Order 58 r 2 and r 3 Rules of the Supreme Court 1971

Common account - Whether breaches of trust particularised by the plaintiffs fall within the scope of a common account

Bell Group NV (In Liq) v Aspinall (1998) 19 WAR 561

Ledger v Petagna Nominees Pty Ltd ([1989] 1 WAR 300

Packer v Meagher [1984] 3 NSWLR 486

Re Bond Corporation Holding Ltd (1990) 1 WAR 465

Re Dawson [1966] 2 NSWR 211

Southern Cross Commodities Pty Ltd (In Liq) v Ewin [1987] ACLR 818

1 MASTER BREDMEYER: This is an application by the defendants under the inherent jurisdiction of the Court to strike out the particulars of breach of trust claimed by the plaintiffs dated 6 November 1998. Those particulars were filed pursuant to an order of Registrar Johnston made on 14 October 1998.

2 By way of brief background, and this action has a long history as its date suggests, the plaintiffs are residual beneficiaries under the will of the late J E J Cameron. The first defendants are the executors by succession of that will and, as third defendants, are executors of a related will. They appear as fourth defendants in their personal capacity. By a consent order made by Mr Commissioner Zelestis QC on 28 May 1990 the Court ordered that the first defendants account to the plaintiffs in respect of their administration of the estate of J E J Cameron (the "estate") from 9 May 1980 in accordance with directions to be given by a Master. Some directions as to the taking of the account were given by Acting Master Birmingham on 5 June 1990. The first defendants produced some accounts for the 10 year period 1980 to 1990 which are exhibited to an affidavit of Dr Kim Stanton sworn 6 August 1990. The plaintiffs produced a lengthy document entitled "Notice stating amount sought to be surcharged or disallowed and reasons therefor ..." which was filed on 5 October 1990.

3 Master Adams ruled on some matters relating to the taking of the account on 18 June 1991, Library No 8922. He gave a second ruling on other matters to do with the account on 27 November 1992, Library No 920620.

The plaintiffs filed a lengthy affidavit of Mrs Lindon on 28 July 1994 in support of the plaintiffs case as to the passing of the accounts. On 30 September 1994, Library No 940527, I published reasons dealing with the taking of the accounts and on 18 May 1995 the plaintiffs filed a supplementary Notice of Surcharge. More recently on 14 October 1998 Registrar Johnston made certain orders relating to the taking of the account and, as previously mentioned, one of them, required the plaintiffs to file and serve particulars of any allegation of breach of trust by the first defendants and it provided that each party should have liberty to apply in regard to the same.

4 The defendants, in general terms, argue that many of the breaches of trust sought to be raised in the particulars cannot now be raised because they have been previously precluded by the terms of the order of Mr Commissioner Zelestis or by the rulings of Master Adams or myself. Eleven particulars of breaches of trust are set out and they cover 18 pages. They have been copied verbatim from the plaintiffs' statement of claim in CIV 1688 of 1994 which is an action between Lindon and Featherby, two of the present plaintiffs, against Alexandra Jane Stanton and Kim Gordon Stanton who are the three of the four defendants before me. That action is at present adjourned sine die.

5 Master Adams ruled that the account ordered by Commissioner Zelestis was for a common account and not an account for wilful default. In a common account the accounting party must account for what he received. In an account for wilful default the accounting party must account not only for what he actually received but also for what he would have received if it had not been for his wilful default. It is not the law however that a breach of trust cannot be charged on a common account. An executor or trustee can be found liable on a common account for breaches of trust in relation to moneys coming in to his hands unless he can discharge himself. Thus he will be liable if moneys were found to come to him which he put into his own pocket and spent, or paid to a person who was not a creditor, or invested in unauthorised securities. Volume 17 Halsbury's Laws of England 4th ed par 1471 states:

"Where the account directed by the order is what is called a common account, the personal representative is bound not only to bring in an account of his receipts, but to discharge himself as regards those receipts, and show what he has done with the money received and in taking the account disbursements made by him in breach of his fiduciary duties will be disallowed.1

1 Re Stuart, Smith v Stuart (1896) 74 LT 546; Re Newland, Bush v Summers (1904) 49 Sol Jo 14. To this extent, accordingly, a breach of trust can be gone into in proceedings began by originating summons. In taking an account all just allowances are to be made without any direction to that effect; RSC Ord 43, r6. See further EQUITY, vol 16, para 1249. "

6 Particular 8(b) relates to $58,260.95 not received by the executors on the sale of a farming property "Watheroo Park". That relates to a breach of trust in the form of a wilful default by the executors. It relates to money which they failed to receive. It is outside the scope of a common account. I consider it is outside the order of Commissioner Zelestis and outside the rulings of Master Adams that the account is to be a common account and should be struck out, lest it confuse the Registrar and make the task of taking the account more difficult than it is.

7 Particular 8(c) relates to the executors' alleged misuse of $25,366 deposited into a trust account. Clearly this falls within the scope of a common account and it has not been contended otherwise. The particular is said to be a duplication on page 18 of the plaintiffs' supplementary notice of surcharge and disallowance dated 18 May 1995 and repeated on pages 3 - 5 of that document. I do not consider that there is a complete duplication and I will not strike out this particular.

8 Particulars 8(d) and 8(e) relate to the defendants' role in taking Privy Council proceedings No 29 of 1985. In broad outline the complaint is that the defendants in taking the appeal to the Privy Council were involved in a conflict of interest and they failed to carry out the instructions of the plaintiffs as set out in a letter to the defendants of 12 May 1983. It is said that they were guilty of a breach of trust in wrongly taking proceedings to the Privy Council, wrongly ignoring the plaintiffs' wishes and then charging the estate, which of course impacted on the plaintiffs as residuary beneficiaries, with the legal costs. I consider that the complaints in particulars 8(d) and 8(e) describe alleged breaches of trust which are within the scope of a common account. They describe disbursements made by the defendants on legal costs which are said to be in breach of trust.

9 These particulars are said to be objectionable on the basis that they duplicate allegations made on pages 11 to 16 of the plaintiffs' Notice of Surcharge and Disallowance of 5 October 1990, and on pages 19 and 34 to 46 of the affidavit of Ms Lindon sworn 28 July 1994. Although the particulars deal with the same subject matter of the Notice and of the affidavit, different words are used and I do not propose to strike out these particulars as duplication.

10 Particular 8(f) is objected to as being a duplication of allegations made in pages 52 - 54 of Olga Lindon's affidavit of 28 July 1994. It is not a complete duplication and I propose to let it stand.

11 Particular 8(g) is also said to be duplication of pages 18 - 19 of the plaintiffs' supplementary notice of surcharge and disallowance dated 18 May 1995. There is a duplication there but it is not alleged in the 1995 supplementary notice that the defendants' failure to deposit the four sums in the trust account was a breach of trust. I propose to let this particular stand.

12 Particular 8(h) is not a precise duplication of earlier allegations and should be allowed to stand. It has not been contended, nor could it be, that the order of Commissioner Zelestis on costs precludes the plaintiffs from arguing that, as between the defendants, the costs of defending the earlier part of this action should be borne by the fourth defendants and not by the estate.

13 Particular 8(i) relates to the defendants' failure as executors to instigate proceedings to recover rent or main profits from themselves in their personal capacity in respect to their occupation and utilisation of Watheroo Park and the Miling and Edawa land. It is said that because of those failures the plaintiffs' were forced to bring Supreme Court proceedings namely this action CIV 2604 of 1983 which resulted in the consent order of Commissioner Zelestis, part of which was that the defendants' in their personal capacity were to pay to the estate $110,000 for their use of the said lands. The plaintiffs in these particulars seek to recover part of their legal costs of $75,713. They say they were forced to take legal action to recover rents and mesne-profits because the defendants failed to do so. I consider this particular should be struck out as precluded by Order 4 of Commissioner Zelestis that there be no order as to costs. I consider that should be given its fullest effect and it means that the plaintiffs cannot recover their costs against any of the defendants and vice versa.

14 Particular 8(j) states that the on or about 8 July 1994 the plaintiffs requested the defendants to take action against their then solicitors for professional negligence by reason of having to failed to implement the terms of the plaintiffs letter of instructions dated 12 May 1983 as pleaded in particular 8(d)(iii). That letter instructed the solicitors for the defendants to file a Notice of Appeal to the Privy Council in respect of the judgment of Brinsden J on behalf of the residuary beneficiaries of the estate in relation to four matters which are set out therein. The defendants took no action on that and that is said to be a matter of negligence on their part. Mr Duckham, in argument, elaborated on this particular. He says that the executors spent money being represented at the appeal and yet they failed to carry out the plaintiffs' instructions. He therefore says that part of the legal costs incurred by the defendants in being represented at the Privy Council appeal should disallowed. I consider that is arguably a breach of trust which can be alleged on a common account. I relates to moneys allegedly wrongly spent in breach of trust.

15 Particular 8(k) relates to a failure to claim a tax deduction. It states that the plaintiffs requested the defendants to claim a tax deduction for any costs chargeable to the estate in respect of its participation in this action, but the defendants have neglected or refused to claim such a tax deduction against income earned by the estate. I consider that this claim arguably falls within the scope of a common account. Let me suppose, by way of analogy, that the executors received some income from rents, failed to bank it promptly and it got stolen. That is arguably a breach of trust which relates to a common account because it is a neglect or mishandling of trust moneys received. Likewise a failure to claim all proper tax deductions against income received, results in a net "loss" of some of that money through an overpayment of tax. I propose to let this particular stand.

16 In summary I propose to strike out particulars 8(b) and 8(i) only.

17 I do not consider that the plaintiff should discontinue the somewhat parallel action CIV 1688 of 1994, but clearly there is a duplication between many of the plaintiffs' allegations made there and here. It could be stayed in whole or in part pending the taking of the account in this action. I will hear the parties on this.

18 The defendants say that compound interest cannot be claimed in a common account because it is money not received, and also, it is contrary to the second ruling of Master Adams. I do not propose to rule on this point because it is not clear to me if compound interest is claimed in the particulars. Particular 8(c)(vi) states:

"... The plaintiffs calculate such loss of interest and compound interest up to 6th September 1984 in the amount of $1,853.90 as set out in the Second Schedule hereto."

The second schedule only claims simple interest. I will leave it to the Registrar to rule on the legitimacy or otherwise of any claim for compound interest. Even if disallowed, the court could achieve a similar objective by allowing a fairly high commercial rate of interest on moneys surcharged or disallowed.