Plaintiffs v Defendants

1 This is an application under Rule 54.02 of the Supreme Court (General Civil Procedure) Rules 2005 for the approval and authorisation by the Court of the proposed sale of an asset of the estate of the late John Patros to one of the administrators and trustees of the estate, the first plaintiff Rhonda Helen Patros.

2 Mrs Patros is the widow of the deceased and the mother of their three infant children, the defendants, who are aged 14, 12 and 5.

3 The asset in question is the family home at 17 Hammond Street, Altona, which John Patros provided for the family and in which the family has always lived. John Patros was the sole proprietor of the family home. He died intestate on 16 October 2004, leaving the first plaintiff as his partner and the defendants as his children within the meaning and for the purposes of s 51 and s 52(f) of the Administration and Probate Act 1958. The estate is to be distributed accordingly.

4 The house property is presently held by the administrators on a trust for sale pursuant to s 38 of the Administration and Probate Act 1958.

5 Generally speaking, it is a rule of equity that a trustee may not purchase trust property.[1] The rule follows from the broad principle that a conflict of interest and duty will not be tolerated. However there are recognised exceptions to the rule. A trustee may be authorised to buy the trust property either by the trust instrument, or by statute, or by the beneficiaries themselves if they are sui juris. In addition, a trustee may purchase trust property if the trustee obtains the consent of a competent court. The permission may be sought where beneficiaries are unable to consent, for example because they are unborn or are infants; or the permission may be sought where beneficiaries who are sui juris do not consent. This Court has the power to authorise a purchase of trust property by a trustee by virtue of the Court's inherent jurisdiction in matters relating to trusts.[2] I consider that the requisite power is now also conferred by s 63 of the Trustee Act 1958[3], or, at the very least, by the combined operation of s 63 and s 63A of the Trustee Act 1958. Section 63A has particular application in the case of beneficiaries who are unable to give a valid consent themselves. In such cases, the Court must be satisfied that the proposed arrangement would be for the "benefit" of the beneficiaries in question.

6 In the present case, the children are represented by an appropriate adult relative as their litigation guardian and have been legally represented by competent counsel and solicitors independent of the legal representatives of the plaintiffs. Although of course the children cannot validly consent to the proposal, their legal representatives do not oppose the proposed purchase and indeed they recommend it strongly. I have had the benefit of a confidential legal opinion from their counsel to that effect.

7 It is proposed that the home be sold to Mrs Patros for the price of $335,000, which is the value attributed to the property by a Reviewed Certified Sworn Valuation dated 14 February 2007 from BMT Valuers. It is not proposed that the property be put to auction or that the market otherwise be tested.

8 When this matter first came before me in the Practice Court, I was concerned that the authorities seemed to indicate that, regardless of other circumstances, the Court should not approve a purchase by trustees without evidence that the market had been fully tested, preferably by auction, and that the trustee was offering at least as much as the market would bear: cf Re Tabone, deceased.[4] I adjourned the further hearing of the matter until today and asked the parties for additional written submissions and evidence in this regard. These have now been supplied and will be retained on the file.

9 I am now satisfied that, at least insofar as ss 63 and 63A of the Trustee Act 1958 are relied upon, evidence of the kind referred to is not essential and that the Court is not restricted to a consideration of the financial consequences for the estate as such. In Waine v King[5], Hodgson J approved a sale to trustees on the basis of valuations, without an auction and despite opposition from two of the beneficiaries. His Honour based himself on s 81 of the Trustee Act of New South Wales which was similar in form to s 63 of the Victorian Trustee Act 1958, albeit that s 81(2) expressly provides that the provisions of s 81(1) are deemed to empower the Court to authorise acts which "without the authorisation of the Court or the consent of the beneficiaries, would be a breach of trust". It seems to me that those words were probably included in s 81 only as a matter of caution, and that s 63 of the Victorian Act should be read as containing the same words implicitly. Alternatively, it may be that s 63 should at least be read as empowering the Court to authorise a transaction that would otherwise be beyond the power of the trustees because it would infringe a principle of equity. It is not necessary for me to express a final view on the reach of s 63 itself (read alone), because, in any event, it is clear from the language of s 63A that that section, at least, empowers the Court to go so far as to approve an arrangement that would otherwise be a breach of trust.[6]

10 In Waine v King, Hodgson J held that the strict rules of equity did not apply directly to the exercise of the Court's power under s 81 of the New South Wales Act. The power in question arose on a finding by the Court that the proposed transaction was "expedient". The same word is used in s 63 of the Victorian Act. Hodgson J relied in particular on the judgment of Dixon J in Riddle v Riddle.[7] Dixon J had said that expediency means "expediency in the interests of the beneficiaries"[8] and that the Court's opinion of what is "expedient" was "a criterion of the widest and most flexible kind".[9] On the other hand, Dixon J had made it clear that his judgment only related to power to make the order, and that the manner of exercise of that power involved "prudence and wisdom".[10] Hodgson J distinguished Re Tabone[11] on the basis that the Victorian equivalent of s 81, namely s 63 of the Trustee Act 1958 (Vic), had not been referred to in Re Tabone. His Honour might have added that s 63A was not referred to in Re Tabone either. [12] I would distinguish Re Tabone on the same basis in the present case and on other bases to be mentioned below.

11 Although the principles of equity may not apply directly to the exercise of the Court's power under the statutory provisions presently in question, in Waine v King[13], Hodgson J acknowledged that in exercising the discretion he would take into account "the great reluctance of equity to approve a sale to a trustee, and count this as a strong factor against approval". His Honour mentioned also the reluctance of the Court "to order the sale of a beneficial owner's interest in property against the wishes of that beneficial owner, and to deny the testing of the market by auction if a beneficial owner of the property wants it".[14] However, his Honour considered that in the case before him those factors were outweighed by other factors, including that the expenses of an auction would be saved, that the parties would in substance receive what they wished, that the will had conferred on one of the trustee plaintiffs an option to purchase the property on a valuation basis in certain circumstances that did not seem relevantly different from the instant circumstances; that the defendants themselves had previously offered to sell their interest at a price set by valuers; and that there was no evidence to suggest that the current valuations were not sound. The factors taken into account by Hodgson J under s 81 of the Trustee Act (New South Wales) thus went beyond matters pertaining strictly to the financial or other interests of the estate.

12 Turning more specifically to s 63A of the Trustee Act 1958, I agree with counsel for the plaintiffs that a broad view of the word "benefit" in that section was taken by Hansen J in the recent case of George v Kollias[15], in which his Honour said of s 63A[16]:

"It seems implicit but should be noted that the concept of benefit is not confined to benefit of a financial nature."

Hansen J there noted that in Re Weston's Settlement[17], in relation to comparable legislation, Lord Denning MR had referred to educational and social benefit. His Lordship had said[18]:

"the Court should not consider merely the financial benefit to the infants or unborn children but also their educational and social benefit. There are many things in life more worthwhile than money."

13 Even outside the statutory provisions in question, it now seems that the principles of equity themselves are not so inflexible as to deny significance for present purposes to the need to preserve a family home for a widow and her children. In Clay v Clay[19] the High Court held that Mrs Clay, a widow, did not act in breach of her fiduciary duties as guardian of her children in acquiring, by private sale, a house property from the estate of her late husband to provide a home for herself and the children. Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ said[20]:

"It is a truism that the scope of her fiduciary duty was, to adopt the words of Mason J, to be 'moulded according to the nature of the relationship and the facts of the case'. His Honour also observed that, in some cases 'the so-called rule that the fiduciary cannot allow a conflict to arise between duty and interest ... cannot be usefully applied in the absolute terms in which it has been stated'.

Further, it is as well here to bear in mind the statement by Deane J in Chan v Zacharia as follows:

'[O]ne cannot but be conscious of the danger that the over-enthusiastic and unnecessary statement of broad general principles of equity in terms of inflexibility may destroy the vigour which it is intended to promote in that it will exclude the ordinary interplay of the doctrines of equity and the adjustment of general principles to particular facts and changing circumstances and convert equity into an instrument of hardship and injustice in individual cases'. There is 'no better mode of undermining the sound doctrines of equity than to make unreasonable and inequitable applications of them'."

"However, the better view is that there is no sensible real or substantial possibility of conflict in the necessary sense. Indeed, the Full Court itself, in an earlier passage in its reasons, pointed to the determinative considerations. The Full Court said:

'A number of factors in the circumstances of this case could provide reason for viewing the conduct of Mrs Clay as not involving a breach of the duty she owed as guardian. She dealt with the trustee who had a power of sale, not with her wards. She did not deal in property of her wards. She dealt in good faith. She paid market value and no loss accrued to the estate. The acquisition was not in breach of any duty she owed with respect to the property acquired. She was guardian by virtue of her capacity as sole surviving natural and step-parent of the wards, a very particular type of fiduciary role albeit that it may have some of the indicia of a trust role. She may be seen to be acting at once in her [wards'] interest and her own by providing a home for her wards as well as herself, especially as Queenslea Drive offered particular emotional support for her wards, as well as herself, which would be lost to all of them if she did not acquire it'." (My emphasis)

15 In the present case I am satisfied that the valuation is a proper one and that the proposed sale would be for the benefit of the infant defendants, both individually and collectively. It obviates the risk that they may lose the familiar and nurturing environment of their home and their neighbourhood as a result of a public sale, and it removes the instability and uncertainty that would attend the possibility that one of the children, upon attaining majority, may seek to force a partition or sale of the home. It also saves the significant cost (estimated conservatively at some $30,000), of a public sale with the concomitant prospect of Mrs Patros having to try to repurchase the property or another property to provide a home for herself and the children. The savings in question are not only savings to Mrs Patros but also to the estate and, directly or indirectly, to the infant defendants. In addition, significant delay, uncertainty and inconvenience will be avoided for all concerned.

16 I note that Mrs Patros would have been able to take advantage of the election to purchase conferred by s 37A of the Administration and Probate Act 1958 except for the expiry of the three months time limit in that section, which was due to circumstances beyond her control relating to the finalisation of the value of her husband's estate. It is unnecessary for me to investigate whether there are uniform statutory provisions throughout Australia to the same effect as s 37A (or, for that matter, uniform provisions to the same effect as s 63 or s 63A of the Trustee Act 1958) such as might justify the view that the general principles of equity should be modified to conform with the statutory policy: compare Esso Australia Resources v Commissioner of Taxation of the Commonwealth of Australia[22]. Even if I could not legitimately have regard to s 37A, I would, in any event arrive at the same overall conclusion.

17 As already mentioned, I would distinguish Re Tabone[23], not only on the basis already mentioned (namely that ss 63 and 63A were not referred to) but also on the basis that in that case, unlike the present, there was opposition to the proposal from a beneficiary. The strict view taken by Winneke CJ in _Re Tabone (_that exceptional circumstances needed to be established to satisfy the Court that its sanction was necessary in the interests of the trust estate) was expressly linked to the fact that a beneficiary who was of full age and capacity had exercised his "undoubted right" to refuse his consent.[24] His Honour may not have adopted the same view if the only impediment had been the position of beneficiaries who were unborn or not sui juris and whose legal representatives were urging the purchase of the trust property. Further, there was no reliance in Re Tabone on social, emotional or familial concerns as such, whereas Clay v Clay[25], supra, suggests that the principles of equity have moved on in that regard since Re Tabone was decided.

18 In any event, by virtue of s 63A of the Trustee Act 1958, this Court is required to place itself in the shoes of the infant beneficiaries and to consider whether, in their interests, approval should be given or refused. As Hansen J said in George v Kollias[26]:

"It may be that an arrangement involves a risk from the point of view of infants and unborn persons. That is not necessarily decisive against approval. The arrangement and its benefits and disadvantages must be considered overall. So considering the matter it may be concluded that the risk to infants and unborn persons 'is a risk that an adult would be prepared to take' and which the Court is prepared to take on behalf of those persons."

19 In my view, any risk of financial detriment to any of the infant beneficiaries is far outweighed by the benefits, for them, of the proposal.

20 For these reasons I am satisfied that consent to the sale should be given in the exercise of the Court's inherent jurisdiction; that the sale is "expedient" and should be authorised under s 63 of the Trustee Act 1958; and that the "arrangement" for the sale should be approved under s 63A of the Trustee Act 1958.

21 I propose to answer the questions asked substantially in the manner sought by the plaintiffs and to make, in substance, the declarations and other orders sought.

22 As to costs, I refer to the discussion of this topic in the above mentioned article by Hinde, and especially the opening passage of the discussion, as follows[27]:

"In England there seems to be a difference of opinion whether the costs of a trustee who successfully applies for permission to buy the trust property may be paid out of the trust estate, or whether they must be borne by the trustee himself. Underhill cites the unreported case of Nunnally v Nunnally in which Pearson J ordered the costs of the application to be paid out of the estate, on the ground that the purchase was for the benefit of the beneficiaries (since the trustee offered more than the market price), and comments '... it is conceived that the course followed by his Lordship was correct and is now the regular practice'. Lewin, on the other hand, considers that except in special circumstances the Court will require the purchasing trustee to pay the costs of the application."

23 The learned author then points out that a strict view is taken in New South Wales and that Victorian courts might be expected to follow the practice adopted in New South Wales. However, I am not aware of any example of a Victorian court following or not following the New South Wales approach in a comparable case. Whatever may be the position in New South Wales[28], I do not think that it would be a proper exercise of my discretion in this case to order any of the parties to pay their own costs of the proceeding. I consider that the purchase was for the benefit of the beneficiaries and I take into account also the matters urged by counsel for the plaintiffs showing that it was only difficulties in the administration of the estate that prevented the plaintiff from exercising the option under s 37A of the Administration and Probate Act 1958. I think that these considerations are sufficient to warrant an order that the costs of all parties be paid out of the estate. I will make orders accordingly.

[1] See J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia, 7th ed, 2006, para [1743]; Ford and Lee, Principles of the Law of Trusts, Law Book Company Looseleaf Service at para [9660].

[2] See GW Hinde, Purchase of Trust Property by a Trustee with the Approval of the Court [1961] MelbULawRw 2; (1961-62) 3 Melb U.L. Rev 15 at 16; Re Tabone, deceased [1968] VR 169 at 170-171.

[3] See GW Hinde, op. cit, at 16 (fn 7). See also Waine v King Unreported, Supreme Court of New South Wales, Hodgson J, 5 October 1994, BC 9403131.

[4] [1968] VicRp 16; [1968] VR 168.

[5] Supra.

[6] Section 63A empowers the Court to authorise, among other things, an arrangement "varying or revoking all or any of the trusts". See also Bowmil Nominees Pty Ltd [2004] NSWSC 161 at [5]- [14]. As to the situation before the introduction of ss 63 and 63A, see Templeton v Leviathan [1921] HCA 55; (1921) 30 CLR 34.

[7] [1952] HCA 12; (1952) 85 CLR 202.

[8] [1952] HCA 12; (1952) 85 CLR 202 at 214.

[9] Ibid. See also In the matter of Ansett Australia Limited (ACN 004 209 410) [2006] FCA 277 at [83]- [84].

[10] [1952] HCA 12; (1952) 85 CLR 202 at 216.

[11] [1968] VicRp 16; [1968] VR 168, supra.

[12] Section 63A was not applicable in Re Tabone because none of the persons interested fell into any of the four categories of "incapable" persons referred to in s. 63A(1).

[13] Supra, BC 9403131 at 11.

[14] Ibid.

[15] [2007] VSC 46.

[16] At [45].

[17] [1969] 1 Ch 223 at 245.

[18] Ibid.

[19] [2001] HCA 9; (2001) 202 CLR 410.

[20] [2001] HCA 9; (2001) 202 CLR 410 at 432-433 [46]- [47] (citations omitted).

[21] [2001] HCA 9; (2001) 202 CLR 410 at 436 [56] (citation omitted).

[22] [1999] HCA 67; (1999) 201 CLR 49 at [18]- [34].

[23] [1968] VicRp 16; [1968] VR 168.

[24] [1968] VicRp 16; [1968] VR 168 at 171.

[25] (2001) 202 CLR 420.

[26] [2007] VSC 46 at [44] (citation omitted).

[27] GW Hinde, op. cit, at 28 (citations omitted).

[28] See and compare Waine v King, supra, BC 9403131 at 12-13.