Solicitors:
Lane & O'Rourke (Plaintiff)
File Number(s): 2015/46110
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Judgment (ex tempore - revised 17 february 2015)
HIS HONOUR: Yesterday I dealt with an application for interlocutory relief to restrain enforcement of a District Court judgment and to prevent a bank from paying out under a garnishee order issued by the District Court pursuant to that judgment. I granted limited relief. Because of the hour at which that happened, I said that I would give reasons today for the orders that I made, and that I would deal with the question of costs. What follows are my reasons for making the orders which were made yesterday.
The parties and background facts
The plaintiff (I shall refer to her as "Nina" without intending to be either disrespectful or patronising) is the widow of the late Adam Pogorzelski (to whom I shall refer, on the same basis, as "Adam"). The first defendant, Ms Bechara, is a solicitor. The second defendant, Westpac, is the bank on which the garnishee order was served.
Ms Anne Kazas-Rogaris (the executor) is the executor of Adam's will and the trustee of his estate. AAP Investments (Aust) Pty Ltd ("AAP") is the trustee of the AAP Superannuation Fund. That fund, as I understand it, was established by Adam.
Nina instituted proceedings in this Court in 2009 seeking provision out of the estate or notional estate of Adam (the Family Provision proceedings).
Those proceedings, and I think related proceedings brought by Madalena, the daughter of Nina and Adam, were resolved by consent orders made on 11 February 2011.
As part of the orders made by consent to resolve Nina's family provision proceedings, White J, among other things, noted:
"...the agreement of the parties that subject to the orders made in proceedings 269987/2010 this day, the third defendant has determined that the plaintiff is entitled to the whole of the assets remaining in the AAP Superannuation Fund as a dependent of [Adam]."
The proceedings to which his Honour referred were the related claim by Madalena. The third defendant to whom his Honour referred was AAP.
Nina has not received any of the provision ordered in her favour in the Family Provision proceedings. She has instituted proceedings 2014/52447 in this Court seeking to enforce those orders (the enforcement proceedings). The enforcement proceedings are listed for hearing for two days commencing 30 April 2015.
For a while, Ms Bechara acted for the executor and AAP in the enforcement proceedings. She no longer acts.
Ms Bechara has instituted proceedings in the District Court to recover costs said to be owing to her by the executor and AAP. So far as AAP is concerned, the great bulk of the costs claimed relate to its defence (to the extent that Ms Bechara conducted it) of the enforcement proceedings. That is apparent from Ms Bechara's statement of claim in the District Court.
Ms Bechara has recovered default judgment in the District Court. She has caused to be issued a garnishee order directed to Westpac. That garnishee order seeks payment, out of AAP's accounts held with Westpac, of an amount in excess of $104,000. It is Nina's case that the funds held in those accounts are trust funds (i.e., trust funds of the Superannuation Trust), and that by reason of the agreement noted by White J, she is beneficially entitled to those funds.
In the enforcement proceedings, Rein J made an order on 1 October 2014 which had the effect of restraining the executor and AAP from withdrawing any funds from those Westpac accounts.
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An application to be joined
The executor and AAP sought to be joined as defendants in these proceedings (that is to say, the ones in respect of which I am now giving reasons for judgment). Ms Stuckey-Clarke of counsel, who appeared for them, submitted that it would be efficient for all disputes arising out of the circumstances that I have briefly recited to be dealt with at once, by the one judge in the one hearing.
The further matters said to be in dispute are numerous. In the District Court proceedings, the defendants (that is to say, the executor and AAP) have sought to set aside the default judgment recovered against them. As a result, presumably, they will seek to set aside the garnishee notice. Further, they have requested that that the costs claimed by Ms Bechara, the subject of those proceedings, be assessed.
Ms Bechara has caused to be served on AAP a statutory demand. AAP wishes to have that statutory demand set aside.
In those circumstances, Ms Stuckey-Clarke submitted that it would be appropriate for all the disputes to be dealt with at once. She submitted in effect that they all arose out of the same factual matrix.
Whilst I agree that the disputes might be said to arise out of the same factual matrix, I do not agree that it is convenient for them to be dealt with together, either in the enforcement proceedings, or in these proceedings on the basis that the final relief sought in these proceedings will inevitably follow from the outcome of the enforcement proceedings.
The orders sought by Nina in these proceedings are limited, as are the reasons for which she seeks those orders. What Nina seeks is an order restraining enforcement of the District Court judgment against AAP and an order restraining Westpac from paying on the garnishee notice. In the course of submissions, Mr Armfield of counsel accepted that the equity claimed by his client could not justify a total restraint on enforcement. He accepted that the claimed equity could justify no more than a restraint in effect preventing Ms Bechara from enforcing her District Court judgment against AAP out of any assets held by AAP as trustee of the Superannuation Fund. I shall return to the reason why, Mr Armfield submitted, the equity on which he relied arose.
In my view, there is no reason to clutter up either these proceedings or the enforcement proceedings with issues which, whilst they may be said to arise out of a common matrix of fact, are entirely peripheral to the issues in the enforcement proceedings. There is no substantial overlap. There is unlikely to be any duplication of evidence. On the contrary, if the order sought by Ms Stuckey-Clarke were made, the inevitable effect would be to expand the scope of issues for decision in the enforcement proceedings and, quite likely, to blow the time out beyond the two days that have been allotted.
In understanding that conclusion, it is important to bear in mind that a decision on the principal issues in the enforcement proceedings, to which, of necessity, the executor and AAP are parties, will effectively determine whether or not they have a right of indemnity out of trust assets (assets of the estate or the superannuation fund, as the case may be). If it is held, as Nina contends, that Nina is entitled to the relief that she seeks in the enforcement proceedings, the almost inevitable consequence would be that the executor and AAP would not be entitled to indemnify themselves, for the costs that they incur in defence, out of the assets of the respective trusts.
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The claimed equity and the parties' submissions
Mr Armfield contended for Nina that the funds held in the Westpac accounts in the name of AAP were beneficially owned by Nina. That followed, he submitted, from the agreement that White J noted.
Ms Bechara (who represented herself) submitted that she was a judgment creditor who had the benefit of a judgment that had not been stayed. Accordingly, she submitted, she had the right to enforce that judgment by whatever means were lawfully available to her.
Mr Patrick Holmes of counsel, for Westpac, submitted that it was inappropriate to make an order in this Court restraining his client from paying out on the garnishee order. He submitted that this would put his client in an impossible situation whereby it was obliged to disobey an order issued either by this Court or the District Court. Further, he submitted, there was other relief available which would meet the case: for example, a freezing order in respect of any amount paid out, or an order that it be paid into court.
Decision
I start by identifying the basis of the judgment against AAP, and hence the basis of the garnishee order.
Ms Bechara recovered judgment against the executor for $109,970.70 and against AAP for $104,083.57. It is of course only in respect of the judgment against AAP that Ms Bechara seeks to garnishee the accounts held by Westpac in the name of AAP.
It is apparent from Ms Bechara's statement of claim in the District Court proceedings that the costs claimed by her against AAP, in respect of which she has the judgment to which I have referred, relate almost entirely to AAP's defence of the enforcement proceedings (to the extent that Ms Bechara conducted that defence for AAP). Of course, in respect of the minimal amount of costs that do not relate to the enforcement proceedings, it does not appear to be suggested that AAP was acting in its capacity as trustee of the superannuation fund. If it were not so acting, there would be no possible basis for enforcing that debt against the assets of the fund.
The fundamental issue to be determined in the entitlement proceedings is the propriety of actions taken by the executor and by AAP in the family provision proceedings and, more generally, in their execution of their respective trust obligations. If Nina succeeds then, by hypothesis, AAP would not be entitled to recover, out of the assets of the superannuation fund, any amount incurred in defending those proceedings. That would be because, on the same hypothesis, it would be found to have been acting in breach of trust in some or all of the ways alleged by Nina.
Nina claims a beneficial interest in the assets of the Superannuation Fund. As a matter of first principle, where a trust fund has not been fully administered, the beneficiaries of the trust have no beneficial interest in the assets of the fund. They have at most a right to have the trust properly administered, and to have the trustee account. That indeed is among the relief sought by Nina against AAP in the enforcement proceedings.
However, Nina says, the effect of the agreement noted by White J is that she beneficially entitled to the assets of the superannuation fund. If that is so, then arguably the principles explained many years ago in Roberts v Death (1881) 8 QBD 319 would at least, at least arguably, apply.
In that case (a decision of the Court of Appeal in England), the question was whether a garnishee order could be made against trust assets. Brett LJ said at 322-323 that an equity court would not allow the money of a cestui que trust to be applied to pay the debt of the trustee, and that in those circumstances a garnishee order made nisi against the trust assets should not be made absolute.
Cotton LJ expressed the same view at 323. His Lordship said that where money against which a garnishee order is sought is alleged to be trust money, the court of equity would interfere to prevent goods held in trust from being taken in execution to satisfy the debt of the trustee. The third judge, Lindley LJ, expressed the same views at 324 and again at 325.
Those principles were recognised, I think with approval, by Cohen J in Bank of New South Wales v Coleman (1898) 14 WN (NSW) 155 at 156. It is not necessary to quote from his Honour's reasons.
Ms Bechara relied on cl 10.2 of the trust deed for the Superannuation Fund. By that clause, the trustee's right of indemnity is confirmed. It is a right to be indemnified "to the maximum extent permitted by the Act" (which is the Superannuation Industry (Supervision) Act 1993 and other legislation) from the trust fund "against all liabilities incurred...in connection with the execution, attempted execution, or in respect of non execution" of the powers and discretions conferred by the trust deed.
It is very difficult to see such a power extending to indemnity for breaches of trust, if breaches indeed are proved.
As I have said already, if AAP were acting in breach of trust - which is one of the issues in the enforcement proceedings - it is at least arguable that it would not be entitled to recover its defence costs from the assets of the fund. It would be wrong, in principle, for a hypothetically defaulting trustee to have recourse to the assets of the trust fund to recoup its expenses of defending the very proceedings in which, hypothetically, its defaults were established.
I should make it clear of course that I am not finding, or even suggesting, that AAP is, or properly could be described as, a defaulting trustee.
In short, it seems to me, the source of the entitlement claimed by Ms Bechara cannot, as it were, trump the equity claimed by Nina arising out of the agreement noted by White J.
Questions of balance of convenience were not seriously argued, beyond the point made by Ms Bechara, to which I have referred already, that she was a judgment creditor whose debt had not been satisfied and who was entitled to satisfy her debt by any means lawfully available. But where the very question is the lawful availability of the bank accounts in question, that does not seem to me to take the matter much further.
As I have said, I think that Mr Armfield accepted that the equity asserted by Nina could not justify any restraint other than enforcement against trust assets. That was the effect of the order that I made. There did not seem to me to be anything in that equity, or otherwise in the evidence, to justify the wider restraint, upon all enforcement, sought by prayer 1 of the summons.
In substance for the reasons advanced by Mr Holmes in the course of submissions, I concluded that it was not appropriate to restrain Westpac from paying out on the garnishee order. The Court would be loath to expose a litigant to the inevitable consequence of being faced with conflicting judgments of two courts, and be put in a position where it must disregard one or the other.
At one stage, I considered whether it would be appropriate to transfer the District Court proceedings to this Court. If that were done, I could then set aside the garnishee order and decide what to do with the balance of the District Court proceedings. However, on balance, it seemed to me that, given that there was an alternative course, I should not interfere with the District Court proceedings.
The alternative course which seemed to me to deal appropriately with the claimed equity was the order to which I have referred, restraining Ms Bechara from enforcing her judgment against assets held by AAP in its capacity as trustee, and a further order. That further order was one which would require her to pay into Court, to abide the outcome of these and the enforcement proceedings, any moneys that she might be paid by Westpac under the garnishee order.
Those in substance were the orders that I made and these are the reasons for them. That leaves the question of costs, on which I will now hear the parties.
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Decision last updated: 23 February 2015