Riddle v Riddle

18 THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

HIS HONOUR: 1 The plaintiff approaches the Court in two capacities: first, as trustee of the trusts of the will of the late Ruby Spruit (which I shall call "the Will Trust"); and, second, as trustee of a trust created inter vivos and described as the "JRS and JCS Crane Trust" ("the Crane Trust"). Four other persons are relevant. The first is Mrs Crane, a daughter of the late Mrs Spruit, who was originally the sole trustee of both the Will Trust and the Crane Trust. Orders made by this Court in 1995 removed Mrs Crane and appointed the plaintiff in her place. Also involved are Mrs Crane's daughters, Mrs Rodgers and Mrs Flynn, each of whom is a beneficiary under both the Will Trust and the Crane Trust. Finally, there is Mrs Thompson (another daughter of Mrs Spruit and sister to Mrs Crane) who is a beneficiary under the Will Trust but not the Crane Trust. Ms Cheeseman of Counsel appeared for the plaintiff upon the hearing of the application. Mrs Rodgers and Mrs Flynn were represented by Mr Lim, solicitor. Mrs Thompson was represented by Mr Smith of Counsel. Mrs Crane took no part in the proceedings; nor was there any reason for her to do so. The plaintiff seeks certain orders in relation to both the Will Trust and Crane Trust. It is appropriate to deal with them separately.

The Will Trust 2 After being appointed as trustee of the Will Trust in 1995 the plaintiff became the registered proprietor of the two properties which then constituted the whole of the assets of the estate of the late Mrs Spruit. One is a property at Drummoyne which, under the terms of the will, is held upon trust for Mrs Thompson for life. The other was a property at Lilyfield which was held upon trust to apply the income in meeting expenses and outgoings referable to both properties and, as to any residue of income, to divide it equally between Mrs Rodgers and Mrs Flynn. After the death of Mrs Thompson, both properties were to pass to Mrs Rodgers and Mrs Flynn in equal shares or, if either of them had died leaving children, to those children. The Lilyfield property has now been sold. The sale was effected in exercise of a power of sale conferred by order of the Court made in 1998. As a result of the sale, the only assets of the estate are the Drummoyne property which is occupied by Mrs Thompson and a sum of $299,839 which represents the residue of the proceeds of the sale of the Lilyfield property after payment of estate debts and expenses and other applications of funds in accordance with the orders made in 1998. 3 It is against that background in relation to the Will Trust that the plaintiff now seeks orders 1 and 2 in the Notice of Motion now before the Court.

The trustee of the Will Trust seeks power to pay funds to the remaindermen 4 Order 1 is an order under s.81 of the Trustee Act 1925 empowering the plaintiff to apply the balance of the proceeds of the sale of the Lilyfield property by paying a certain sum to Mrs Rodgers and Mrs Flynn and by investing the balance in ways to which I shall refer presently. To the extent that it envisages payment to Mrs Rodgers and Mrs Flynn, this order is opposed by Mrs Thompson. 5 The sum which would be paid to Mrs Rodgers and Mrs Flynn if order 1 were made represents legal costs and disbursements incurred by them. Those expenses related in part to long running proceedings which Mrs Rodgers and Mrs Flynn commenced in this Division in March 1992 with a view to obtaining proper accounts of the administration of their mother Mrs Crane as trustee of both the Will Trust and the Crane Trust. Those proceedings continued until late 1995 when, as I have said, orders were made appointing the plaintiff as trustee of both trusts in place of Mrs Crane. Other orders of various kinds were also made against Mrs Crane. She complied with them only under threat of imprisonment for contempt. Mrs Rodgers and Mrs Flynn incurred further legal expenses in connection with matters arising after the conclusion of those proceedings including, in particular, matters surrounding the plaintiff's application which resulted in the orders of 1998 allowing the Lilyfield property to be sold. Their solicitor appeared upon the hearing of that application. All those matters were more protracted than they might have been because of what appear to have been particular problems in dealing not only with Mrs Crane (who, as I have said, complied with Court orders only under extreme pressure) but also with Mrs Thompson with whom the plaintiff has experienced considerable difficulty in attempts to obtain concurrence and co-operation in relation to repair of the Drummoyne property which is in such a state of dilapidation that the estimated cost of repairs at this point is of the order of $190,000. 6 In support of his application for an order conferring power to make the payment to Mrs Rodgers and Mrs Flynn, the plaintiff says in his affidavit of 24 April 2001: "Mrs Rodgers and Mrs Flynn have, through their solicitors, Patrick Lim & Associates, requested payment of the legal costs and disbursements incurred on their behalf in relation to the Equity Division proceedings [i.e. those commenced by Summons filed on 25 March 1992] …, and in regularising the estate, from the funds of the estate …. The total amount of legal costs and disbursements which Mrs Rogers and Mrs Flynn have incurred is $58,583.15. As they are the beneficiaries of the remainder, they will ultimately be entitled to all surplus funds remaining at the expiration of Mrs Thompson's life interest. In my opinion, there are sufficient funds … to pay Mrs Rodgers and Mrs Flynn the amount sought by them and to adequately meet the present and future maintenance costs of the Drummoyne property."

The plaintiff's opinion as to the sufficiency of funds is supported by reference to a written summary which is in evidence. 7 The central question in relation to that part of the plaintiff's application which seeks an order allowing money to be paid to Mrs Rodgers and Mrs Flynn is whether the creation by the Court of a power to make such a payment is a step which the Court may take consistently with s.81 of the Trustee Act 1925. Section 81(1) is in the following terms: "(1) Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or disposition, or any purchases, investment, acquisition, expenditure, or transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust, or by law, the Court: (a) may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, including adjustment of the respective rights of the beneficiaries, as the Court may think fit, and (b) may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne as between capital and income." 8 The words of the section make it clear that the jurisdiction to confer upon a trustee "the necessary power for the purpose" is predicated upon a finding that some transaction "is in the opinion of the Court expedient" - but not "expedient" in some abstract and unconnected sense: it must be expedient "in the management or administration of any property vested in trustees". 9 Ms Cheeseman took me to the often cited decision of the High Court in Riddle v Riddle (1952) 85 CLR 202 where the jurisdiction under s.81 is discussed in some detail. The statutory criterion of expediency was described by Dixon J as "a criterion of the widest and most flexible kind". Williams J observed that the section "is couched in the widest possible terms" and that the sole question "is whether it is expedient in the interest of the trust property as a whole that such an order should be made", with "expedient" being understood as meaning "advantageous", "desirable", "suitable to the circumstances of the case". Williams J also said: "Section 81 authorises the Court to step in whenever it is of opinion that sound practical business considerations make it expedient that trustees should have administrative powers in addition to or overriding the powers derived from the trust instrument or the general law." 10 While the comprehensive nature of the jurisdiction created by s. 81 is beyond question, the section does not allow the Court to confer upon trustees whatever powers it considers expedient. The Court is, obviously enough, confined by the terms of the section itself and can therefore confer only those powers which are necessary to the effectuation of a particular purpose which the Court judges to be expedient "in the management or administration" of trust property. The management and administration of trust property is distinguishable from the management and administration of trust affairs generally: see Featherby v Grljusich [1998] WASC 128. 11 In the present case, therefore, it is necessary to inquire how it will be expedient (in the sense of advantageous) in the management or administration of either the Drummoyne property or the cash residue now in the hands of the plaintiff as trustee of the Will Trust for the plaintiff to have at his disposal a power to transfer trust funds to Mrs Rodgers and Mrs Flynn so that they can pay debts which they, by decisions of their own, incurred in past efforts to protect their interests as beneficiaries. It may well be that the actions of Mrs Rodgers and Mrs Flynn in incurring the relevant debts were beneficial to the proper and orderly administration of the Will Trust in that the lawyers they retained played a part in putting the affairs of that trust on to a more secure and business-like footing than had pertained before both the orders of 1995 and the orders of 1998. But that, to my mind, is beside the point when it comes to applying s.81 in the way I am now asked to apply it. The plain fact is that any future payment by the trustee to Mrs Rodgers and Mrs Flynn will produce no advantage, benefit or other positive outcome in relation to the management or administration of any property currently in the plaintiff's hands as trustees of the Will Trust. Nor, even if it is relevant (which I do not think it is), will it produce any advantage, benefit or other positive outcome in relation to the wider affairs of the Will Trust, that is, matters going beyond the management and administration of trust property. In these circumstances, I can see no basis upon which it is open to the Court to conclude that the conferring of the power the plaintiff seeks to make the payment to Mrs Rodgers and Mrs Flynn is authorised or justified by s.81. 12 Mr Lim, the solicitor for Mrs Rodgers and Mrs Flynn, put forward two subsidiary bases on which an order allowing payment of the relevant sum to his clients might nevertheless be made. He referred first to the Court's inherent jurisdiction and second to s.93(3). 13 The point with respect to the Court's inherent jurisdiction may be dealt with briefly. The inherent power of a court of equity to change or amplify the powers of trustees is extremely narrow and arises only when it is necessary to address circumstances of an exceptional and urgent nature (Re New [1901] 2 Ch 534) or where the intentions of the testator or settlor would otherwise be thwarted (Tickle v Tickle (1987) 10 NSWLR 581). The statutory power under s.81 now effectively subsumes the inherent jurisdiction except in rare cases and was created for that very purpose. As it is not possible to bring the present case within the narrow confines just mentioned, it cannot be regarded as such a case. 14 Section 93(3) is simply irrelevant. It does no more than empower the Court to make a particular kind of costs order in proceedings concerning management or administration of trust property or with respect to the interpretation of the trust instrument. The sums in question are not costs in these proceedings and it is therefore unnecessary to say anything on the question whether these proceedings are in any event of the kind referred to in that section. The trustee seeks power to invest funds of the Will Trust 15 The other aspect of order 1 as sought by the plaintiff involves the conferring of investment powers. To be more precise, the plaintiff seeks to achieve by the order a power to invest funds in his hands by leaving a particular sum invested in a Macquarie Cash Management account and by placing other funds with any two of certain named fund managers. All parties are content for this part of the order to be made. 16 This brings to the fore another aspect of s.81. That aspect focuses upon the words "but the same [i.e. the transaction for which power is to be supplied] cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust, or by law". These words make it necessary for the Court to conclude, before conferring a power pursuant to the section, not only that the transaction in question is expedient in the management or administration of the trust property but also that the relevant power is not already enjoyed by the trustee either under the trust instrument or by law. 17 In the case of the Will Trust, the trust instrument (being, of course, the will) is silent as to investment powers. But the Trustee Act is not silent. Section 14, in the form in which it has existed since 13 March 1998, is as follows: "A trustee may, unless expressly forbidden by the instrument (if any) creating the trust: (a) invest trust funds in any form of investment, and (b) at any time vary any investment."

18 In view of the present form of s.14 and the fact that the will does not contain any express prohibition, there can be no doubt that, as a matter of abstract power, the trustee may invest funds of the estate in any of the ways referred to in his application. The case is not one where the investments the trustee desires to undertake cannot be effected by reason of the absence of power. There is accordingly again no basis for the making of an order under s.81. 19 Section 14A imposes certain duties of care, diligence and skill upon trustees exercising powers of investment. It would of course be open to the trustee to apply to the Court under s.63 for advice as to whether it would be consistent with the due performance of those duties to undertake particular investments. But that is not what he does in these proceedings.

Application of income from investments of the Will Trust 20 Order 2 sought by the plaintiff is an order that the income from investments made pursuant to order 1 be applied in the manner specified in clause 4 of the will in respect of the income from the Lilyfield property as if that income from investments were income from that property. Again, all parties are content for this order to be made. 21 The orders made by the Court in 1998 were the source of a power for the trustee of the Will Trust to apply proceeds of the sale of the Lilyfield property in paying for repairs to the Drummoyne property. The order the plaintiff now seeks - which, in view of my finding based on s.14 of the Trustee Act cannot really refer back to investments made pursuant to order 1 - involves a somewhat different concept in that it focuses on income only and contemplates that the regime with respect to income from the proceeds of sale or, at least, so much of them as remains from time to time after funds are applied consistently with the 1998 orders, should be the same as that applicable under the will to income from the Lilyfield property which, of course, is not confined to financing of upkeep of the Drummoyne property. 22 That, to my mind, is an entirely appropriate course and one which is probably implicit, in any event, in the Court's decision of 6 February 1998. In order to put matters on to a firm footing, I am prepared to declare that the trusts and powers applicable under the will to the income from the property at Lilyfield are, following sale of that property, applicable in like manner in all respects to the proceeds of sale thereof and to all accretions to such proceeds and investments in which the proceeds and accretions are from time to time invested. Rather than attempting here to formulate the precise form of such a declaration, I will invite counsel to submit a form agreed among them. The Crane Trust 23 The Crane Trust was created by declaration of trust dated 31 December 1965 made by Mrs Crane. By that document, she declared herself to be a trustee of certain sums of money which she already held for the benefit of her daughters (now Mrs Rodgers and Mrs Flynn) who were at that time children. The sums in question were legacies and gifts made for the children's benefit. It is unnecessary to go into the terms of the Crane Trust in any detail. It is sufficient to say that each of Mrs Rodgers and Mrs Flynn had an interest which became absolutely vested at age twenty one, the interest being, in each case, an interest as one of two tenants in common in equal shares. Each of Mrs Rodgers and Mrs Flynn attained the age of twenty one more than twenty years ago. 24 The plaintiff became the trustee of the Crane Trust in place of Mrs Crane as a result of the proceedings to which reference has already been made. The orders for the appointment of the plaintiff as trustee in place of Mrs Crane extended not only to the Will Trust but to the Crane Trust. For reasons about to be mentioned, it is not clear that the trustee has ever been able to obtain possession of any property which is subject to the Crane Trust. 25 During her trusteeship of the Crane Trust, Mrs Crane caused money of her own to be mingled with trust moneys. She did this in a quite deliberate way by executing what she described as a "partnership agreement" between herself as trustee of the Crane Trust and herself in her own right. The so-called "partnership agreement" is in evidence and the most that can usefully be said about it is that it demonstrates that the mixed fund, as initially constituted, represented contributions to the extent of 37/54ths from Mrs Crane's own money and 17/54ths in the form of funds the subject of the declaration of trust dated 31 December 1965. 26 It appears that this mixed fund was afterwards invested in the purchase of three parcels of real property, being 5/135 Spit Road, Mosman, 25/135 Spit Road, Mosman and 16/106 Pacific Parade, Dee Why. In August 1993, the property at 25/135 Spit Road was transferred by Mrs Crane to Mrs Rodgers and Mrs Flynn pending resolution of the proceedings which culminated in the 1995 orders. That property was later sold and the proceeds were divided between Mrs Rodgers and Mrs Flynn. The properties at 5/135 Spit Road and 16/106 Pacific Parade were mortgaged by Mrs Crane to raise money for her own purposes. 27 All these events occurred before the plaintiff became the trustee of the Crane Trust. Since assuming office, he has been unable to reconstruct the accounts of the Crane Trust in any satisfactory way. The practical reality is that the beneficiaries, Mrs Rodgers and Mrs Flynn, regard the Crane Trust as effectively at an end and are content to treat the benefits they obtained through transfer to them of the property at 5/135 Spit Road as satisfaction of all entitlements they have. Furthermore, they do not regard it as worthwhile to seek to assert such claims, if any, as they may have by reason of Mrs Crane having committed breaches of trust as a result of allowing trust funds to be mingled with her own money or otherwise.

Orders sought by the trustee in relation to the Crane Trust 28 It is in these circumstances that the plaintiff seeks orders 3 and 4 in the Notice of Motion: "3. An order that the plaintiff be removed as trustee of the trust known as the JRS and JCS Crane Trust. 4. An order that the trust known as the JRS and JCS Crane Trust be dissolved." 29 Order 4 is framed upon some implicit assumption that the Court may, by order, dissolve a trust in the same way as it may, for example, dissolve a partnership (Partnership Act 1892, s.35). Any such assumption is, of course, unwarranted. It is the duty of the Court to uphold and protect trusts, not to destroy them, although where the terms of the trust envisage, in certain circumstances, realisation of property, winding up of the trust's affairs and final payments to beneficiaries, the Court will, naturally enough, give effect to those "winding-up" provisions. There are no such provisions in the instrument governing the Crane Trust. 30 Thinking of the kind which sees an application of this kind made is fostered by the growing assimilation of certain kinds of trusts to companies. I refer, of course, to trusts governed by the provisions of the Corporations Law dealing with managed investment schemes. Part 5C.9 of the Corporations Law allows managed investment schemes to be wound up in various circumstances and creates certain powers which may be exercised by the Court in relation to such a winding up. But those provisions are irrelevant here. I mention them only to emphasise that, in the absence of applicable statutory powers, it is no business of the Court to act so as to put an end to a trust. Further insights into these matters may be obtained from the judgment of Young J (as he then was) in Horwath Corporate Pty Ltd v Huie (1999) 32 ACSR 413. 31 Termination of the Crane Trust, if it is to occur, is something which lies within the power of the beneficiaries, Mrs Rodgers and Mrs Flynn. Being sui juris and absolutely entitled, they can invoke the rule in Saunders v Vautier [1841] Cr & Ph 240 to put an end to the trust so that it can be regarded as fully administered and the plaintiff can be regarded as discharged. The Court could, of course, make a declaration that action of the beneficiaries of a trust directed towards its termination had been effective to achieve that end, assuming that appropriate evidence had been adduced. That, however, is not a matter currently before the Court.

Disposition of these proceedings 32 In view of the foregoing, I will not make order 1 in the Notice of Motion, noting, however, that the plaintiff may wish to consider an application under s.63 in relation to investments. As to order 2, I have outlined the kind of declaration I consider it appropriate to make and I have invited counsel to submit an agreed form of such a declaration. In relation to orders 3 and 4, I have again outlined what I see to be the appropriate way forward, also flagging the possibility that, if Mrs Rodgers and Mrs Flynn do take action to put an end to the Crane Trust, the plaintiff may again wish to approach the Court to have their action and his discharge formally recognised. (I do not suggest that the plaintiff must approach the Court again in relation to either of the matters I have foreshadowed: it is entirely up to him). 33 There is also the question of costs. Mr Smith, counsel for Mrs Thompson, foreshadowed that, in the result which has now emerged in relation to the issue of payment of funds of the Will Trust to Mrs Rodgers and Mrs Flynn, his client would seek an order for costs. 34 The course I propose taking is to stand the matter over to a date about three weeks from now so that the parties may consider these reasons and formulate any submissions they wish to make on the matters outstanding. If the plaintiff does decide to seek further orders, he may file and serve a Notice of Motion not later than seven days before the date on which the matter is to come back before me. I shall then also hear submissions on costs. ******

Last Modified: 06/12/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.