Phillip Allan Yates & (6) Ors v John Norman Phillips Halliday - [2006] NSWSC 1346 - NSWSC 2006 case summary — Zoe

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Phillip Allan Yates & (6) Ors v John Norman Phillips Halliday

[2006] NSWSC 1346

Supreme Court of NSW|2006-12-07|Before: Lloyd AJ

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Source facts

Court

Supreme Court of NSW

Decision date

2006-12-07

Before

Lloyd AJ

Source

Original judgment source is linked above.

Judgment (58 paragraphs)

[1]

Introduction 1 HIS HONOUR: In 1990, the late Mr Jack Yates made a will appointing the defendant, Mr John Norman Phillips Halliday, sole trustee and executor. Mr Halliday is a chartered accountant. By virtue of paragraphs 3 and 4 of the will, various shares owned by the deceased were to be transferred to the Yates Family Trust. This was done. The rest and residue of the estate was given to the deceased's seven grandchildren upon their attaining the age of 21 years. 2 Mr Yates died in 1992. Probate of the will was granted to Mr Halliday on 20 July 1992. Mr Halliday made various distributions as each grandchild reached the age of 21. The distribution to the youngest grandchild, Phillip Allan Yates, took place on 5 December 2005. 3 The estate has now been fully administered, apart from $3,181.57, which, I understand, has been retained to cover the costs and disbursements of filing the final tax return on behalf of the estate. 4 The plaintiffs are the seven grandchildren. They claim an order for the filing of accounts and the production of documents which they say that Mr Halliday was obliged to keep but failed to do. Mr Halliday, however, says that it should be a consequence of any such orders and a prerequisite to it being carried out that the plaintiffs lodge sufficient money by way of security for costs to cover the costs of that additional work.

[2]

The relevant facts 5 Accompanying the grant of probate was a notice pursuant to s 85(1AA) of the Wills, Probate and Administration Act 1898 requiring accounts to be verified, filed and passed within 12 months of the grant. These accounts were filed on 18 August 1993. 6 As noted above, Mr Halliday made various distributions as each grandchild reached 21. He also prepared tax returns for each of the years up to and including the tax year 2005/2006. He also prepared tax returns for each of the beneficiaries whilst money was held on their behalf prior to the distribution to each of them.

[25]

29 Annexed to the second affidavit of Mr Medcalf are also fee memoranda for "...professional services rendered in connection with the preparation of income tax return(s) and/or financial statements…" for the years ended 30 June: 1991, 1992, 1994, 1995, 1996, 1997, 1998, and 1999 (x2) on behalf of Greene Moses Partners (Mr Halliday's former partnership); and 2003, 2004, 2005 and 2006 on behalf of John N P Halliday. The amounts claimed were significant and apparently paid by the plaintiffs. The fact that the fees were levied and paid gives the plaintiffs a valid expectation that income tax returns and financial statements were indeed prepared. 30 Mr Halliday gave both affidavit and oral evidence, to which I refer below. He says that he has delivered all accounting documents of the estate in his possession to his solicitor, Mr I C Dunwoodie, where they were made available for inspection by the plaintiffs' and their representatives. From the period 1992 to 2001 Mr Halliday was a member of the accounting partnership of Greene Moses Partners. That partnership no longer exists. Mr Halliday acknowledges that some historical documents remained with that partnership. He is unaware of the whereabouts of documents other than those in his present custody and which he has made available for inspection. Surplus documents including cheque butts and the like were disposed of. 31 Following his receipt of the plaintiff's solicitors' letter of 10 October 2006 to which was attached a schedule of missing documents, Mr Dunwoodie carried out a cursory inspection of the documents held by him and quickly located the 1993 income tax return and the 1998 income tax return. Mr Dunwoodie's instructions were not to conduct a full search as there were insufficient funds in his trust account to pay for this, and he has not conducted any further search. This does, however, suggest that the examination of the documents by the plaintiffs' representatives on 7 September 2006 was less than thorough.

[34]

The plaintiffs' submissions 40 The plaintiffs rely upon the alleged failure of Mr Halliday to keep accounts and to keep the documents which form the basis for these accounts, coupled with the right of a beneficiary to see trust documents. 41 Mr D P Ash, appearing for the plaintiffs, relied upon the following statements of principle, which I accept. The classic statement of principle is found in Scott on Trusts, vol IIA, 4th ed (1987), Boston, Little, Brown and Co at 462-465, adopted by Kirby P in Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 at 422 and by Gummow J in Re Simersall; Blackwell v Bray (1992) 35 FCR 584 at 587: The trustee is under a duty to the beneficiaries to give them on their request at reasonable times complete and accurate information as to the administration of the trust. The beneficiaries are entitled to know what the trust property is and how the trustee has dealt with it. They are entitled to examine the trust property and the accounts and vouchers and other documents relating to the trust and its administration 42 In Schmidt v Rosewood Trust Ltd [2003] 2 AC 709 at 729 [51], the Privy Council held that the right to seek disclosure of trust documents is one aspect of the court's inherent jurisdiction to supervise and, if necessary to intervene in, the administration of trusts. Schmidt was referred to with approval by the Full Court of the High Court in CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 221 ALR 196 at 200 [17]. In Simersall, Gummow J said (at 589) that a trustee has an obligation "to keep proper accounts and to allow inspection of them by the cestui que trust". 43 Particular reliance is placed on the judgment of Gillard J in Re Fairbairn [1967] VR 633 Gillard J said, at 637: A trustee is bound to preserve the estate. If he destroys any part of it, he does so at his own peril. 44 In Freeman v Fairlie (1812) 3 Mer 24, 36 ER 10 at 17-18, Eldon LC, after noting "the bounden duty of an executor, to keep clear and distinct accounts of the property which he himself is bound to administer", held that where trust documents are not produced, an executor must show that he has done his utmost to supply his own defect.

[52]

60 In Re White; White v McLachlan (1910) 10 SR (NSW) 295, Street J adopted (at 296) the following comments of Lord Cranworth LC in Aberdeen Railway Co v Blaikie Bros (1854) 1 Mcq 461 at 471-472; [1843-60] All ER Rep 249: It is a rule of universal application, that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect. So strictly is this principle adhered to, that no question is allowed to be raised as to the fairness or unfairness of a contract so entered into. 61 I have described in pars [36] and [37] above the purchase by Mr Halliday of real estate in 1995 and its sale four years later resulting in the receipt of precisely the same sum as the original outlay. Although it is a notorious fact that the Sydney property market was booming during those years, the result of this transaction is that the estate lost the benefit of any interest on the sum of $914,382 that was outlayed during that period. Although I accept the fact that the property was rented. The following statement quoted in J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia, LexisNexis Butterworths Australia, 7th ed (2006), at 593 would appear to apply: A trustee commits a breach of trust if he violates any duty which he owes as trustee to the beneficiaries. Ordinarily he does not commit a breach of trust if he does not intentionally or negligently do something which he ought not to do or fail to do something which he ought to do. Ordinarily he does not commit a breach of trust unless he is in some way personally at fault. A trustee commits a breach of trust, however, even if he does the best he can if his best is not good enough …. he is under duty in administering the trust to exercise such care and skill as a person of ordinary prudence would exercise, and he is liable for a loss resulting from his failure to comply with this standard, even though he does the best he can. 62 An executor or trustee is entitled to receive reimbursement or indemnity in relation to all charges and expenses properly incurred on behalf of the trust: see, for example, s 59(4) of the Trustee Act 1925, which states the common law position. Moreover, in the present case the testator, in addition to appointing Mr Halliday as sole executor and trustee, expressly provided that he shall be entitled to be paid professional fees for work done by him or his firm. A trustee who commits a breach of trust, however, may lose this right of reimbursement or indemnity. The courts have tended to be severe where the trustee has failed to maintain accounts: Christensen v Christensen (No. 2) [1954] 3 QWN 162, Will of William Hickey (1889) 3 QLR 162. In Hayes v Wilson (1885) 11 VLR 640, the services of an accountant were necessitated by the neglect of executors to keep proper accounts. It was held that executors should have to pay out the accountant's fee from their own pocket, but were allowed to keep commission.