Re Cooper Street Property Trust (No 2) [2017] VSC 291 (26 May 2017)

2 On 6 December 2016, the Court delivered a ruling which considered the application in detail ('the ruling').[1] In summary, the plaintiff is the trustee in bankruptcy of Mr Ergun Omer. Mr Omer has not been in contact with the plaintiff since 6 June 2016. He is the only specified beneficiary of the Trust. The objects of the Trust also include a class of general beneficiaries, that extends to present and future relatives of Mr Omer. The former trustee of the Trust, Omer Property Group Pty Ltd ('OPG'), became deregistered. The effect of the deregistration of OPG is that the Trust no longer has a trustee. Although the trust deed provided a number of avenues to appoint a new trustee, none were applicable in the circumstances.

3 The plaintiff sought to appoint a registered liquidator, Mr Michael Carrafa, as the new trustee of the Trust. The purpose of the appointment was for the new trustee to seek to pursue a claim against DNP Constructions Australia Pty Ltd ('DNP Constructions') in relation to the proceeds of sale of a property at 127 Metrolink Circuit, Campbellfield ('the property'). The property was said to be purchased in association with a partnership between the Trust and DNP Constructions. The value of the claim was estimated to be in the vicinity of $300,000. Other than this interest, the Trust has no assets.

4 There were issues as to the plaintiff's standing to appoint a new trustee, specifically as to whether Mr Omer was a person 'beneficially interested' in the Trust for the purposes of s 64 of the Act, and further, whether such an interest vested in the plaintiff in accordance with s 58 of the Bankruptcy Act 1966 (Cth). The Court determined that Mr Omer is not a person beneficially interested in the Trust, nor does he have a proprietary interest in the assets of the Trust that is capable of vesting in the plaintiff for the purposes of s 64 of the Act. Rather, the rights of Mr Omer as an object of a discretionary trust include the right to have the Trust duly administered. Additionally, the Court identified that, as provided for in s 601AE of the Corporations Act 2001 (Cth), the current trustee of the Trust is the Commonwealth.

5 Although as a consequence of these findings the plaintiff did not have standing, the ruling considered whether the inherent jurisdiction of the Court should be relied upon to appoint a new trustee. The concerns in this regard were the equitable role of the Court in promoting the execution of trusts and the welfare of the beneficiaries, insofar as there was a potential claim to trust funds of $300 000. Consequently, rather than dismissing the application, the plaintiff was afforded the opportunity to adduce more evidence as to the views of any beneficiaries and the Commonwealth as current trustee of the Trust and the funding of any new trustee.

6 The plaintiff filed four further affidavits and written submissions. The remaining issue for determination is whether the Court should exercise its inherent jurisdiction and appoint a new trustee to the Trust.**

7 The plaintiff sought further evidence by contacting the Australian Securities and Investments Commission ('ASIC'), Lander & Rogers, being the lawyers for DNP Constructions, an accountant who was previously engaged by the Trust and Mr Omer. Additionally, evidence has been adduced by another registered liquidator, Mr Sam Kaso, who the plaintiff now seeks to have appointed as trustee rather than Mr Carrafa.

8 ASIC, on behalf of the Commonwealth, does not wish to participate in the proceeding and has no objection to the Court appointing a new trustee. It has no direct knowledge of the Trust or the Trust's property, and 'does not intend taking any steps on behalf of [OPG] in its capacity as trustee to assert any interest in the funds resulting from the sale of the property'. ASIC does not wish to be trustee, and believes that 'it is appropriate for the plaintiff to seek the appointment of a new trustee'.

**9 Four further attempts have been made to contact Mr Omer without success. The plaintiff has telephoned Mr Omer and left messages on three occasions, and emailed Mr Omer once. No reply has been received from him.

10 The plaintiff has also contacted an accountant formerly associated with Mr Omer in an attempt to determine whether there are any other existing beneficiaries of the Trust. By letter dated 8 February 2017, the accountant, who worked for OPG and the Trust between 2008 to 2010, stated:**

During my time as accountant for the entity, there np [sic] trust distribution was made to the beneficiaries of the trust as the trust was trading at a loss. As far as I am aware, Ergun Omer is the sole specified beneficiary of the Cooper Street Property Trust.

**11 As stated, the plaintiff initially proposed that Mr Carrafa be appointed trustee of the Trust. However, the plaintiff informed the Court that Mr Carrafa had a conflict of interest and it is now proposed that Mr Kaso be appointed trustee of the Trust. Mr Kaso is a registered liquidator, consents to act as trustee and has declared that he has no associations with the Trust. He has also given a number of undertakings as to his duties if appointed as trustee.

12 Mr Kaso has agreed to take any appointment as trustee on a speculative fee basis such that his fees, and those of his associated staff members, are paid from any recoveries that he makes from the Trust. A breakdown of the hourly rates of his staff members indicates a range from partners at $595 per hour to secretaries at $140 per hour.**

13 By letter dated 20 January 2017 to Lander & Rogers, the plaintiff's solicitors requested an update in relation to the funds associated with the sale of the property as follows:

Your client has agreed to pay any surplus funds held by them (after deducting, amongst other things, the costs incurred in the care, preservation and realisation of the Property) into Court, allowing any persons having an interest in those funds to make an application to the Court.

By a letter dated 18 July 2016 from your office it was stated that the balance of the proceeds of sale was an amount of $309,902.11. It was stated that subject to agreement to matters outlined in that letter $264,901.11 would be paid into court. Of the balance $5,000 would be held for possible future accountancy expenses and $40,000 for possible future legal costs. Any of the $40,000 not paid towards those two expenses would also be paid into court.

14 On 17 February 2017, the plaintiff's lawyers received a reply from Lander & Rogers attaching an updated reconciliation of the funds held in trust after sale of the property, confirming an expectation that an amount of $227 205 would be paid into court. Of note, the reconciliation statement refers to the $227 205 as the net payable to OPG into court, after accounting for an equal split of the proceeds of sale of the property 'due to partners' and certain deductions. Of the $45 000 which was set aside for future costs, the amount of $21 470 remains.

15 The plaintiff submits that without Mr Omer's assistance it is not possible to determine the identity, and the contact details, of any of the general beneficiaries of the Trust. Accordingly, he requests the Court to exercise its inherent jurisdiction and appoint Mr Kaso, or such other party as the Court deems appropriate, as the trustee of the Trust.

**16 After considering the application of ss 48 and 64 of the Act, the Court determined the plaintiff has no standing to appoint a new trustee but was cautious not to dismiss the application due to the Court's supervisory jurisdiction over trusts, particularly its inherent jurisdiction to appoint trustees. Such a jurisdiction was employed by the Court of Chancery in circumstances that were considered expedient.[2] As discussed by Ashley J in Monty Financial Services v Delmo, a part of the inherent jurisdiction was brought into Victorian law within the Trustee Act 1850, and now s 48(1) of the Act.[3]

17 The inherent jurisdiction to appoint trustees, arising from the Court's general supervisory jurisdiction, has been said to give effect to the maxim 'a trust will not fail for want of a trustee'.[4] In Palmer v Ayres, Gageler J referred to the inherent jurisdiction in relation to the general administration of trusts:**

Fundamental to the law of trusts is that the court has jurisdiction to supervise, and in appropriate circumstances to intervene in, the administration of a trust. Indeed, a test of the validity of a trust is that it must be of such a nature that it can be administered by a court.[5]

18 Gageler J cited McLean v Burns Philp Trustee Co Pty Ltd.[6] In McLean, the plaintiff was seeking an order for general administration. Young J described the history of such an application, ordinarily sought by a beneficiary or trustee, as involving an order by the Court that:

... the trust was to be specifically performed under its supervision, that nothing was to be done without its imprimatur, that accounts should be taken to see what the trust assets were and the court would give directions as to how the trust would be carried out.[7]

19 Although as a result of reforms it is now generally more appropriate to seek a specific order rather than general administration, the jurisdiction remains.[8] Of particular relevance is the issue of standing that arose in McLean. At best, the plaintiff could be described as a beneficiary of a trust which itself was a creditor of the trust subject to the application. On this point, Young J concluded:

In the past, it appears that creditors were permitted to bring proceedings where it was appropriate, and today in a proper case the court would listen to a creditor's application in a case involving an inter vivos trust, where there was good reason for bringing the application.

... the trust is the creature of Equity, rights under a trust exist only because of the orders an Equity Court may make and it is to my mind inconceivable that if a matter of mal-administration or, worse, fraud were brought to the attention of the Equity Court by a plaintiff who was a creditor, the court would not act on that motion. It certainly would not send the plaintiff away with his suit dismissed with costs because of a lack of standing.[9]

20 Insofar as the inherent jurisdiction has been relied upon for the appointment of trustees, in Stevedoring Employees, Young J stated:

It is clear that, from the inception of the concepts of Uses and Trusts, the Court has exercised wide jurisdiction to see that the objects of the trust were carried out. Whilst, in practice, much of that jurisdiction has been subsumed into the statutory jurisdiction, it is clear that the inherent powers survive... Probably the best reported example in this area of the law is Ex Parte Davenport [1963] 1 5th Africa LR 728 where the machinery provisions of a trust deed had broken down and the court filled the gap by using the inherent power to appoint a new trustee.

...

It is beyond doubt that the Court has wide powers to intervene in the affairs of a trust in order to see that it does not fail as a result of the lack of a trustee or because there is some breakdown of the necessary machinery. In the appropriate case, the Court may even act of its own motion ... The exact boundaries of this principle remain unmapped.[10]

**21 In exercising the inherent jurisdiction, the Court is not strictly limited to circumstances where it is 'inexpedient difficult or impracticable' for a new trustee to be appointed, as in the statutory jurisdiction.[11] It appears, however, that the same general principles apply regarding the appointment of trustees as summarised in Hancock v Rinehart.[12] Certainly, although the foundational case of Re Tempest[13] was an application to appoint a new trustee pursuant to the statutory jurisdiction, in espousing the general principles, Turner LJ did not rely upon the language of the relevant provision.

22 Reported cases considering the appointment of a trustee based upon the inherent jurisdiction are limited in number. Ex Parte Davenport,[14] which was referred to by Young J in Stevedoring Employees, involved a declaration by the High Court of Southern Rhodesia, as it then existed, that where statutory power was lacking, the Court had inherent power to appoint a trustee.[15] As discussed in the ruling,[16] in Eden Refuge Trust v Hohepa,[17] Duffy J relied upon both the inherent jurisdiction and s 51 of the Trustee Act 1956 (NZ) to appoint a new trustee to a charitable trust. In the circumstances of that case, the trustee had been absent from New Zealand for fifteen years, yet sold certain land belonging to the trust during that time. There was no evidence that the trustee had been carrying out the purposes of the trust, and some of the proceeds of sale of the land appeared to have been remitted to the trustee personally. The remaining proceeds were being held by a solicitor who had acted in the conveyancing. The plaintiffs, who sought the appointment of a new trustee, alleged that they had standing as they were included in the named beneficiaries of the trust.

23 Rather than relying on the plaintiffs having standing as persons 'beneficially interested' in the trust property as provided for in s 67 of the Trustee Act 1956 (NZ), Duffy J instead determined that as it had been brought to the Court's attention that its intervention was required in order to ensure protection of the trust's interests, the power under s 51 remained available:**

I consider that the Court, having been apprised of what has occurred in relation to the disposition of the principal asset of the trust ... should exercise the powers available to it under s 51 and under its inherent jurisdiction to ensure that the situation where the trust is seemingly unprotected and ungoverned no longer continues.[18]

**24 This approach was rejected in Ngarluma Aboriginal Corporation RNTBC v Attorney-General (WA) on the basis that the Attorney-General was the appropriate person to sue in the context of a charitable trust.[19] There, the terms of office for the directors of the sole trustee had expired, and no replacement directors had been appointed.

25 The lack of relevant authority regarding the inherent jurisdiction to appoint a trustee is unsurprising given the breadth of applicants recognised under s 48 of the Act. As discussed in the ruling, this has included creditors of the trust,[20] purchasers of trust property,[21] and the holder of a contingent interest.[22] Indeed, Jacobs' Law of Trusts suggests that it would be unusual circumstances in which the inherent jurisdiction had to be relied upon rather than the statutory jurisdiction.[23]

26 Of final note, in slightly different circumstances Jackson J in Fordyce v Ryan[24] considered whether a trustee in bankruptcy of a beneficiary of a discretionary trust had standing to appoint a receiver to trust property where the relevant trustee companies had become deregistered. His Honour reasoned that at times the Court's supervisory jurisdiction over trusts can provide relief to applicants who may not have any interest in the trust property.[25] In this regard, his Honour referred to beneficiaries under a discretionary trust and creditors of trusts, citing McLean. Without determining the issue, Jackson J went on to assume that the trustee in bankruptcy had standing to bring the application, despite having no interest in the trust.**

**27 The issue for determination is whether, to use the language of Young J in Stevedoring Employees, this is an 'appropriate case' to draw upon the inherent jurisdiction of the Court in order to appoint a trustee. The circumstances of this proceeding are novel. While ordinarily applications to appoint a new trustee are brought by beneficiaries or trustees, the plaintiff has no legal interest in the Trust, nor does the proposed trustee. There is no evidence before the Court from anyone who has such an interest. In this regard, the words of Vaisey J in Re Brockbank are perhaps applicable: '[i]t is possible, I think, that the reason for the novelty is that the courage required for the raising of [the question] has hitherto been lacking'.[26]

28 The most relevant cases where applicants other than a beneficiary or trustee have engaged the supervisory jurisdiction of the Court appear to be Eden Refuge Trust, Fordyce v Ryan and McLean.

29 Eden Refuge Trust bears some similarity with the current circumstances insofar as the plaintiffs were attempting to recover trust funds from a third party. In the context of a charitable trust, the High Court of New Zealand was willing to take a flexible approach to issues of standing where there was evidence of misconduct of the trustee and trust funds remained unprotected. Such an approach is consistent with the principle that every charitable trust is a trust for a purpose or purposes that are charitable, not a trust for persons, although persons benefit from a charitable trust.[27]

30 In Fordyce v Ryan, Jackson J was prepared to assume that the trustee in bankruptcy could engage the Court's supervisory jurisdiction. To the extent that his Honour referred to beneficiaries of discretionary trusts seeking due administration of the trust, however, in accordance with Dwyer v Ross, the right to seek due administration is not a property right that passes to a trustee in bankruptcy.[28] Further, his Honour cited the findings of Young J in McLean insofar as creditors have standing to seek orders for general administration. Again, as cited above in paragraph [19], Young J viewed such an avenue as applicable in circumstances of potential maladministration of the trust.

31 While evidence of misconduct is not necessarily required, in the circumstances of McLean and Eden Refuge Trust, where broad and flexible approaches were adopted regarding the issue of standing, potential misconduct of the trustee and a consequent threat to the security of trust property appeared relevant. The factual circumstances in this proceeding do not raise issues of misconduct and the evidence now confirms that the relevant funds are being held in the trust account of Lander & Rogers, pursuant to a previous agreement, such that they are protected to a certain degree. Whilst no findings can be made on this application as to who might have any right to the funds, the reconciliation statement of Lander & Rogers gives the impression that it may be conceded that at least $227 205 from the sale of the property is owing to the Trust and is to be paid into court.

32 It is also of note that in Fordyce v Ryan, the plaintiff did not persist with the application in relation to a trust when Jackson J inquired as to whether the general beneficiaries of that trust had been given notice of the application or had been served.[29] The value of such an approach, where the court seeks to obtain the views of beneficiaries for its own satisfaction, has previously been discussed.[30] Indeed, it can help to inform the court's inquiry as to whether any proposed trustee would be obnoxious to the purposes of the trust.[31] On the facts in this proceeding, although the plaintiff has attempted to identify any general beneficiaries of the Trust, the letter of the Trust's previous accountant is of limited assistance as it only confirms Mr Omer's status as the sole specified beneficiary. There remains a lack of evidence as to the existence of any general beneficiaries or the opinion of those beneficiaries more broadly.

33 Further, unlike the reasoning relied upon in McLean, the plaintiff is not a creditor of the Trust. It is clear that if he were, the application would have fallen within the scope of s 48 of the Act. Nor is there any evidence that Mr Omer is a creditor of the Trust.

It is clear that the welfare of the beneficiaries is best served by the appointment of an independent trustee capable of assessing the merits of any claim. In such a way, the appointment has the potential to reclaim funds and promote the execution of [the Trust]... In my view, risk to the security of the claim of the sale proceeds meets the requirement of expediency and it is in the interests of the beneficiaries to have the merits of the claim assessed as efficiently as possible.[32]

**Simply dismissing the application when a potential claim to $300 000 existed was deemed to be inconsistent with the welfare of the beneficiaries and the equitable role of the Court in promoting the execution of the Trust. However, as the evidence now stands, it is not in the interests of the beneficiaries to appoint Mr Kaso as trustee. The issue of expediency has lessened as the evidence now discloses that the funds in question are held in the trust account of Lander & Rogers. Further, the plaintiff is unable to communicate with Mr Omer and has no knowledge of the existence of any other beneficiaries.

35 If the relevant funds were claimed by Mr Kaso, there is a risk that they would be depleted with little benefit to the Trust. This is particularly so where Mr Kaso, as an experienced insolvency practitioner, charges an hourly rate of $595.[33] Notably, similar issues were discussed by Vaisey J in Re Brockbank, where the fees likely to be charged by a proposed additional trustee outweighed any benefit in making the appointment.[34] A trustee is a fiduciary. Fiduciary law precludes the payment of remuneration to a trustee, but in certain circumstances a trustee is allowed remuneration, such as where it is expressly provided for in the trust instrument.[35] In this instance, the Trust provides for trustee's remuneration in the form of reasonable commission, not hourly rates as proposed to be charged by Mr Kaso and his staff.

36 There is also a real risk that the trustee may direct distribution of the trust fund towards Mr Omer which, in turn, may potentially be claimed by the plaintiff. In such circumstances, it is doubtful that the interests of the beneficiaries as a whole will be advanced.

37 I am satisfied that the circumstances do not justify recourse to the inherent jurisdiction of the Court to appoint a new trustee to the Trust. The most appropriate and beneficial course is for DNP Constructions to pay the relevant sum into court, as suggested by Landers & Rogers.[36] This will ensure that the funds will be maintained and that, in future, those with a legal interest in them can either seek to appoint a trustee, or otherwise make a claim.

38 For completeness, I note that an alternative in the present circumstances may have been for the Court to appoint a contradictor to represent the interests of the beneficiaries. However, such a course would have been inappropriate given the current lack of trust funds.**

39 In Smith v Smith, Murray J stated that the statutory jurisdiction to appoint a trustee needs to be exercised cautiously.[37] Such caution should extend equally to appointments by virtue of the Court's inherent jurisdiction. The plaintiff has no standing under s 64 of the Act and no legal interest in the property of the Trust. The circumstances do not justify recourse to the Court's inherent jurisdiction, particularly given:

**(a) the lack of evidence before the Court as to the opinion of any beneficiaries or anyone with a proprietary interest in the Trust;

(b) the lack of any allegation of misconduct that would threaten the security of the funds in Lander & Rogers' trust account;

(c) the relative protection afforded to the funds in Lander & Rogers' trust account;

(d) the possibility that those funds can be paid into court and claims or applications be made by interested parties in future; and

(e) the risk that, should a trustee be appointed, any recouped trust funds would be depleted to the detriment of the discretionary beneficiaries of the Trust.**

40 While it is not ideal that the Trust is to continue without an active trustee, this is preferable to a situation where trust funds may be diminished for limited gain.

41 Accordingly, I make the following directions:

**(a) On or before 31 May 2017, the plaintiff forward a copy of these reasons and the ruling to Lander & Rogers, DNP Constructions and Mr Omer.

(b) The plaintiff must notify the Court of any response from either Lander & Rogers, DNP Constructions or Mr Omer as to the Court's ruling that the trust funds be paid into Court.**

42 Subject to compliance with the directions, I will order that the application be dismissed with no order as to costs.

[1] Re Cooper Street Property Trust [2016] VSC 756 (9 December 2016).

[2] Monty Financial Services Ltd v Delmo [1996] VicRp 7; [1996] 1 VR 65, 76.

[4] H A J Ford and W A Lee, Thomson Reuters, The Law of Trusts, vol 1 (at Update 117) [8280] ('Ford and Lee'). See also Sinnott v Hockin [1882] VicLawRp 21; (1882) 8 VLR (E) 205, 210 (Molesworth J).

[5] Palmer v Ayres [2017] HCA 5; (2017) 341 ALR 18, 40 [84].

[6] McLean v Burns Philp Trustee Co Pty Ltd (1985) 2 NSWLR 623; (1985) 9 ACLR 926 ('McLean').

[8] See, for example, Munro v Munro [2017] SASC 48 (30 March 2017) [29] (Stanley J); Stevedoring Employees Retirement Fund Pty Ltd v The Association of Employers of Waterside Labour (Unreported, Supreme Court of New South Wales, Young J, 1 March 1995) 3 ('Stevedoring Employees').

[9] McLean (1985) 2 NSWLR 623, 637; (1985) 9 ACLR 926, 936.

[10] Stevedoring Employees (Unreported, Supreme Court of New South Wales, Young J, 1 March 1995) 3, 4. See also Bridge Trustees Ltd v Noel Penny (Tribunes) Ltd [2008] EWHC 2054 (Ch).

[11] Ford and Lee, above n 7, [8280].

[12] Hancock v Rinehart [2015] NSWSC 646; (2015) 106 ACSR 207, 241-2 (Brereton J). See also Ford and Lee, above n 7, [8280].

[13] Re Tempest (1866) LR 1 Ch App 485.

[14] Ex parte Davenport [1963] 1 5th Africa LR 728.

[16] Re Cooper Street Property Trust [2016] VSC 756 (9 December 2016) [101].

[17] Eden Refuge Trust v Hohepa [2008] NZHC 280 (7 March 2008) ('Eden Refuge Trust').

[19] Ngarluma Aboriginal Corporation RNTBC v A-G (WA) [2014] WASC 245 (7 July 2014) [52]-[53] (Allanson J).

[20] Re Wragg [1863] EngR 444; (1863) 1 DEG J & S 356; (1863) 46 ER 143.

[21] Ayles v Cox; Ex parte Attwood [1853] EngR 1105; (1853) 17 Beav 584; (1853) 51 ER 1161.

[22] Re Sheppard's Trusts (1862) 4 DEF F & J 423; [1862] EngR 1104; (1862) 45 ER 1247.

[23] J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia (Butterworths, 7th ed, 2006) [1546]-[1547].

[24] Fordyce v Ryan [2016] QSC 307 (20 December 2016).

[26] Re Brockbank [1948] Ch 206, 206.

[27] A-G (NSW) v Perpetual Trustee Co (Ltd) [1940] HCA 12; (1940) 63 CLR 209, 222-3 (Dixon and Evatt JJ); Sir Moses Montefiore Jewish Home v Howell & Co (No 7) Pty Ltd [1984] 2 NSWLR 406, 413 (Kearney J).

[28] Dwyer v Ross (1992) 34 FCR 463, 466 (Davies J).

[29] Fordyce v Ryan [2016] QSC 307 (20 December 2016) [49].

[30] In re Field's Settlements [1925] VicLawRp 16; [1925] VLR 143, 146 (Weigall AJ).

[31] Ford and Lee, above n 7, [8290]; Wallace v Wallace (No 2) [1899] VicLawRp 166; (1899) 24 VLR 893.

[32] Re Cooper Street Property Trust [2016] VSC 756 (9 December 2016) [96].

[33] See also Ashrafinia v Ashrafinia (No 4) [2014] NSWSC 676 (28 May 2014) [29] (Slattery J); Fordyce v Ryan [2016] QSC 307 (20 December 2016) [73]-[74] (Jackson J).

[34] Re Brockbank [1948] Ch 206, 212.

[35] G E Dal Pont, Equity and Trusts in Australia (Lawbook Co, 5th ed, 2011) [23.135].

[36] Trustee Act 1958, s 69.

[37] Smith v Smith [2006] WASC 166 (30 May 2006) [4]. See also Re Hodson's Settlement ([1851] EngR 617; 1851) 9 Hare 118; 68 ER 439, 439-40 (Sir G J Turner V-C).