and Peter's purposes in passing the relevant resolutions. Evidence of the circumstances, and from Peter as the surviving director, are likely to be crucial, but the matter will ultimately be one for determination by the Court on the objective evidence. The recitals cannot put the validity of the resolutions beyond enquiry, and they are likely to be of little or no weight in the ultimate decision by the Court.
Furthermore, it is not correct to see the minute as standing alone. The other evidence shows a pattern of favouring John and Peter and their families in distributions made from the Trust, both of income and of capital, going back many years. It also includes an apparent long period during which minutes of income distributions were not kept at all, and apparently false minutes were produced, presumably later, to cover up part of the omission. There may ultimately prove to be an answer to this, but on the evidence currently before the Court it is relevant to take into account.
That claim 1 gave rise to serious questions to be tried about the validity of the relevant distributions was not questioned. In my view, similar questions arise with respect to the resolutions on which claim 2 is founded. As I have said, there was no independent debate about claims 3 to 5, which were treated as following claims 1 and 2. Accordingly, I consider there is a sufficient basis for derivative actions based on each of the claims against the disputed defendants.

Available ways of pursuing derivative claims

At the relevant times for the purposes of all of Robert's claims in these proceedings, the Trustee was under the control of John and Peter. It apparently remains under the control of Helen (as John's executor) and Peter. It has done nothing to pursue the claims, and there was no suggestion that there was any realistic prospect of it doing so.
In the face of inaction by the Trustee, one possibility would be to determine the claims against the Trustee, including the removal application, first. If the removal claim succeeds, further recovery proceedings could then be brought by a new trustee against the Director Defendants and, possibly, other recipients. But this would be very inefficient. The validity and propriety of the Trustee's actions would potentially have to be relitigated in claims against the Director Defendants and other parties.
It seemed to me that in these circumstances there was really no practical alternative, if the claims were to be pursued, other than for them being pursued by way of derivative action, so that any findings of breach of trust would be binding on all potentially affected parties. This does not of course mean that any accounts will have to be taken at that point. But at least it will be necessary to decide whether the Director Defendants, or any one of them, are liable to account.
A factor which greatly supports this conclusion, in my view, is that Robert is entitled as of right to pursue his claim for removal of the Trustee. In the course of those proceedings he is entitled, as he has done, to seek findings from the Court that the Trustee has acted in breach of trust. Those alleged breaches overlap with the financial claims against the Trustee and against recipients and alleged accessories. Furthermore, if no action is taken on behalf of the Trust to recover the distributions which are the subject of claim 1, Robert would be entitled as of right to pursue a personal action against the Trustee by way of "equitable debt" for the one-fifth share of those distributions to which he claims to have been entitled (see J1 [94]-[99]). In these circumstances there is every reason for the derivative claims to be litigated at the same time as, or instead of, Robert's personal claims.

Conclusion on making of representative order

The proposition that derivative action may be brought on behalf of a trust only in "special circumstances" is well established at the highest level (see J1 [43]-[44]). But the phrase "special circumstances" is not a statutory one.
As I have described, I consider that the power being exercised is, or is analogous to, a discretionary power within the Court's administrative jurisdiction, to be exercised in the interests of the trust. This is not inconsistent with the proposition that "special circumstances" are required. The exercise of the Court's power to make a representative order starts from the position that such an order is sought as an alternative to the usual course which is that the proceedings are pursued by the trustee. In that sense, the order depends upon "special circumstances".
In my view it is in the interests of the Trust that the claims should be pursued. For practical purposes, that must be done by Robert. Subject to the imposition of conditions which I will deal with in a moment, the Court should make the necessary representative order to allow that to happen.

Conditions on making of order

Counsel for the Trustee submitted that the making of any representative order should be conditional upon Robert undertaking to indemnify the Trustee against any resulting costs liability. Where, in the exercise of its administrative jurisdiction, the Court directs that the trustee pursue litigation against an alleged wrongdoer, then an indemnity may be required. But, as counsel for Robert pointed out, if a representative order is made, Robert will be litigating in his own name and at his own risk for costs. Although the Trustee may ultimately benefit from any judgment (see J1 [52]-[53]) the Trustee will not be a party to the derivative action itself.
Counsel for the Trustee nevertheless submitted that an indemnity was appropriate to cover the risk of a third-party costs order being made against the Trustee. But I must say I find it very difficult to imagine circumstances in which such an order would be made.
The actions are being pursued for the benefit of the Trust, and in those circumstances if the actions are unsuccessful there may be an argument that, to the extent that there may be unsatisfied costs liabilities, those liabilities should be satisfied out of any available assets of the Trust. But that would not be a justification for imposing personal liability for the costs on the Trustee, which has made it clear that it does not wish to bring the proceedings. In my view, a personal indemnity, supported by security, is not justified.
Counsel for the Director Defendants suggested that a condition should be imposed that Robert provide security for his clients' costs. But there may be debates about the scope or quantum of such security. That will obviously depend, among other things, on the nature of any defences the defendants may advance.
It seems to me that once a representative order is made Robert may be a person who is suing not for his own benefit, but for the benefit of some other person, for the purposes of UCPR, r 42.21(1)(e). This would make him amenable to an order for security for costs. Counsel for Robert anyway accepted that the Court would have power, as part of its ongoing supervision of the conduct of the derivative actions (see J1 [51]), to require Robert to submit to an application for security by the Director Defendants. I therefore considered that the issue was best left to be raised in the derivative actions once a representative order has been made.

Form of order

In my 7 September judgment, I discussed the complex way in which claims by individual beneficiaries for breach of trust interact with claims against the Trustee to reconstitute the Trust fund, claims against recipients of Trust property to recover that property or its traceable proceeds, and claims against accessories for compensation. Although the discussion in my judgment was tentative, no party at the hearing before me on 8 September expressed any dissent from what I said.
One of the points I made in my judgment was that liability under the first limb of Barnes v Addy is not the only basis on which a recipient may be liable to repay monies paid in breach of trust. A recipient who is a volunteer may be required to refund such monies, or the traceable proceeds, which the recipient still retains at the time breach comes to light (see at J1 [89]-[90]).
Robert's existing statement of claim does not, however, contain any such claim against the recipients of income from the relevant years other than the Director Defendants. There are five other recipients, who between them account for receipts totalling $600,000 over the period. Similarly, there are four recipients of distributions of the "compensation right" resulting from the resolutions which are the subject of claim 2 from whom recovery has not so far been sought. They are David, Karen, Susan and Robert himself (Robert had indicated before the hearing that David would be joined as a defendant, but not for the purpose of claiming recovery: see [71] below).
Counsel for the Trustee referred to what I said at J1 [94]-[108] about a plaintiff seeking an equitable remedy committing himself to a suit in which all equities in the controversy will be resolved together. Counsel submitted that Robert should be required to join all of the recipients of distributions challenged under claims 1 and 2 so that recovery action could be pursued against them. Counsel further submitted that Robert should be required to repay the distribution he received ($1.635 million) from the "compensation right" distribution as a condition of being permitted to pursue derivative actions against other recipients. Counsel submitted that Robert could hardly expect to obtain the return of the distributions to John and Peter (and, potentially, to David, Karen and Susan) without repaying his own contribution.
Counsel for the Trustee resisted any idea that the Trustee should join the other recipients as cross-defendants. Counsel emphasised that the bringing of the claim was Robert's idea, and submitted that he should accept the necessary consequences of it. For their part, counsel for Robert resisted any requirement to join additional defendants (beyond the principal defendants already joined). Counsel pointed out that there was no evidence that any of the recipients retained the distributions that were made to them or traceable proceeds thereof. Some of the distributions happened some years ago.
Counsel for the Trustee pointed out that solicitors acting for Robert had in fact written to the solicitors for the Trustee before the distribution of the monies pursuant to the resolution asserting that the distribution was a breach of trust. Counsel submitted that if Robert's claim succeeded he would have no answer to a claim for repayment as a recipient of trust monies under the first limb of Barnes v Addy.
Counsel for Robert submitted that it would be wrong to expose Robert to an order for costs. Counsel also submitted, although in a way in which I did not find it clear, that the position, so far as repayment of Robert's share of the compensation distribution, was not as clear as it seemed.
I accept that Robert should not be forced into joining additional defendants to the proceedings if all that will achieve is expose him to further liabilities for costs. But at the same time, Robert is seeking to bring this litigation on behalf of the Trust and he should not be entitled to pick and choose between whom he sues. If any claim is available against a recipient, whether under the first limb of Barnes v Addy or as a voluntary recipient then it should be pursued, and it should be pursued in these proceedings by Robert. It may be correct that in the end there is no viable claim against the other defendants, but so far as I can see, that question has not been investigated by Robert or any other party to these proceedings.
There is no reason to think that the additional costs of joining further recipients are likely to be large. The Court will control the way in which they are represented (or at least the number of sets of costs which will be allowed, which, for practical purposes, will probably be the same thing). At least, Robert should be required to conduct some preliminary investigation as to the viability of these claims. That can readily be done by way of direction once the representative order has been made.
As to the share Robert has received of the "compensation right" distribution, I cannot see any basis on which, should his claim of breach of trust succeed, he would not be required to repay that money, together with interest from the date of receipt. But there is no justification for requiring him to repay that money now if he does not wish to. The claim is disputed and may not succeed. And if the claim does succeed, Robert will very probably be entitled to set off the costs incurred in mounting the claim against any liability to make restitution.
Robert cannot of course amend his claim so as to join himself as an additional defendant to cover this possibility. The answer, it seemed to me, was to require an undertaking in appropriate terms from Robert that should his allegation of breach of trust be upheld, he would refund the Trust, or credit to the Trust, the amount of his receipt, together with interest from the date received. The giving of this undertaking would be required as a condition of the making of the representative order which Robert seeks.
Accompanying Robert's most recent notice of motion was a further proposed amended statement of claim. That proposed pleading provided for the joinder of Betty and David, the two non-party Principal Beneficiaries, as additional defendants (see J1 [9]). But, despite some of the observations made in my judgment, it retained a large array of declarations (cf J1 [116]-[121]); purported direct claims by Robert based on the first and second limbs of Barnes v Addy against the Director Defendants for Robert's "share" of the trust income distributed to them (cf J1 [94]-[108]); and a prayer for "equitable compensation" (cf J1 [109]-[115]).
Counsel for the Trustee submitted that the proposed pleading required further surgery so as to meet the points raised in the judgment. I did not understand this to be in dispute. To be fair to Robert's legal representatives, the proposed pleading was formulated before the judgment was delivered.
The form of the representative order to be made does not need to be tied to the form of any particular statement of claim. Rather, I think that it should merely identify the nature of the claims by reference to the events, or alleged events, giving rise to them. For the recipient claims, it will only be necessary to grant leave to bring claims against recipients of the distributions in question, without identifying them exhaustively. This will allow for further consideration and directions in due course about which of the recipients who have not so far been joined are to be pursued. It will also allow for the formulation of a further proposed set of amendments to the statement of claim, taking into account the points made in my judgment of 7 September.

Pleading applications

The application for summary dismissal in the Director Defendants' motion fails. This is a consequence of the conclusions in my judgment of 7 September and my subsequent decision to make the representative order required by Robert to pursue derivative actions based on his claims 1 to 5.
To the extent that further pleading issues were raised by the defendants' motions, it is unnecessary to say anything further for the moment. Any further debates about pleadings should take place in the context of the new proposed version of Robert's statement of claim. Both the Director Defendants' motion and the Trustee's motion should therefore be dismissed. This will not of course prejudice their position on any further pleading debates which may ensue.

Costs

It is convenient to deal first with the costs, as between Robert and the Director Defendants, of the Director Defendants' motion for summary dismissal or strike out, and of Robert's motion for the making of a representative order. I regard the issues raised between Robert and the Director Defendants on these motions as having been the main issues which I have had to decide in the interlocutory hearings which have resulted in my two judgments.
The Director Defendants put in the forefront of their argument on their motion the contention that the Court's equitable power to authorise a derivative action on behalf of the Trust had been removed by the Corporations Act. Had they succeeded in that contention, they would have been entitled to summary dismissal of all of the claims against them, leaving the proceedings to continue as between Robert and the Trustee only. But the contention failed for reasons I gave at J1 [30]-[71].
The Director Defendants did, as an alternative, contend that Robert's failure to obtain a representative order meant that his claim was liable to be struck out. To the extent that Robert disputed this, by contending that he had a right to have the issue determined at trial, he failed. But the result was simply to require Robert to bring his application now. That application was opposed outright by the Director Defendants, and again they were unsuccessful.
As a matter of substance, I consider that the Director Defendants have been unsuccessful on the two motions which I have mentioned. They should pay Robert's costs of their motion, and also pay his costs of his motion, except to the extent, if any, that the costs of that motion were increased by the joinder of the Trustee as an additional respondent party.
The Trustee's position is different. The Trustee's motion only sought the striking out of Robert's claim against the Trustee on pleading grounds. The Trustee did also contend that no derivative action could be authorised in equity, but counsel for the Trustee did no more at the hearing than to adopt the submissions made by counsel for the Director Defendants. On Robert's motion for a representative order, the Trustee took no formal position on whether the order should be made, and contented itself with submissions about the imposition of conditions and the form of the statement of claim.
I think that as between Robert and the Trustee the proceedings on the motion should be seen as having been inconclusive. The Trustee's costs of its motion and of Robert's motion should be the Trustee's costs in the cause. Robert's costs of the Trustee's motion (beyond the costs incurred in responding to the Director Defendants' motion) and Robert's costs, if any, attributable to the joinder of the Trustee as an additional respondent to his motion for a representative order should likewise be his costs in the cause.
In my view, the additional costs attributable to Robert's original motion for leave to amend should similarly be costs in the cause, on the basis that the motion was similarly inconclusive. Robert will, however, have to pay any costs thrown away by reason of the amendments he eventually makes.

Orders

The orders of the Court are: 1. The Court orders, nunc pro tunc, that the Plaintiff be, and be deemed to have been, authorised to prosecute the following actions as the representative of the "Gillespie Family Trust" settled by deed dated 16 December 1981 (Trust): 1. in respect of the distributions of net annual income of the Trust for the financial years 30 June 2009 to 30 June 2022 inclusive: 1. actions for compensation from the First Defendant for breach of trust in making those distributions; 2. actions of account from the recipients of those distributions; 3. actions for compensation from the Second Defendant (as legal personal representative of the late John William Gillespie) and the Third Defendant for procurement of, or participation in, those distributions. 1. in respect of the distribution of the proceeds of the compulsory acquisition in September 2017 of land at Lilyfield Road, Rozelle, owned by the First Defendant in its capacity as trustee of the Trust: 1. an action for compensation from the First Defendant for breach of trust in making that distribution; 2. actions of account from the recipients of that distribution; 3. actions for compensation from the Second Defendant (as legal personal representative of the late John William Gillespie) and the Third Defendant for procurement of, or participation in, that distribution. 1. in respect of the distributions of assets, monies, interests and rights, from July 2012 onwards, by the First Defendant in its capacity as Trustee to JPD Equipment Pty Ltd and GCN Operations Pty Ltd concerning, or relating to, the business of "Gillespie Crane Services": 1. an action for compensation from the First Defendant for breach of trust in making those distributions; 2. actions of account from the recipients of those distributions; 3. actions for compensation from the Second Defendant (as legal personal representative of the late John William Gillespie) and the Third Defendant for procurement of, or participation in, those distributions. 1. in respect of the advances of money by the First Defendant to Shane Robinson Cranes Pty Ltd and a forgiveness of a debt (put at $1,838,481) owed by the Seventh Defendant to the First Defendant: 1. an action for compensation from the First Defendant for breach of trust in making those advances and forgiving that debt; 2. an action of account from the Seventh Defendant for the benefit derived from the forgiveness of the debt; 3. actions for compensation from the Second Defendant (as legal personal representative of the late John William Gillespie) and the Third Defendant for procurement of, or participation in, those transactions. 1. in respect of the distribution of shares held by the First Defendant on behalf of the Trust in Darwin Clean Fuels Pty Ltd: 1. actions for compensation from the First Defendant for breach of trust in making that distribution; 2. actions of account from the recipients of those shares; 3. actions for compensation from the Second Defendant (as legal personal representative of the late John William Gillespie) and the Third Defendant for procurement of, or participation in, those distributions. 1. The Court notes the undertaking of the Plaintiff to the Court (given as a condition of the making of Order 1(b)) that, if the Court determines that the distributions in Order 1(b) were a breach of trust, the Plaintiff will account to the trustee for the time being of the Trust for the monies distributed to him, provided that the Plaintiff may do so by setting any amount for which he is so obliged to account off against any amount due to him out of the assets of the Trust, including any costs for which the Court may find he is entitled to be indemnified. 2. Grant leave to the Plaintiff to approach the Court for directions about: 1. (f) pursuing or not pursuing any of the claims listed in Order 1 against any of the individuals or entities identified; and (g) the consequential amendment of the Plaintiff's statement of claim and the joinder of further parties. 1. Order that: (h) the First Defendant's notice of motion filed 20 June 2022; (i) the Second to Seventh Defendant's notice of motion filed 20 June 2022; be dismissed. 1. Order that as between the Plaintiff and the Second to Seventh Defendants: (j) The costs of the Second to Seventh Defendants' notice of motion filed 20 June 2022 and of the Plaintiff's notice of motion filed 25 August 2022 (as amended on 8 September 2022) be paid by the Second to Seventh Defendants; (k) The additional costs referrable to the Plaintiff's notice of motion filed 20 June 2022 be costs in the cause. 1. Order that as between the Plaintiff and the First Defendant the costs of the following Notices of Motion, be costs in the cause: (l) Plaintiff's Notice of Motion filed 20 June 2022; (m) First Defendant's Notice of Motion filed 20 June 2022; (n) Plaintiff's Notice of Motion filed 25 August 2022 (as amended on 8 September 2022). 1. The Plaintiff is to serve his proposed Third Further Amended Statement of Claim by 23 September 2022. 2. Proceedings listed for further directions on 30 September 2022.

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At a glance

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Judgment (22 paragraphs)

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Cases Cited (1)

Cited By (1)