Trustees Act 1962, s 77, s 78, s 85

Bankruptcy Act 1966, Part X

1 HASLUCK J: The plaintiffs have applied to the Court to be appointed as the trustees of a trust created many years ago in substitution for the first and second defendants. Some related orders are sought which I will come to in a moment.

2 The deceased, Kathleen Maud McLauchlan, died on 4 May 1983 at Albany in the State of Western Australia and on 8 July 1983 probate of her Will was granted to William Gordon Egerton and Frances Ann Egerton ("the executors"). A statement of assets and liabilities signed by the executors on 29 June 1983 valued the assets of the estate situated within Western Australia at $130,374.

3 By deed dated 27 September 1984 the executors resigned from their appointment as trustees of the trust created by the Will of the deceased and the first defendant, Antony Kevin Royston Prince, and the second defendant, Leon Keith Jamieson, were appointed trustees of the trust. The deed provided for the trustees to administer the trust according to the terms of the Will and according to law.

4 The first named plaintiff, John Scott McLauchlan, is the life tenant of the trust. The second named plaintiff, Serena-Anne Jade McLauchlan, is the daughter of the first named plaintiff and his only child. She is the only member of the class of remainder beneficiaries pursuant to the trust.

5 The plaintiffs allege that since September 1984 the estate has been depleted by a number of investments not authorised by law. The statement of claim goes on to deal with a number of other matters and includes a prayer for relief whereby an account is sought from the first defendant.

6 I will not traverse the statement of claim and the defence of the first defendant in their entirety, but it appears to be admitted that the first defendant permitted the second defendant to invest the assets of the estate. It is these events that led to Master Sanderson making certain orders for the taking of an account and for the taking of that account before Registrar Johnston on 30 August 2002.

7 The terms of the order made by Registrar Johnston are as follows:

"1. Pursuant to paragraph 2 the orders of Master Sanderson dated 21 February 2001 the sum found due on the taking of the account is as follows:

1.1 $106,585.14 together with interest on that sum at the rate of $17.01 per day computed from 31 August 2002 until the date of payment;

1.2 $129,649.53 together with interest on that sum at the rate of $20.99 per day computed from 31 August 2002 until the date of payment;

1.3 $224.91 together with interest on that sum the rate of $0.036 per day computed from 31 August 2002 until the date of payment.

2. The first defendant do pay to the Estate all costs of the action to date, other than the costs the subject of Master Sanderson's orders dated 21 February 2001, including reserved costs, to be taxed.

3. The plaintiff have liberty to set down the issue of the change of trustees for summary determination at a special appointment of 1 hour before a Judge in open Court."

8 It is apparent from the final paragraph of these orders that the plaintiff was allowed liberty to set down the issue which is now before me for summary determination at a special appointment. The plaintiff seeks the outstanding relief claimed in the action, namely, the removal of the first and second defendants as trustees of the trust created by the Will of the deceased and the appointment of the plaintiffs as the trustees of the trust.

9 It follows from earlier discussion that the interests of the plaintiffs, being the two proposed trustees, are not entirely coincidental. It is therefore necessary to give close consideration to the relevant statutory provisions and principles, notwithstanding that the application was not actively opposed.

10 Section 77 of the Trustees Act 1962 provides that the Court may, whenever it is expedient to appoint new trustees and it is inexpedient, difficult or impractical to do so without the assistance of the Court, make an order for the appointment of new trustees in substitution for any existing trustees.

11 By s 77(2) of the Trustees Act the Court may make such an order in a number of circumstances including where a trustee has been held by the Court to have misconducted himself in the administration of the trust or where a trustee is bankrupt.

12 In Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572 Dixon J at 580 indicated that the jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property, and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee.

13 His Honour went on to say that the Court forms a judgment based upon considerations which combine to show that the welfare of the beneficiaries is opposed to the trustee's continued occupation of the office. Such a judgment must be largely discretionary. A trustee is not to be removed unless circumstances exist which afford ground upon which the jurisdiction may be exercised.

14 One gathers from this analysis that the meaning of "expedient" in s 77(1) of the Trustees Act should be taken as conducive to, or fit or proper or suitable having regard to the interests of the beneficiaries, the security of the trust property and to an efficient and satisfactory execution of the trust and a faithful and sound exercise of the powers conferred upon the trustee. See also O'Leary J in Re Roberts (1983) 70 FLR 158 at 161.

15 In Pope v DRP Nominees Pty Ltd [1999] SASC 337; (1999) 74 SASR 78 it was said by Bleby J at 86 that expedient may mean advantageous or merely appropriate or suitable to the circumstances of the case.

16 In appointing or removing a trustee, the dominant consideration of the Court is the welfare of the beneficiaries: Letterstedt v Broers (1884) 9 App Cas 371; Miller v Cameron (supra) per Starke J at 579. This approach was approved by Kennedy J in Gava v Grljusich, unreported; SCt of WA; Library No 960010; 11 January 1996 in which the judgment of the trustees was thought to be clouded by reason of their conflict with the beneficiaries.

17 The Court should also be alert to factors which suggest that either the trust property will not be safe or that the trust will not be properly executed in the interests of the beneficiaries: Re Wrightson (1908) 1 Ch 789 per Warrington J at 803.

18 In the present case, it is apparent that the first and second defendants have not properly managed the trust and the safety of the trust property has been severely jeopardised by their mishandling.

19 In the course of his judgment, which is now reported as McLauchlan v Prince [2001] WASC 43, Master Sanderson arrived at this conclusion:

"14 The plaintiffs' claim in this case that the wilful default on the part of the first defendant arises as a consequence of his failure to supervise his fellow trustee and to participate in investment decisions. There can be no doubt that such passive indifference amounts to wilful default. I think this emerges clearly from such cases as Dalrymple v Melville (1932) 32 SR (NSW) 596; Lewis v Nobbs [1878] 8 Ch D 591; Dawson v Dawson [1945] VicLawRp 14; [1945] VLR 99; Re Vickery [1931] 1 Ch 572. Although counsel for the first defendant did not concede this point, there was no substantial argument to the contrary.

15 In the circumstances then I can see no basis upon which the first defendant can resist the plaintiffs' claim to have accounts taken on the basis of wilful default. I am unable to see that there is any preliminary question to be tried. Furthermore, I can see no reason why given the general terms of O 45 r 1(3) that accounts on the basis of wilful default cannot be ordered on a summary basis. In the circumstances then I am prepared to order that the first defendant account to the plaintiffs on the basis of wilful default."

20 It is important to note that Master Sanderson went on to make these further observations:

"16 Before leaving this issue I should point out that there is no question of dishonesty on the part of the first defendant. That was not alleged on this application and in fact counsel for the plaintiffs made it plain that a claim for active breach of trust which is to be found in the statement of claim was not pursued. An order for accounts to be taken on the basis of wilful default is an equitable remedy which imputes a failure on the part of a trustee to meet the highest standards set by equity in the administration of trusts. The use of the word "wilful" means no more than the trustee, understanding his obligations, has failed to comply with those obligations. The evidence establishes that the first defendant knew nothing of the investment decisions taken by the second defendant. That is where the wilful default lies. There is no question of active participation by the first defendant in the second defendant's breach of trust."

21 A trustee's failure to keep separate bank accounts has been found sufficiently serious to warrant the removal of a trustee: Attorney-General (NSW) v Elliott (1868) 6 SCR (NSW) Eq 85. A similar approach was adopted in other authorities including Falkingham v Harbison (1899) 5 ALR 254 at 256 and Benzija v Adriatic Fisheries Pty Ltd (1984) 37 SASR 545.

22 I consider, having regard to the observations and findings of Master Sanderson, and the reasoning reflected in the previously decided cases, that the trustees in the present case have misconducted themselves, with the result that it is open to the Court to make an appointment in substitution for the existing trustees. This brings me to facts and matters bearing upon the proposed appointment.

23 While the Court may be reluctant to appoint a beneficiary as a trustee it will do so where special circumstances exist: Ex parte Conybeare's Settlements [1853] 1 WR 458. In Waddell v Patterson [1865] 2 WW&A'B(E) 36 the Court held that although the decided cases have shown that it is undesirable to appoint as trustees near relatives of the beneficiaries such appointments are often necessarily done where no more eligible person can be found and where strangers are disinclined to assume the onerous duties of trustees.

24 The basis for this approach appears to be the disinclination which is entertained by independent persons to assuming onerous duties on behalf of strangers. Further, the Court will, in the most exceptional circumstances, appoint a life tenant as a trustee of a trust: Re Cunningham's Settled Estates [1909] 27 WN (NSW) 28; In the Will of Benjamin [1920] VicLawRp 80; [1920] VLR 393 at 397.

25 I note in passing that in Gava v Grljusich (supra) Kennedy J insisted upon the appointment of a trustee independent of the beneficiaries, but his requirement in that regard was obviously influenced by the conflict between the trustees and the beneficiaries. That case provides little guidance in the circumstances of the present case, bearing in mind also that the estate in the present case is not large.

26 Counsel for the plaintiffs submitted that in this case exceptional circumstances justify the proposed appointment. He submitted that the terms of the contract of sale dated 11 April 1984 between the estate and the first plaintiff which provided for interest to be paid by the purchaser when he was also the life tenant entitled to income under cl 2(a) of the Will gave rise to complexity. Further complexity arose as a result of certain matters that were dealt with at greater length in the supporting affidavit of the first plaintiff sworn 1 December 2000 including a variation in the size of the payments to be made. Ultimately, both plaintiffs and the first defendant agreed on an appropriate accounting, by consent order, having regard to these complexities.

27 The affidavit of John Scott McLauchlan sworn 13 June 2001 contained various passages directed to the question of whether an independent person such as the Public Trustee should be appointed in substitution for the existing trustees. He said this at par 9 of his affidavit:

"9. The reasons why my daughter and I do not wish the Public Trustee to be appointed as trustee are:

9.1 we are, subject to the remote possibility that I have a further child, the sole beneficiaries of the Trust. We are able, in the capacity as joint trustees, to manage the assets of the Trust. The assets of the Trust, as disclosed by the first defendant's affidavit, are relatively small;

9.2 I am the life tenant, as defined in the deed which is annexure 'AKRP-1' to the first defendant's affidavit, under the Trust. Pursuant to my rights as life tenant I have a current and continuing right to reside in a house which is the property of the Trust. Currently my wife, from whom I am separated, is with my consent living in that house;

9.3 that the Public Trustee charges an annual fee for its services, as trustee, calculated as a percentage of the value of the Trust. The Trust may not be vested for the period of my life. A substantial asset of the Trust is the house which I have the right to live in as life tenant and is not an income producing asset. Consequently, the Trust assets are likely to either be depleted or grow at a lesser rate than if my daughter and I were appointed as trustees of the Trust. The Public Trustee's fees, to the extent those fees apply to the value of the property of which I am life tenant, will not be met by the income generated by the Trust."

28 Counsel for the plaintiffs made submissions concerning this aspect of the matter as follows:

"6.3 the first-named plaintiff is the life tenant and the second-named plaintiff is currently the sole remainder beneficiary of the trust. While there may be further beneficiaries, being any subsequent issue of the first-named plaintiff, the first-named plaintiff sets out in his affidavit of 13 June 2001 the reasons why that is extremely unlikely. The plaintiffs both consent to their appointment as trustees, a factor which was found to be relevant in appointing a life tenants as a trustee in Re Cunningham's Settled Estates per Simpson CJ in Eq at 28. The defendants consent to their removal as trustees of the trust. There appears to be no other suitable person to be appointed as trustee and the only possible alternative appears the appointment of a stranger, which the courts have been reluctant to do see preamble to para [6] above;

6.4 because the proposed trustees are both the life tenant and the only current remainder beneficiary, should they have any differences as to their respective beneficial entitlements to the estate, including the amount paid into the estate by the first defendant, that will obviously require resolution by the Court - and neither of them could prejudicially affect the other in that regard because they will be joint trustees required to act jointly. Should proceedings be required, the trustees in their representative capacity (see O. 6/5) would be plaintiffs and each of them, in their capacity as beneficiaries, would then be defendants separately represented. However, if a stranger such as the Public Trustee were appointed, the plaintiffs would face:

(a) avoidable expense of administration; and

(b) the possibility of such proceedings being instituted by the trustee to obtain protective declaratory relief before distributing any estate money, even though neither of the beneficiaries wishes such proceedings to be pursued;

6.5 the plaintiffs have been deprived of estate money for periods in excess of 12 years and have suffered great hardship as a result. Because the interests of life tenant and remainder beneficiary are both protected by the proposed joint appointment, in all the circumstances this case is appropriately exceptional to warrant that joint appointment."

29 Counsel for the plaintiffs submitted further that where the Court appoints a new trustee it is normal for it to make an appropriate vesting order. If new trustees are appointed an order should be made vesting the property in the new trustees pursuant to s 78 and s 85 of the Trustees Act.

30 The orders sought by the plaintiffs were set out in an amended minute of proposed orders dated 25 October 2002. The proposed orders are as follows:

"1. The first-named and second-named plaintiffs be appointed as the trustees of the trusts of a settlement dated 11 April 1984 and made between William Gordon Egerton and Frances Ann Egerton and John Scott McLauchlan in substitution for the first and second defendants.

2. The land now subject the trusts of a settlement dated 11 April 1984 and between William Gordon Egerton, Frances Ann Egerton and John Scott McLauchlan particulars of which is set forth in the Schedule do vest in the first-named plaintiff jointly with the second-named plaintiff for all the Estate and interest therein now vested in the first-defendant jointly with the second-defendant such land to be held by them upon the trusts of the said settlement.

3. The right to sue and recover anything in action (including:

3.1 the sum of $471.36 $8,153.67 as at 20 September 2002 24 October 2002 standing to the credit of the joint banking account of the first and second defendants with the Commonwealth Bank, Albany branch;

3.2 the sum of $29,023.39 as at 30 June 2000, standing to the credit of the first and second defendants with Esanda Ltd;

3.3 the sum of $14,340.00, as at 30 June 2000, standing to the credit of the first and second defendants with AGC Ltd;

3.4 the sum of $236,459.58 $228,959.58, the balance payable by the first-defendant pursuant to the Order of Registrar Johnston on 30 August 2002 and interest on $228,959.58 at the rate of 6% per annum from 31 August 2002 to the date of payment);

subject to the trusts of the will dated 19 March 1974 of Kathleen Maud McLauchlan, deceased (the "Will") and any interest in respect thereof do vest in the first-named and second-named plaintiffs to be held by them upon the trusts of the Will.

4. The gold medal and chain bracelet held at Haynes Robinson under the instructions of the first and second defendant subject to the trusts of the Will do vest in the first-named and second-named plaintiffs to be held by them upon the trusts of the Will.

5. The first defendant do pay the plaintiffs' cost of this application to be taxed."

31 In responding to an application for orders in these terms I must take account of some matters reflected in the pleadings in addition to the matters I have already referred to.

32 It is pleaded in par 6 of the statement of claim that by reason of the depletions to the estate complained of, the first defendant is said to be liable to reconstitute the assets of the estate, but has failed or refused to agree to do so despite demand by letter dated 16 October 2000.

33 It is pleaded further in par 7 of the claim that despite the second defendant purporting to resign as a trustee of the trust, the first defendant wishing to resign as a trustee of the trust, the second defendant having executed a deed of assignment under Part X of the Bankruptcy Act 1966, and the plaintiffs having sought, by letter to the first defendant dated 16 October 2000, that they be appointed as trustees of the trust, the defendants remain as trustees.

34 It is apparent from the defence of the first defendant, that this defendant does not admit par 6 of the claim. However, the first defendant does admit the allegations contained in par 7 of the claim, and it therefore emerges on the face of the pleadings that the first defendant wishes to resign as a trustee of the trust.

35 For the sake of completeness, I note that the first defendant by his pleading does not admit the allegation contained in par 8 that the plaintiffs are entitled to an order under s 77 of the Act appointing them as trustees in place of the defendants. He does not admit that a vesting order under s 78 and s 85 of the Trustees Act should be made to give effect to the proposed change in trustees.

36 However, notwithstanding the matters I have just referred to, I note that there was no suggestion by counsel for the first defendant at the hearing before me that the first defendant wished to put up any matters in opposition to the orders sought. Essentially, it seemed that the first defendant was prepared to abide the outcome of the Court's ruling. I have already noted that there was no appearance for the second defendant and therefore no opposition from that quarter to the orders sought. Counsel for the plaintiffs drew attention to the relevant affidavits of service.

37 There was discussion at the hearing before me as to whether an independent trustee such as the Public Trustee or other body should be brought into consideration. However, as appears from par 6.4 of his written submissions, counsel for the plaintiffs submitted that this would inevitably involve the estate in extra expense. Having regard to the complexities of the matter, such a trustee would probably be obliged to incur expense in obtaining directions from the Court in regard to matters that might prove to be of a technical nature only. His submission was, essentially, that as each of the two proposed trustees had a different interest, an appropriate balance would be struck. This would ensure that the estate was administered fairly and efficiently.

38 It follows from my review of the statutory provisions and related principles that the Court needs to be satisfied that the proposed appointment is warranted, having regard to the criteria set out in s 77 of the Trustees Act. Against the background I have described, I am satisfied that the existing trustees have misconducted themselves and that it is expedient to make the orders proposed. I am conscious that it is not a large estate and for that reason I give weight to the submissions made by counsel concerning the Public Trustee.

39 I am conscious that what is proposed brings with it certain difficulties. However, on balance, for the reasons put to me by counsel for the plaintiffs, I consider that in the exceptional circumstances of the present case an appointment of the kind proposed should be made. It is of some assistance to me in arriving at that conclusion that the first defendant has been represented before me by counsel and that no specific objection to the proposed orders has been raised.

40 It follows from my determination that the plaintiffs should be appointed as trustees, that the related orders in the amended minute of proposed orders dated 25 October 2002 should be made. At the hearing of the matter I was asked to indicate specifically in my reasons for judgment, if I arrived at such a conclusion, that these orders were to be made upon the basis that they would bring the action commenced by the plaintiffs to an end. I am prepared to make a ruling to that effect. I will hear from counsel for the parties as to whether any further orders are required.