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]: