HER HONOUR: By summons filed on 15 June 2021, the plaintiff, who is a court appointed trustee, seeks advice pursuant to s 63 of the Trustee Act 1925 (NSW), that he will be justified in distributing certain funds, which I will explain in due course, in the amounts specified in prayer 1 of the summons, and a direction pursuant to s 63 of the Trustee Act to the effect that notice not be required to be given to any person other than to the named persons in prayer 2 of the summons prior to making any distribution as contemplated by order 1. Further, or in the alternative, other prayers for relief are set out in the summons.
The application is supported by two affidavits sworn by the plaintiff's solicitor, Mr Salgo, being affidavits sworn on 15 June 2021 and 13 July 2021 respectively. The background to the application is set out in the first of those affidavits.
[2]
Background
Briefly, by way of background, the proceedings originated in relation to a fraudulent investment scheme in which a large number of Japanese people and companies purportedly invested funds with an entity by the name of Earthwise International Ltd (Earthwise). In 2002, by proceedings in this Court, Westpac filed a summons by way of interpleader in relation to some $19 million of funds held by it. In those proceedings, the plaintiff's instructing solicitors, Baker & McKenzie, acted for a large number of the defendants, on instructions from two of the executives of an entity known as HSS Japan KK.
In October 2005, Palmer J delivered judgment in the proceedings (Westpac Banking Corporation v Earthwise International Limited & Ors [2005] NSWSC 1037). In his Honour's judgment, delivered ex tempore on 4 October 2005, his Honour concluded that the evidence clearly demonstrated that the money held by Westpac in three particular accounts was procured from a number of investors in Japan by means of fraudulent representations by a Mr William McRae, a US citizen who was convicted in the USA of counts of fraudulent conduct in November 2003, and has been sentenced to a substantial term of imprisonment. His Honour concluded that the funds which had been intermingled, and in respect of which tracing would be a difficult exercise, should be paid to a trustee who would administer the distribution process. His Honour then addressed the question as to the principles upon which the funds were to be distributed. His Honour made particular orders on 4 October 2005 as to the distribution of the funds. Those orders were subsequently amended by orders made on 7 April 2006 and 27 July 2006, in each case substituting corrected distribution spreadsheets in relation to the named beneficiaries who were the subject of the orders of 4 October 2005.
The trustee of the trust fund, Mr Reidy, has instructed his solicitor that, as at 27 July 2006, no distributions had been made to beneficiaries in accordance with the court's previous orders or otherwise and, to the best of his knowledge, no step had been taken in the Earthwise proceedings since 27 July 2006; and that HSS Japan KK has been dissolved.
Mr Salgo, in his affidavit of 15 June 2021, has set out the steps taken by Mr Reidy to carry out investigations into the beneficiaries entitled to distribution of the funds in accordance with the orders of the court; and has made certain distributions. The unpaid distribution from the fund (see [33] of Mr Salgo's affidavit) amounts to $168,101.33, as detailed in the table set out in [34], and the balance of the fund (which as at 31 March 2021 totalled $236,767), is comprised of interest received from time to time, after payment of tax on interest earned. Mr Salgo has explained the position in relation to the eight different beneficiaries, or sets of beneficiaries contained in the table at [34], and I deal with them sequentially.
The first named beneficiary is the late Mr Yoshitaka Takahashi. Mr Takahashi died on 27 March 2006, prior to the making of the substituted corrected distribution orders of 7 April 2006 and 27 July 2006. The substituted correction orders of 27 July 2006 included Mr Takahashi as a named beneficiary in a particular specified proportion of the trust fund, which percentage has been calculated to be the sum of $131,797.86.
The joint heirs of Mr Takahashi are those named in 36 of Mr Salgo's affidavit. Exhibited to Mr Salgo's affidavit is the English translation of an Agreement on Division of Inheritance between the heirs and beneficiaries of Mr Takahashi, and a Statement and Acknowledgement of Mr Takahashi's widow and his son. The result of those documents is that it has been acknowledged and agreed that any distribution in respect of the late Yoshitaka Takahashi's direct or indirect investment in Earthwise is the sole entitlement of his son, Naoki Takahashi, pursuant to the Agreement on Division of Inheritance.
In circumstances where the named beneficiary should have been corrected in the corrections to the orders made in the Earthwise proceedings, I accept that it is appropriate to exercise the power under the slip rule in r36.17 of the Uniform Civil Procedure Rules 2005 (NSW) in order to correct that change (see Newmont Yandal Operations Pty Ltd v J Aron Corporation & Goldman Sachs Group Inc (2007) 70 NSWLR 411; [2007] NSWCA 195).
As to the second of the named beneficiaries, UBS AG (Zurich), Mr Salgo has deposed that no communication has been received from that entity by Mr Reidy (the trustee). There was a communication from Mr Katsumi Matsuzawa, whose details were provided in the table as the person to whom communications should be sent at the last known address for that beneficiary but on 9 September 2006 Mr Matsuzawa advised that in his opinion the correct name for the beneficiary should be an entity by the name of UBS AG (Zug), (not UBS AG (Zurich)). Mr Matsuzawa provided documents to support a claimed interest of an entity named Schwanette Finance Limited and/or Mr Matsuzawa to the distribution withheld for UBS AG (Zurich). There is in evidence efforts by the trustee to contact USB AG (Zug), without success.
The trustee is not satisfied that Mr Matsuzawa has established an entitlement to the funds withheld in respect of the named beneficiary UBS AG (Zurich). There are, annexed to Mr Salgo's second affidavit, copies of communications with Mr Matsuzawa to that effect, culminating in an email from Mr Matsuzawa on 30 June 2021 which, when translated, advises that it is difficult for him, given the passage of the twenty years since the incident, to prove his entitlement and that, if it is not possible to confirm his entitlement in the current situation, to "decline this case".
The third of the beneficiaries in the table is an entity by the name of E-Capital Partners. Mr Salgo deposed to the attempts to determine the entitlement of E-Capital Partners in relation to this amount. There is in the evidence a copy of an agreement dated 25 June 2001 between Earthwise and E-Capital Partners which appears to have been signed on behalf of the "client" by Mr Kunihiko Yogo. Mr Yogo has advised the office of Baker & McKenzie in Tokyo that he should receive the payment withheld for E-Capital Partners, but the trustee is not satisfied that Mr Yogo has established his entitlement to that amount, and Mr Yogo has been notified to that effect.
Mr Yogo has emailed, on 17 October 2019, to the effect that he cannot submit further detailed evidence, as it has been years since the dissolution of E-Capital Partners and that it was an offshore company of the British Virgin Islands, albeit that Mr Yogo says he is sure that he is entitled to receive the distribution funds.
The trustee does not propose, in the circumstances, to make any distribution to Schwanette Finance Limited, Mr Matsuzawa or Mr Yogo, and seeks, in effect, judicial advice that he is warranted in not so doing.
The next set of beneficiaries in the table are individuals (Hideko Nakaseko, Isao Nakaseko and Hiromi Itsuzaki), who have informed the trustee, through the office of Baker & McZenzie in Tokyo, that they do not seek to receive any payment from the fund in respect of those amounts, and have signed a disclaimer notification.
There are then two entities, (Presside Limited and Sewin International). The first, according to searches conducted by the trustee's office, is a company that was based in the Isle of Man and has been dissolved. The second is a company which, according to the trustee's searches, was a Hong Kong company which has been deregistered.
The last of the beneficiaries in the table is a Sukeji Takano. The trustee is unable to locate that named beneficiary.
Mr Salgo has deposed that no communication has been received from Sukeji Takano in relation to a letter, issued by the trustee on 30 July 2019, and translated and sent by way of registered post by the office of Baker & McKenzie in Tokyo.
Mr Salgo has deposed that Mr Reidy proposes only to distribute the amount of $131,797.86 to Naoki Takahashi and not to make any distribution to any of the other named beneficiaries. The trustee seeks judicial advice that he would be justified in distributing, from the residue of the fund, the amount set out in prayer 1 in relation to the beneficiaries. He seeks what is commonly referred to as a "Benjamin order" (see for example the decision of Pembroke J in Application of Harnett and Cutts [2016] NSWSC 427; and Application by NSW Trustee and Guardian re Mountain [2018] NSWSC 419).
In Application by NSW Trustee and Guardian (Estate of the late Marco Sijakovic) [2012] NSWSC 1532, Hallen J at [23] and [25] said the following in relation to Benjamin orders:
[23] In Williams, Mortimer & Sunnucks, Executors, Administrators and Probate, 17th ed, (1993), at 938, the learned authors state:
"It may happen that distribution is held up because the representatives cannot be sure who is entitled. Thus a person's right to share in the estate may turn on the question whether another predeceased the testator, predeceased him without issue, and it may be uncertain on the facts whether this happened. In these circumstances, the representatives may apply to the court for a "Benjamin" order - Re Benjamin [1902] 1 Ch 723, that is, an order permitting them to distribute the estate on the footing that certain events have or have not happened. The effect of such an order is to relieve the representatives of liability in their capacity as representatives should the hypothesis on which they are to be permitted to distribute turn out to be wrong. Thus, where a beneficiary who was thought to have predeceased a testator subsequently appears, he will not be entitled to bring a claim against the representatives for his share of the estate. He may, however, be entitled to claim in equity against the beneficiaries who have been wrongly paid or perhaps bring a tracing action against the recipients of the share - Re Diplock [1951] AC 251."
…
[25] In Lempens v Reid [2009] SASC 179, Gray J, at [32], said:
"The effect of a Re Benjamin order is to enable the executor to distribute the estate to those members of the class which have been ascertained at the time of distribution, whilst ensuring protection of the executor if a person entitled to a portion of the estate subsequently appears. If such a person does appear, he or she is not entitled to make a claim against the executor for that portion but may claim against beneficiaries who have been paid incorrectly. If a Re Benjamin type order were considered appropriate in the circumstances of these proceedings, it may be necessary for the Court to order that further enquiries be undertaken, to ascertain whether members of the class can be located, prior to any distribution of the gift contained in the subject clause." (Omitting citations)
Counsel for the plaintiff submitted that this is a case not dissimilar to that considered by Hallen J in NSW Trustee and Guardian (Estate of Peter Urso) [2013] NSWSC 903, where the trustee is faced with a practical difficulty in establishing the existence of beneficiaries or other claimants to the trust fund.
I am satisfied in the circumstances that the trustee has made all appropriate enquiries in order to ascertain the beneficiaries of the fund, and that it is appropriate that the judicial advice be given to the effect that the trustee would be justified in distributing the residue of the fund as proposed, insofar as the listed beneficiaries are concerned.
The balance of the fund is proposed to be distributed in order to meet the costs of the trustee of this application, including counsels' costs and solicitors' costs, as well as amounts relating to matters such as the translation of documents, into English and Japanese respectively, and accounting costs.
I am informed that the balance of the amount held in the trust fund will not be sufficient to meet the entirety of the outstanding costs of the trustee and the trustee's solicitors, but that there has been agreement reached that the balance of the funds will be agreed as between Rodgers Reidy and Baker & McKenzie in relation to the costs and expenses of dealing with the fund and providing advice in relation thereto.
Accordingly, I am satisfied that the relief claimed should be made. I make the following orders.
1. Pursuant to Rule 36.17 of the Uniform Civil Procedure Rules, vary the order made by the court on 27 July 2006 in the Earthwise proceedings, being proceedings number 1604 of 2002, to direct that the plaintiff distribute to Naoki Takahashi the amount of $131,797.86.
2. Advise, pursuant to section 63 of the Trustee Act, that the plaintiff would be justified in distributing from the residue of the fund which was the subject of declaration 2 and direction 3 made by the court on 4 October 2005 in the Earthwise proceedings the following amounts:
1. The sum of $131,797.86 to Naoki Takahashi;
2. An amount payable to counsel for counsel's reasonable fees in respect of his brief in these proceedings;
3. Reimbursements of disbursements paid by Rodgers Reidy and Baker & McKenzie in the amount of $17,596.86 and $673.51 respectively;
4. Court fees and other disbursements related to and incidental to these proceedings incurred from and including the date of filing of the summons on 15 June 2021; and
5. The balance of the fund to Rodgers Reidy and to Baker & McKenzie in such proportions as Rodgers Reidy and Baker & McKenzie may agree in respect of their costs and expenses in dealing with the fund and providing advice in relation thereto.
1. Direct pursuant to section 63 of the Trustee Act that notice is not required to be given to any person other than to Naoki Takahashi, Kunihiko Yogo and Katsumi Matsuzawa of the orders of the Court prior to making any distribution as contemplated by order 2 above.
[3]
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Decision last updated: 16 July 2021