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[2011] NSWSC 1619
Supreme Court of NSW
2011-11-04
Slattery J
Original judgment source is linked above.
EX TEMPORE Judgment 1Before the Court is an application to appoint new trustees to the Kennedy Family Trust. The case, in my view, is a clear one for the exercise of the Court's supervisory jurisdiction over this trust to appoint new trustees under Trustee Act 1925, s 70. 2The plaintiffs, Mr John Kennedy and Mrs Sylvia Kennedy, are the parents of the defendant, Mr Glenn Kennedy. The plaintiffs were advised some years ago to set up a discretionary family trust and to appoint their son as its trustee. The precise reasons for the setting up of the Kennedy Family Trust are not demonstrated in evidence. But the trust was set up on accountant's advice. 3The problem that brings the matter to Court is that for over two and a half years the defendant trustee has not been in contact with his parents, who are named as the Principal Beneficiaries of the trust. The trust has one asset, a property in Dubbo on which liabilities are accruing. The defendant's disappearance has meant that the plaintiffs and specifically Mrs Kennedy, and companies associated with her, have met the trust's liabilities in order to preserve trust property.
Service on the Defendant 4This situation is obviously unsatisfactory. The Court cannot allow it to continue. Therefore, I will make the orders sought. It is necessary for the plaintiffs to establish a number of matters before orders may be made. In particular it must be established that proper attempts have been made to serve the defendant who is not present at court today. The efforts that have been made to find the defendant and his absence from the Court today, themselves demonstrate his continuing neglect of this trust. 5The plaintiffs' lawyers anticipated the need to prove service on the defendant. In June of this year they sought orders from this Court for substituted service. Those orders were made on 29 June 2011 by a registrar of the Court. 6The orders were to the following effect. The defendant's last known contact before disappearing was with Mr Cavalero, an accountant who had acted for him. On the evidence Mr Cavalero was an apt person to select to draw these proceedings to the defendant's attention. The summons, affidavits and notice of the substituted service order were served upon Mr Cavalero in accordance with those orders. In more recent times notification of the fact that these proceedings were listed for hearing today before the Court was also served on Mr Cavalero. 7The matter was called outside court three times today. There was no appearance by the defendant. I am satisfied on the evidence that notice of these proceedings was given to him on about 13 September 2011. Then more recently in October this year the defendant was given notice of this hearing.
The Kennedy Family Trust 8The trust was constituted on 27 July 2005 as the Kennedy Family Trust. The trust was a reasonably typical discretionary trust. Once created, the Supreme Court of New South Wales has jurisdiction over the administration of such trusts to ensure the high standards expected of trustees are met. 9The plaintiffs are the named Principal Beneficiaries of the trust. The trust structure that the plaintiffs, were advised to create was that the defendant would be appointed as the trustee, and that he would also have the power of appointment of any new trustee. A wide range of other discretionary beneficiaries were identified in the trust, including the children and grandchildren of the Principal Beneficiaries and other more distant relatives and companies with whom they were associated. 10The precise terms and powers provided for by the deed do not concern the Court on this application. But I should observe that the trustee's powers were very widely expressed in clause 9 of the trust deed, and were substantially equivalent to those of full beneficial ownership. Clause 15 of the trust deed identifies the power of appointment and the removal of trustees without the Court's intervention. 11Unfortunately in this case the defendant is both the appointor and the trustee. Upon his disappearance, there is no one to make the appointment to replace him as trustee. The trustee appointment mechanism has failed.
The Trust Assets 12The plaintiffs come from the Midwest of New South Wales. They have business interests in the Dubbo area. Shortly after the trust was constituted in July of 2005 it was decided that the trust should acquire a property in Lakes Parade Dubbo, which will simply be referred to in this judgment as the Dubbo property. 13The Dubbo property is unimproved land, which was acquired using funds loaned to the trust by the plaintiffs and using borrowings from St George Bank. As the land is unimproved, the only outgoings on it are to the Dubbo City Council and to St George Bank. Under the defendant's administration between the purchase in November 2005 and about January 2009 the trust met these liabilities. But the defendant disappeared in late 2008 or early 2009. About the same time the trust's liabilities for the Dubbo property fell into arrears. They remained in arrears until Mrs Kennedy, through her company C. Reagh Pty Ltd, took steps to pay the rates and the mortgage payments including the arrears on both.
Finding Glenn Kennedy 14The disappearance of the defendant is regrettably complete. Thorough searches have been done for him. He cannot be found on electoral rolls in Australia, or through the former accountant, or by sending letters to his last known address in Dubbo, or by other wider searches. On the material before me the plaintiffs cannot find the defendant, their son. I infer that he cannot readily be found. 15There is some evidence from former work associates that he may now be living in Thailand. But if he is there, his precise whereabouts are unknown. The evidence shows thorough attempts to try and find him, using all the avenues that might reasonably be expected to be pursued to that end. The situation remains that if the defendant is not replaced as trustee the trust will, in effect, be supported by its beneficiaries rather than run in a proper way by its trustee.
Applicable Principles 16The principles that apply for the removal of trustees are well established. An order for the removal of a trustee will be made where it is for the welfare of the trust estate as a whole that the trustee should be removed: Guazzine v Pateson (1918) 18 SR (NSW) 275 of 293. If the Court finds that the trust property will not be safe or that the trust will not be properly executed, in the interest of the beneficiaries the trustee can and should be removed: Wrightson v Cooke (1908) 1 Ch 789 at 803. This seems to me to be a suitable case for making orders on those grounds. The trustee has allowed the mortgage payments and the rates to fall into arrears. This has jeopardised the security of the trust property and exposed it to the risk of the mortgagee or the local council exercising powers of sale over the property. 17The length of time for which the defendant trustee has disappeared is also troubling. It is now almost three years. The trustee has done nothing in that period to administer the trust. But for the timely intervention of the plaintiffs the trust property would have been sold by the mortgagee or the Council. I infer the trustee is not interested in administering the trust, now or in the future. This warrants the Court's intervention to remove the trustee. 18Two things should occur now. There should be a new trustee or trustees appointed. Someone will also need to be appointed as the appointor of the trust. The Court is traditionally reluctant to appoint beneficiaries as trustees of the trust. The reasons for this are set out in the cases: Johnstone v Johnstone (1902) 2 SR (NSW) Eq 90. The reluctance is even stronger where there are close family ties between the trustee and the beneficiaries, unless no suitable other person can be found, or there are special circumstances. 19It is not contended that no suitable person can be found here. What is contended in this case is there are special circumstances. Mr Regattieri of counsel has helpfully identified a number of special circumstances, which he says apply in this case. I will not deal with them all. The principal relevant one seems to be that the plaintiffs have in fact being administering this trust and acting in the role of trustees now for two and a half years and have been doing so in a responsible and satisfactory way. 20The trust was set up to have the defendant, who is also beneficiary under the trust, as both the trustee and the appointor. It was expected at the time the trust was set up that the trustee acting as trustee for other family members would not be difficult in this trust. But things have not turned out, the way that the trust was originally planned. But the fact the beneficiaries are a small family group, the administration of the trust is uncomplicated, the trust property is a single piece of unimproved real estate and the fact that the plaintiffs have acted as trustees, are all a basis in my view for considering there are special circumstances and appointing the plaintiffs as trustees now. 21But I will not appoint them as the appointors to the trust. The plaintiffs will need to find someone else to take that role. Given what went wrong on the last occasion, it is desirable for someone else to be made appointor of the trust. I will now make an order to remove the defendant as trustee and an order to appoint the plaintiffs as trustees and an order vesting the trust estate in the plaintiffs. But I will grant liberty to apply to allow the plaintiffs to advance the name of another person to become the appointor under the trust. 22It would be preferable that that person was not a beneficiary but perhaps a professional adviser to the plaintiffs. All that will be required is for an affidavit of consent of that person to be forwarded to my Associate together with a short submission seeking supplementary orders to that effect. I will then make those orders. But I will reserve that issue for further consideration. Otherwise I will make the orders sought.
Conclusion and Orders 23Now that evidence has been supplied for a new appointor under the Kennedy Family Trust the Court makes the following orders and directions:-
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 December 2011
John Leslie Kennedy
Glenn Raymond Kennedy