Plaintiffs v Defendants

Supreme Court of Victoria|2011-07-28|Before: Dixon J

TRUSTS AND TRUSTEES - Corporate trustee - management of trustee deadlocked - exercise of power of appointment under trust deeds deadlocked - deadlock has paralysed management of trusts for more than 3½ years - whether preservation of trust property or welfare of beneficiaries at risk - whether expedient to appoint replacement trustees - Trustee Act 1958 s 48(1).

PRACTICE AND PROCEDURE - preliminary determination of question - whether appropriate to determine question of appointment of replacement trustees - whether the just, efficient, timely and cost-effective resolution of the real issues in dispute will be facilitated - Civil Procedure Act 2010 s 7, 8, 9 - Supreme Court (General Civil Procedure) Rules 2005 r 47.04.

**1 Robert and Erwin Deutsch are brothers who once conducted a number of businesses through the companies which are identified in the title to this proceeding. These companies were the trustees of a series of seven trusts, four of which are discretionary trusts, two are unit trusts and one is a superannuation trust. The families of each brother are included in the objects of the discretionary trusts. The companies were jointly controlled by the brothers as shareholders and directors. The personal relationship between the two brothers has completely broken down and the management of these companies and trusts is said to be deadlocked.

2 In the proceeding, the plaintiffs, Robert Deutsch and members of his family who are beneficiaries of the trusts, inter alia:

(a) allege breaches of fiduciary duties by his brother, Erwin;

(b) allege breaches of terms of settlement by Erwin;

3 On the eve of an earlier trial date for the proceeding, Mr Korman's clients, Erwin's wife Tziporah together with her children and her grandchildren, issued proceeding no. 1363 of 2011. The new proceeding is brought on the basis of rights allegedly held by the new parties as beneficiaries of the relevant discretionary trusts. It also seeks by way of primary relief the appointment of new trustees. On 29 March 2011, Osborn J ordered that the two proceedings be, effectively, consolidated. Thus, in this proceeding Mr Korman's clients were added as the ninth to sixteenth defendants and the first to eighth plaintiffs by counterclaim, and directed to file and serve a statement of claim articulating their counterclaim. I propose to refer to these parties as the plaintiffs by counterclaim. Erwin, too, seeks the appointment of new trustees.

4 Both sides are agreed that there should be new trustees appointed. Each seeks that relief but they cannot agree on the terms of that relief, in particular who should be appointed trustees and when they should be appointed. This is a primary issue for trial.

5 There are two summons before the court and it is these applications which are before me for determination. The first summons in time is that of the plaintiffs by counterclaim. They seek orders pursuant to s 48(1) of the Trustee Act 1958 for the appointment of new trustees in place of the second to seventh defendants respectively, who are the current trustees. Further, they seek orders pursuant to Div 2, Part IV of the Trustee Act 1958, for vesting of trust property and all rights to sue for and recover monies now standing in the name of the second to seventh defendants respectively, in their capacity as the current trustees of the trusts.

6 The second summons, filed by Erwin, seeks initially the separate determination of questions pursuant to r 47.04 of the Rules. Two questions are postulated for preliminary determination:**

(a) Should new trustees be appointed by the court in place of the second, third, fourth, fifth, sixth and seventh defendants in their capacity, respectively, as trustees of the Deutsch Grandchildren Trust, Cooee Trust, Deutsch Children Family Trust, Delfrid Superannuation Fund, Tzedoko Unit Trust and International Fabrics Trust?

(b) If yes, when should the new trustees be appointed by the court?

This application seeks further relief in the same terms as is sought by the summons of the plaintiffs by counterclaim.

7 The applications are opposed by the plaintiffs.

**8 There being no issue that new trustees ought be appointed in place of the current trustees, the issues were:

(a) Will the interlocutory appointment of new trustees facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute in the proceedings?

(b) Is it necessary and appropriate for the court to intervene, prior to trial, in the management of the trusts, either by the appointment of a receiver, or the appointment of new trustees, having regard to the circumstances of the trusts and the interests of the objects of the trusts?

(c) On what basis should the court assess whether it is necessary and appropriate for the court to intervene? Should intervention be by interlocutory relief? Should the court direct a separate trial of the question of the appointment of new trustees?

Each of these issues raises sub-issues, which I shall articulate as appropriate.

9 Although various affidavits were read, and no deponent was required to attend for cross-examination before me, there was no agreement about the facts and circumstances I should consider, save for this common recognition at a high level of abstraction of the need for new trustees. Beneath a thin veneer of agreement, ongoing internecine conflict between Robert and Erwin rages, apparently undiminished by the imposition upon the parties and their advisers of obligations under the Civil Procedure Act 2010.**

Appointment of replacement of trustees by the court

**10 As background, having regard to the consensus that new trustees must ultimately be appointed for each of the trusts, I can briefly state the principles which apply. The court has a wide discretion to remove or replace trustees. The jurisdiction of the court to remove a trustee is inherent. It is expressed in the Trustee Act 1958. Section 48 provides that "the Court may, whenever it is expedient to appoint a new trustee or new trustees, and it is found inexpedient difficult or impracticable so to do without the assistance of the Court, make an order appointing a new trustee or new trustees either in substitution for or in addition to any existing trustee or trustees ...".

11 As to when it may be expedient to act, courts have consistently started with observations of Story in Equity Jurisprudence at s 1289:**

But in cases of positive misconduct, courts of equity have no difficulty in interposing to remove trustees who have abused their trust; it is not indeed every mistake or neglect of duty, or inaccuracy of conduct of trustees, which will induce courts of equity to adopt such a course. But the acts or omissions must be such as to endanger the trust property or to shew a want of honesty, or a want of proper capacity to execute the duties, or a want of reasonable fidelity.

12 Frequently cited[1] are the remarks of Lord Blackburn in Letterstedt v Broers:[2]

It seems to their Lordships that the jurisdiction which a court of equity has no difficulty in exercising under the circumstances indicated by Story is merely ancillary to its principal duty, to see that the trusts are properly executed. This duty is constantly being performed by the substitution of new trustees in the place of original trustees for a variety of reasons in non-contentious cases. And therefore, though it should appear that the charges of misconduct were either not made out, or were greatly exaggerated, so that the trustee was justified in refusing them, and the court might consider that in awarding costs, yet if satisfied that the continuance of the trustee would prevent the trusts from being properly executed, the trustee might be removed. It must always be borne in mind that trustees exist for the benefit of those to whom the creator of the trust has given the trust estate.

**13 The dominant considerations are the preservation of the trust property and the welfare of the beneficiaries. The power is not exercised as a sanction or punishment of an errant trustee.[3] There is not, in this proceeding, any question that the court could exercise the power. Plainly, where the management of a corporate trustee is deadlocked by internecine dispute between two parties, who are equal director/shareholder/appointor and in consequence the trustee is not attentive to the trust or performing its office, considerations of the need for preservation of the trust property and regard for the welfare of the beneficiaries may arise. Commonly, with corporate trustees, the issue arises in the context of insolvency. There is no evidence here as to the solvency of the corporate trustees and it is not suggested that they are insolvent.

14 Given the issues are whether in the circumstances it is the proper exercise of the discretion to replace the trustees prior to the trial of the proceeding, and if so, who should be appointed as trustee and how should the resolution of the proceeding then be managed, I have kept an eye upon the question of the expediency of replacement, despite the suggestion it may be common ground. For the purpose of considering these issues, I draw the following matters from these affidavits.**

**15 The second defendant, 333 St Kilda Road Pty Ltd, is the trustee of a discretionary trust named "Deutsch Grandchildren Trust". The beneficiaries of this trust are Robert and Erwin and their families. The property of the trust is the sum of $21,145 held in an estate agent's trust account. The circumstances of risk to the interests of the beneficiaries of this trust are said to be that due to the deadlock between Robert and Erwin, the current trustee has not complied with its responsibility under corporations or taxation legislation since June 2005.

16 The third defendant, Cooee On St Kilda Road Pty Ltd, is the trustee of a discretionary trust named "Cooee Trust". The beneficiaries of this trust are Robert and Erwin and their families. The property of this trust consists of $335,860 held in the trust account of a chartered accountant, appointed as a receiver and manager by a secured lender. The circumstances said to now place at risk the assets of this trust are that it has never filed any returns under corporations or taxation legislation.

17 The fourth defendant, 253 Bay Street Pty Ltd, is the trustee of a discretionary trust named "Deutsch Children Family Trust". The beneficiaries of this trust are Robert and Erwin and their families. The trust property consists of real estate located at 253 Bay Street, Port Melbourne. The property is rented, returning $132,961 per annum. It is managed by an estate agent who holds an accumulating rent surplus, currently $157,892, in his trust account.

18 The fifth defendant, Fashion Fabric Cuts Pty Ltd, is the trustee of two trusts. One trust is a superannuation trust named "Delfrid Superannuation Fund" and the other trust is a unit trust named "International Development Unit Trust". International Development Unit Trust owns residential real estate in East St Kilda, valued at $1,112,714. All of the units in this trust are held by the superannuation fund, the beneficiaries of which are Robert and Chaja Deutsch as to 52.46%, and Erwin and Tziporah Deutsch as to 47.54%. I was informed, from the bar table under objection, that the East St Kilda property is currently occupied by a son of Erwin and Tziporah Deutsch under an arrangement that he may live in it rent free for five years, a son of Robert and Chaja Deutsch having previously resided in the property rent free for a period of five years. This statement was disputed by counsel for Robert. It is not disputed that no steps have been taken in the administration of the Delfrid Superannuation Fund since June 2008. There may be risks to the beneficiaries of the Delfrid Superannuation Fund from the management of its investments. The immediately identifiable risk, again, would seem to be one of adverse consequences from regulators because of failure to comply with corporations or taxation legislation.

19 The sixth defendant, Prycroft Ninety-One Pty Ltd, is the trustee of a unit trust named "Tzedoko Unit Trust". All of the units in the trust are held by Robert and Erwin, and the beneficial entitlements are Robert's children 40%, Erwin's children 24%, Robert and Chaja 18%, and Erwin and Tziporah 18%. The property of the Tzedoko Unit Trust is land located at 137-141 Johnson Street, Fitzroy, which is leased returning $187,474.56 per annum. The lease is managed by a real estate agent and accumulated rental surplus of $47,953 is held in the estate agent's trust account. Again, the risks identified to the trust property of this trust flow from non-compliance with regulatory requirements since June 2005.

20 The seventh defendant, International Developments Vic Pty Ltd, is the trustee of a discretionary trust named "International Fabrics Trust". The beneficiaries of this trust are Robert and Erwin and their families. The material did not show what was the property of this trust or whether the property of the trust was at risk.

21 Each of the trust deeds was in evidence and the discretionary trusts were in substantially identical terms. In the discretionary trusts the appointer is Robert and Erwin jointly. All powers of appointment are effectively deadlocked by the apparent refusal of the brothers to confine their dispute and exercise any collective responsibility.

22 During the course of the hearing it became clear that there may be significant factual issues, which were not presently the subject of evidence, relating to the timing of the need to replace the trustees. For example, it was submitted, in the absence of evidence, that rented properties were not insured. Further, over objection from Mr Matters, who appeared for Robert, Mr Erwin Deutsch submitted to me that "There is (sic) things happening in the background that are endangering the trusts and could damage the trust properties", apparently relating to financing issues. Mr Erwin Deutsch agreed that these matters were not in affidavits. Of course, this was an unsatisfactory basis for an application to be made, notwithstanding that Erwin was not legally assisted.

23 The agreement that new trustees be appointed was not based on agreement as to the material facts on which I should act in determining that it was expedient to do so. These considerations in conjunction with the interrelated issues I have identified above, led, during argument, to the prospect that the proper relief to consider might be the appointment of a receiver to the trusts. All parties expressed interest in this prospect although none had sought such relief.**

24 That the Court has jurisdiction to appoint a receiver is clear. Section 37(1) of the Supreme Court Act 1986 empowers the Court to appoint a receiver when it is "just and convenient" to do so.[4] The Court may appoint a receiver at any stage of a proceeding (r 39.02(1) of the Supreme Court (General Civil Procedure) Rules 2005). The legal principles applicable to the appointment of a receiver of the assets of a trust were considered in some detail by Warren J (as her Honour then was) in Yunghanns v Candoora No 19 Pty Ltd[5] and Martyniuk v King.[6] The Court may appoint a receiver of trust property where that step is necessary for "the well-being of the trust" or "the safety of the trust property". Thus as Warren J said,[7] citing Kerr on Receivers:[8]

The general legal principle is that if misconduct, waste, or improper disposition of assets can be shown, or if it appears that the trust property has been improperly managed, or is in danger of being lost or if it can be satisfactorily established that parties in a fiduciary position have been guilty of a breach of duty there is a sufficient foundation for the appointment of a receiver ...

25 On the other hand, in National Australia Bank Ltd v Bond Brewing Holdings Ltd[9] the Appeal Division of the Supreme Court of Victoria sounded a clear warning by stating as follows:

The drastic nature of the power to appoint a receiver is emphasised in the decisions mentioned in 65 American Jurisprudence 2d, para 20, where authority is cited for the propositions that the power is a drastic, harsh and dangerous one and should be exercised with care and caution, that receivership is a drastic course allowed only under pressing circumstances and granted only with reluctance and caution and that the appointment of a receiver is an extraordinary and drastic remedy, to be exercised with utmost care and caution and only where the court is satisfied there is imminent danger of loss if it is not exercised.

**26 The usual price for the interlocutory appointment of a receiver is an undertaking as to damages. None was offered. A receiver could readily act to preserve the assets of the trusts, comply with regulatory requirements and protect the position of the trusts pending the resolution of the proceeding. A receiver would also protect both Robert and Ervin from the consequences, in terms of their possible joint dereliction of duty as directors of trustee companies, and the prospect of joint liability to restore to the trusts any loss of corpus occasioned by the assumed risks, regulatory non-compliance and negligence as a landlord.

27 Apart from the absence of an offer of viable undertaking as to damages, I had no evidence as to the costs of a receivership and whether, in the balance with the suggested risks to the property of the trusts and the interests of beneficiaries, such expense might be warranted.

28 In a situation of deadlock of a corporate trustee, where the conduct of a hotel business was affected by a deadlock between unit holders constraining the ability of the corporate trustee to operate the business, Mandie J (as his Honour then was) in Vinci & Bamco Pty Ltd v Imperial Bourke Nominees Pty Ltd & Ors[10] appointed a registered company liquidator as receiver and manager of both the corporate trustees and of the assets and undertakings of the trusts. The court directed that the receiver and manager proceed as speedily as possible to sell both the land and the business. The distinction between those circumstances and the present proceedings lies firstly in the fact that that case involved a trading trustee. Here, the trustees are either passively holding assets in the form of cash, or real estate is leased and managed by estate agents. There is no evidence of any misconduct, waste or improper disposition of assets in respect of those trusts where the trust property is currently being managed by estate agents. Secondly, the balance of convenience considerations which influenced Mandie J in that case were quite different.[11]

29 Issues concerning the well-being of the trust or the safety of the trust property, relevant to the discretion to appoint a receiver, arise out of the same matters to be considered as to whether it is expedient to replace trustees.**

**30 Three reasons were advanced for seeking replacement trustees. First, to preserve, invest and manage the trust assets appropriately for the benefit of all potential beneficiaries. Second, to ensure the trustees and the trusts fulfil their statutory obligations and take urgent steps to remedy such breaches of those obligations as have already occurred. Third, to investigate, and if judge necessary, take such reasonable steps as the new trustees deem appropriate to seek relief arising from any breach of duty by the current trustees, knowing receipt by third parties of the proceeds of any breach of duty by the current trustees, any participation by third parties in any such breaches and any liabilities owed by any of the parties to the proceedings or by third parties to the said trusts.

31 The circumstances constituting the deadlock were not the subject of evidence before me. Plainly, that is a matter for the trial of the proceeding. On this application it was simply asserted that in respect of each structure, the power of appointment is jointly held and the trustee is jointly owned and controlled by Robert and Erwin. They have been locked in dispute since on or around September 2007. That deadlock has, apparently, meant that the board of each corporate trustee has been unable to fulfil any of its functions as trustee. In the case of the Superannuation Trustee, each of Tziporah and Chaja are also directors. While I am constrained by the state of the evidence to accept the conclusion of fact that there is deadlock, I am equally constrained to identify a proper basis for discretionary judgment on the issues raised.**

**32 I am not satisfied that circumstances requiring urgent action have been established. The prospect of detriment to the trusts from any failure to meet statutory obligations is one of supposition. While it can reasonably be supposed that continuing failure to comply with statutory obligations will eventually attract the attention of the regulators, there is no evidence before me that this has occurred to date. None of the trustee companies is trading as such. It is nearly four years since the bitter dispute between the brothers erupted. It appears that, at least in respect of some trusts, they had not diligently complied with statutory requirements for several years before the deadlock.

33 I have no evidence that failure to comply with regulatory requirements is due to the deadlock. Neither is there any evidence of imminent risk of action against the trustees or the trusts by regulatory authorities. Apparently, not a single demand has been made of any trustee. Why this application need be considered separately from the trial of the proceeding at this particular point in time, is not explained by reference to the risk of dissipation of trust assets.

34 As I have noted, the assets of some trusts consist of real estate. In the case of the Cooee Trust, it appears that the trustee defaulted under a mortgage and the lender appointed receivers who effected a sale. These events occurred in the last quarter of 2008. However, no application of this kind, in respect of all of the trusts, was prompted by that default nearly three years ago. Now, the assets of that trust consist solely of a balance in a trust account held by a firm of chartered accountants. It was also submitted, in respect of a property which is leased, that the trustees have, as landlords, neglected their duty of care to their tenants and the public and their obligations under the Occupational Health & Safety Act 2004. This submission was not supported by any evidence. I cannot make any finding of an exposure to such a risk in a vacuum. If such risk was materialising, responsible real estate agents would have documented the relevant circumstances. Evidence could have been led.

35 I have no satisfactory basis to find, and I do not find, that it is expedient to appoint new trustees because there is a present risk to the trust property and the welfare of the beneficiaries.

36 The second reason concerned statutory obligations. To the extent that this reason differed from the first reason, it struck me as disingenuous. As I have noted, the litigants seem to prefer internecine conflict to their obligations under the Civil Procedure Act 2010. If penalties or other financial consequences result from failure of the trusts to satisfy regulatory requirements, it is not readily apparent to me how either Robert or Ervin will escape liability to restore the trust property or to severally pay equitable compensation personally to the new trustees, for the privilege of fiddling like Nero while Rome burns. These are issues for the trial and I make no finding either way. If such risks become genuinely evident, there will be an opportunity for each of them to take advice about and reflect upon their position before loss is inflicted upon trust property.

37 The third reason advanced was equally specious. While new trustees will be expected to investigate, and if judged necessary, take steps to seek restoration of the trust from any person who had caused it loss, such action lies at the heart of the proceeding. The proper inquiry becomes focussed on why replacement of trustees should be by summary application, divorced from the resolution of the issues in the proceeding and determined as a separate preliminary question. I will return below to this aspect of the applications.**

**38 The applicants attempted to put evidence before the court suggesting that ANZ Trustees Limited would consent to act as trustee of all trusts save the Superannuation Fund. Other trustee companies, Equity Trustees, Perpetual Trustees and IOOF each refused to give consent. The evidence did not come from ANZ Trustees Limited.

39 Objection was taken to the affidavit of Robert's solicitor, Mr Pinto, purporting to provide evidence of the consent of ANZ Trustees to act. The affidavit had been short served, in breach of directions previously made and without explanation for that default. It had been served the day before the hearing and there had been no time for Robert's advisors to make inquiries about the matters referred to in the affidavit. The affidavit was, Mr Matters submitted, too generic and the court could not be confident that there was an actual informed consent from ANZ Trustees. No letter of instruction was exhibited. It was, he submitted, unclear whether ANZ Trustees had been told about the nature of the litigation or the fact that receivers and managers were still in office in relation to two of the trusts.

40 In response, Mr Korman withdrew the affidavit. There is no evidence of any entity consenting to act as trustee. Mr Korman now invites me to act pursuant to s 14 of the Trustee Companies Act 1984. That section provides:**

Trustee company may be appointed trustee, receiver or guardian of estate

(1) Where a court, judge or other person has power to appoint a person as -

a trustee company may be so appointed and may continue to act until removed from office.

41 The exercise of power under this section is plainly discretionary. Discretions must be exercised upon a proper foundation. In the absence of evidence of the dealings with ANZ Trustees there is no proper foundation for its appointment under s 14. Part of that foundation is not just whether the entity is prepared to act. An understanding of the relevant circumstances of the trust and some indication of the intentions of the proposed trustee are also relevant considerations. Why that is so can be conveniently explained in the context of dealing with a submission put by Mr Matters.

**42 Mr Matters contended that there were three principal bases on which the applications should be refused. The first basis was that there was no urgency in the sense of an imminent threat to trust property or the interests of beneficiaries requiring an appointment prior to trial. For the reasons already stated, I accept that this is correct.

43 Secondly, Mr Matters submitted that the process of preliminary determination was inappropriate in the circumstances. Relying on Jacobson v Ross[12] he contended that a preliminary determination required a two-stage process. The first stage requires that the questions for determination be identified. If those questions involve issues of fact, the relevant facts need to be assumed, agreed or determined. In this instance, the court will need to determine the necessary facts. He submitted, and I agree, that the facts cannot be properly determined on the basis of the material presently before me. I accept that it is not appropriate to resolve the preliminary determination of the issue of replacement of the trustees on the basis of the material and submissions put to me on this application. However, I do not consider that I ought deal solely with stage one, that is the procedural issues of setting the questions and determining how the facts raised are to be found. I do not consider the r 47.04 procedure to be suitable in this proceeding.

44 Mr Matters submitted that I should reject the contentions put by Mr Korman, that a preliminary determination would avoid or reduce the time taken by a trial of the proceeding. It was not a just and efficient way to dispose of the proceeding, particularly where an urgent need had not been shown. It was rather, Mr Matters submitted, a pointless waste of time - a delaying tactic. It would inevitably involve some issues being revisited or would force an unreasonable further delay on the trial of the plaintiff's claims. Mr Matters also submitted the applications were an abuse of process.**

**45 In part, the allegations in the proceeding include what I will in summary call derivative claims, being claims made by Robert that may lead to relief which restores the trust property. Such claims are trust assets. In the absence of evidence from a proposed trustee, it is appropriate to presume that such claims within the existing proceeding would not be adopted by a incoming trustee without investigation into the underlying circumstances. The inevitable consequence would be further delay and expense.

46 Mr Matters submitted the appointment of new trustees would not dispose of the entire proceeding nor would it substantially narrow the field of controversy. The most probable result of appointing new trustees prior to a final trial of the remaining questions in the proceeding would be:**

Inordinate delay of the final trial while new trustees become acquainted with what is a reasonably complex case, both factually and legally;
Significant wasting of trust assets to fund these investigations and subsequent litigation, including duplicating much of the work which the plaintiffs have already undertaken to bring this matter for trial;
The real likelihood that the new trustees will either bring substantially similar claims against Erwin or that the plaintiffs will bring another action against the new trustees for breach of their trust and fiduciary duties (which, in either case, would involve canvassing the whole factual matrix at trial);
Consequent further (unnecessary) use of significant resources of the court; and
The possible exhaustion of trust assets prior to a proceeding being prosecuted to its conclusion by the new trustees - which would almost certainly result in the plaintiffs seeking to "take up where they left off" regarding any claims ceded to the trustees.

**47 In response to Mr Matters' contentions that the appointment of new trustees will not avoid the need for a trial investigating the same factual matrix over the same period of time, Mr Korman contended that the new trustees not only could, but would, exercise an unfettered absolute discretion to adjust equitably the contentious positions between the familial factions, such that no further proceeding would become necessary. This submission was not developed. If it has any validity, which I doubt, it can be put at trial.

48 The principal reason for considering the proceeding unsuited to disposition of issues severally, rather than all at once at trial, lies in the nature of the claims made by Robert against Erwin. Arising out of the entire factual matrix in issue, being allegations about the maladministration of the trusts and, more significantly, of misappropriation of funds, Robert brings both derivative and personal claims against Erwin.

49 The proper plaintiff to bring proceedings for breaches of trust is, generally, the trustee. The failure of an existing trustee to do so might demonstrate that it is expedient to replace the trustee. It has been recognised that beneficiaries may be permitted to bring such proceedings, usually with a requirement that the trustee be joined as a party, where a trustee will not or cannot act to bring proceedings.[13] Here, such "derivative" claims are raised. These are the claims which are likely to be of particular interest to any newly appointed trustee.

50 All trustees are parties and all beneficiaries have now been joined to the proceeding. They fall into two factions or family groups, those aligning with Robert and those aligning with Erwin. All issues appear to have a contradictor. It is open, in the resolution of the present proceedings, for the court to make all necessary orders and directions for the restoration of the trusts, by reason of such breaches established at trial, and for the appointment of new trustees going forward. Mr Matters submits that the issues in dispute between the family factions will thus be more conveniently, justly and expeditiously determined. The delay inherent in appointing new trustees at the moment, when allegations stand unproven and disputes are raging, may be avoided. The new trustees gain the advantage of a clean start.

51 One basis of Robert's personal claims is breach of fiduciary duty owed to him, with the relevant duty said to arise in the relationship between a director of a corporate trustee and a beneficiary of the trust. The principle said to be enlivened, is that a director of a corporate trustee must not disregard the interests of beneficiaries, despite that they are not shareholders but because they are entitled to receive a benefit from the company's activities as a trustee of a trust. The fiduciary responsibility of a director is not owed simply to the company and may extend to beneficiaries of a trust.

52 Such a principle was, Mr Matters contended, recognised in this Court in Inge v Inge.[14] This is not the occasion to give appropriate consideration to the application of such a principle. It may not be thought to be well established or uncontroversial. For present purposes, Mr Matters submits that the claim is plainly arguable and that Robert intends to pursue this. This "personal" claim by Robert involves the entire factual matrix of the claim which, most probably, would be pressed by a new trustee.

53 The necessary consequence of the immediate appointment of new trustees is therefore said to raise a significant probability that the entire factual matrix of the intractable dispute between these two men will be considered in more than one proceeding, unless the determination of the plaintiffs' present claims are delayed significantly.

54 I consider that there is a great deal of force in these submissions. Several trials on the same factual matrix will obviously not be countenanced.

55 Mr Matters also contended that substantially the same application has been made previously by the plaintiffs by counterclaim in the now stayed proceeding. This submission is based upon an application made in that proceeding at the beginning of the year to an Associate Justice. This application was ultimately disposed of by Osborn J, on 29 March 2011. I have referred above to the procedural consequences of that application. Mr Matters' submission is based upon the assurances given by Mr Korman at that hearing, which are recorded in the reasons for judgment of Osborn J,[15] that there would be no disruption or prejudice to the resolution of the proceeding by a consolidation order joining into the proceeding the claims of the plaintiffs by counterclaim. Mr Matters submits that contrary to the basis upon which Osborn J was persuaded to order consolidation, the plaintiffs by counterclaim, in reality, seek to delay the hearing of the proceeding. This is evident, it is submitted, from the fact that this application is delaying the re-listing of the trial and secondly, the plaintiffs by counterclaim anticipate that this proceeding will be stayed, the relief which they previously sought and which was denied, while new trustees determine whether or not the proceeding should continue. At the very least the proceeding will be delayed pending investigations.

56 Mr Matters submitted that I ought find that the plaintiffs by counterclaim are, by this application, shopping for a judge they hope will accede to their application and that such conduct is an abuse of process.[16]**

57 I bear in mind that the court must, by s 8 of the Civil Procedure Act 2010 (Vic), seek to give effect to the overarching purpose of the Act in the exercise of any of its powers or in the interpretation of those powers, whether those powers are part of the Court's inherent jurisdiction, implied jurisdiction or statutory jurisdiction. The overarching purpose of the Act and of the rules of court in relation to civil proceedings, is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute (s 7). Section 9(1) requires that in making any order or giving any direction in a civil proceeding, a court shall further the overarching purpose by having regard to the following objects:

(a) the just determination of the civil proceeding;

(b) the public interest in the early settlement of disputes by agreement between parties;

(c) the efficient conduct of the business of the court;

(d) the efficient use of judicial and administrative resources;

(e) minimising any delay between the commencement of a civil proceeding and its listing for trial beyond that reasonably required for any interlocutory steps that are necessary for -

(i) the fair and just determination of the real issues in dispute; and

(ii) the preparation of the case for trial;

(f) the timely determination of the civil proceeding;

(g) dealing with a civil proceeding in a manner proportionate to -

(i) the complexity or importance of the issues in dispute; and

(ii) the amount in dispute.

58 Section 9(2) provides that the court may have regard to certain matters and a number of those matters are relevant on this application:

(b) the extent to which the parties have used reasonable endeavours to resolve the dispute by agreement or to limit the issues in dispute;

(c) the degree of promptness with which the parties have conducted the proceeding, including the degree to which each party has been timely in undertaking interlocutory steps in relation to the proceeding;

(d) the degree to which any lack of promptness by a party in undertaking the proceeding has arisen from circumstances beyond the control of that party;

(e) the degree to which each person to whom the overarching obligations apply has complied with the overarching obligations in relation to the proceeding;

(f) any prejudice that may be suffered by a party as a consequence of any order proposed to be made or direction proposed to be given by the court;

These considerations are, by and large, matters which are ordinarily considered by a court in the exercise of the discretions enlivened by the applications before me. I have taken these matters into account.

**59 I propose to dismiss the applications for the following reasons. Having considered all of the circumstances which have been put to me, the just, efficient, timely and cost-effective resolution of the real issues in dispute will, in my view, be achieved by fixing the proceeding for trial. I do not accept that there will be any practical utility in determining the question of appointment of new trustees as a preliminary question. I do not accept that the circumstances, considering in particular the need to preserve trust property and the welfare of the beneficiaries of the trusts, disclose that it is expedient to summarily replace the trustees of the trusts.

60 The proceeding demonstrates a clear preference on the part of each of Robert and Erwin to wallow in the conflict which exists between them. Their inability to "bury the hatchet" for so long as is necessary to deal with basic regulatory obligations for the benefit of their own families makes this clear. Had the circumstances been appropriate, I might have been minded to exercise power pursuant to s 37 of the Supreme Court Act 1986 to appoint a receiver. For the reasons I have given, I am not persuaded that the assumed risks to trust property and to the interests of beneficiaries are such as warrant interlocutory relief of this sort. For the same reasons, I do not consider that it is presently expedient to act under s 48 of the Trustee Act 1958 (Vic).

61 While there is much to be said in the enhancement of the overarching purpose of the Civil Procedure Act 2010 (Vic) for the proper application of r 47.04 enabling the preliminary determination of particular questions, for the reasons I have given, I do not consider that this application presents an appropriate circumstance for the preliminary determination procedure. It may be that, in an appropriate case, it might be desirable to reconsider the principles that presently apply to applications under the rule. In Jacobson & Ors v Ross & Anor,[17] Brooking J (as he then was), noted that it is a trial judge's duty to see that the crucial issues are tried as expeditiously and inexpensively as possible, and that the procedure under r 47.04 provides a useful means to that end. This is not that case. As Harper J (as he then was) later explained,[18] it must be borne in mind that delay in the delivery of justice can itself produce injustice: the power to try a question in the proceeding before the trial must be exercised with restraint to ensure that justice be done.

62 There being no proper basis established for immediate intervention in the interests of preserving the trust, I conclude that the most likely outcome of the separate determination, or interlocutory appointment, of new trustees will be to facilitate ongoing internecine conflict between Robert and Erwin. A trial of this proceeding seems the most direct route to resolution.

(1) The summons filed 6 April 2011 on behalf of the plaintiffs by counterclaim is dismissed.

(2) The summons filed 3 June 2011 on behalf of the first defendant is dismissed.

(3) The proceeding is fixed for trial on an estimate of 15 days on 13 March 2012.

64 I will hear further from counsel on the question of the costs of these applications and on whether any further directions are needed to prepare the matter for trial. As this will be the third occasion on which this proceeding has been set down for trial, it is clear that this proceeding draws disproportionately upon the resources of the court. Both the litigants and their legal practitioners ought bear in mind the provisions of the Civil Procedure Act 2010 and their overarching obligations. Care will need to be exercised to ensure that the trial proceeds as listed. The parties may find themselves reminded of this warning should unnecessary interlocutory applications be pursued.

(a minor, by his litigation guardian ALEXANDER DEUTSH)

(a minor by his litigation guardian ALEXANDER DEUTSCH)

(a minor by her litigation guardian ALEXANDER DEUTSCH)

(a minor by his litigation guardian ALEXANDER DEUTSCH)

(a minor by his litigation guardian HELEN GOLDSCHMIEDT)

(a minor by her litigation guardian HELEN GOLDSCHMIEDT)

(a minor by her litigation guardian GABRIEL DEUTSCH)

ARI DEUTSCH (a person under disability being a minor by his litigation guardian Tziporah Deutsch)

SHIRA DEUTSCH ( a person under disability being a minor by her litigation guardian Tziporah Deutsch)

AKIVA DEUTSCH (a person under disability being a minor by his litigation guardian Adam Deutsch)

MORDECHAI DEUTSCH (a person under disability being a minor by his litigation guardian Andrew Deutsch)

ARI DEUTSCH (a person under disability being a minor by his litigation guardian Tziporah Deutsch)

SHIRA DEUTSCH (a person under disability being a minor by her litigation guardian Tziporah Deutsch)

AKIVA DEUTSCH (a person under disability being a minor by his litigation guardian Adam Deutsch)

MORDECHAI DEUTSCH (a person under disability being a minor by his litigation guardian Andrew Deutsch)

SCHMUL DEUTSCH (a minor, by his litigation guardian ALEXANDER DEUTSH)

ARYAA (MICHAEL) DEUTSCH (a minor, by his litigation guardian ALEXANDER DEUTSCH)

ARI GOLDSCHMIEDT (a minor, by his litigation guardian HELEN GOLDSCHMIEDT)

BENJAMIN GOLDSCHMIEDT (a minor, by his litigation guardian HELEN GOLDSCHMIEDT)

FRIDA GOLDSCHMIEDT (a minor, by her litigation guardian HELEN GOLDSCHMIEDT)

(a minor, by his litigation guardian DAVID DEUTSCH)

(a minor, by her litigation guardian GABRIEL DEUTSCH)

[1] Guazzini v Pateson (1918) 18 SR (NSW) 275, 293 (Street CJ in Eq); Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572, 580 (Dixon CJ); Hunter v Hunter [1938] NZLR 520.

[3] Porteous v Rinehart (1998) 19 WAR 495; Titterton v Oates (1998) 143 FLR 467; McLauchlan v Prince [2002] WASC 274 at [14]; Trojan v Nest Egg Nominees Pty Ltd [2004] SASC 182; Mann v Grantham [2004] VSC 156; Hill v Fry & Ors [2008] VSC 13; Elovalis v Elovalis [2008] WASCA 141 at [30] (Martin CJ); Montevento Holdings Pty Ltd v Scaffidi Holdings Pty Ltd [No 2] [2010] WASC 180 at [40] - [41]; Harold AJ Ford and William A Lee, Legal Online, Principles of the Law of Trusts (at 13 March 2009) [8370].

[8] Kerr on Receivers (17th ed) 13 - 14.

[9] [1991] VicRp 31; [1991] 1 VR 386, 541 (Kaye, Murphy and Brooking JJ).

[11] See also Ciccarello, in the matter of Adelaide Property Development Pty Ltd v Cubelic [2008] FCA 141 (Mansfield J).

[13] Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432; Lidden & Anor v Composite Buyers Pty Ltd & Ors (1996) 139 ALR 549; Wood & Jack v McLean & Anor [2011] VSCA 37.

[15] Deutsch v 253 Bay Street Pty Ltd [2011] VSC 134.

[16] See DA Christie Pty Ltd v Baker [1996] VicRp 89; [1996] 2 VR 582; Global Reality Development Corp (a Delaware Company) v Dominion Wines Ltd (in liq) & Ors [2005] VSC 474; (2005) 225 ALR 361; Nominal Defendant v Manning [2000] NSWCA 80; [2000] 50 NSWLR 139.

[18] Bridge and Marine Engineering Pty Ltd v Taylor and Austrack Project Management Pty Ltd (No 2) [2005] VSC 154 at [16].

Court (General Civil Procedure) Rules 2005

At a glance

Court

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Before

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Judgment (138 paragraphs)

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Legislation Cited (35)

Cases Cited (6)