Hague v Hague

The purpose of these reasons is to provide a brief explanation of the orders that the Court will make in these proceedings following a contentious directions hearing that took place on 10 June 2022, at the end of which the Court did not have time to consider what orders would be appropriate.

It will only be necessary for the Court to provide a brief explanation of the circumstances of these proceedings.

The plaintiff and the defendant were formally married but have recently, as I understand it, been parties to matrimonial property settlement proceedings in the Federal Circuit and Family Court of Australia (Division 1).

The plaintiff and the first defendant were also formerly the trustees of a trust fund established under a will in favour of their four children. The Court has been informed that two of the children have attained their majority but the other two have not. Consequently, the children are not all sui juris and able to resolve these proceedings by negotiation with the plaintiff and the first defendant.

Apparently, the plaintiff and the first defendant applied a significant proportion of the children's trust fund for their benefit and advancement, as they were entitled to do under the terms of the trust. However, other payments either were or may have been for the personal benefit of the plaintiff and the first defendant.

Although both the plaintiff and the first defendant were trustees, the plaintiff was the trustee who operated the relevant trust bank accounts and caused the subject payments to be made.

The proceedings were commenced by the plaintiff to ensure that the trust fund was appropriately restored by the plaintiff and the first defendant. For that purpose, the plaintiff swore an affidavit in which she conceded that some of the payments had been made for her benefit.

Earlier in the proceedings, the Court made orders that had the effect that the plaintiff and the first defendant were replaced as trustees of the trusts by two professional persons who may conveniently be called the new trustees. The new trustees were joined as parties to the proceedings.

In accordance with an order made by the Court, on 1 June 2022 the new trustees prepared a report that explained the result of their examination of the affairs of the trust and annexed schedules itemising the transactions that they had investigated. In brief, the new trustees identified the payments that they accepted had properly been made for the benefit and advancement of the beneficiaries, as well as those payments that they considered had not been so made.

The purpose of the Court seeking the assistance of the new trustees to prepare this report was to try to achieve a resolution of the dispute as quickly and cheaply as possible. Furthermore, the schedule of transactions produced by the new trustees might provide a convenient foundation for the resolution of any continuing disputes.

In essence, the new trustees noted that the plaintiff appeared by her affidavit to have conceded that payments in the total amount of $113,523.34 made out of the trust accounts for her benefit were loans that were required to be restored to the trust fund. An amount of $4,500 was, in similar vein, found to be a loan made to the first defendant.

However, the new trustees considered that the full amount that the plaintiff is required to restore to the trust fund is $213,218.02. That is on the basis that there were payments in addition to the total amount of $113,523.34 that the plaintiff had caused to be made out of the trust fund that were not, in the opinion of the new trustees, for the benefit and advancement of the beneficiaries, and whatever use was made of the additional withdrawals, the plaintiff was responsible for restoring them as the trustee who had caused the payments to be made.

Apparently, the plaintiff wishes to seek contribution or indemnity from the first defendant in relation to some part of the $213,218.02 and she also wishes to be excused from some of her breaches of trust under s 85 of the Trustee Act 1925 (NSW). The plaintiff did not seek that relief in her summons.

The new trustees have demanded that the plaintiff restore the whole of the $213,218.02 as soon as possible and not only the $113,523.34 that the plaintiff has already paid to the new trustees. It would then be a matter for the plaintiff to seek whatever relief she wishes in respect of the additional repayment to the new trustees.

The new trustees asked the Court to make certain orders. The first defendant agreed but the plaintiff did not. The plaintiff and the first defendant have provided different draft short minutes of order to the Court. The appropriate orders to be made were the subject of submissions at the directions hearing on 10 June 2022.

The course I propose to take is to set out the orders that I will make and then provide a brief explanation for my ruling.

Notes and orders to this effect were substantially agreed between the parties, although I have slightly revised the wording in the draft short minutes of order. The orders continue:

There was a dispute at the directions hearing as to whether what I have defined in order 4 as “the Documents” have or have not already been provided by the plaintiff to the first defendant. That dispute cannot be resolved by the Court in the context of a directions hearing. In those circumstances, an order in the form of order 4 seems to be the most efficacious way to resolve the dispute. The orders continue:

Orders 1 and 3 made on 20 May 2022 were that the plaintiff and the first defendant respectively pay to the new trustees the amounts of $113,523.34 and $4,500 in restoration of the trust fund. Order 2 was a notation by the Court (repeated by reference in order 3) that the restorative payments were without prejudice to the right of the plaintiff and the first defendant to claim that the monies paid out of the trust funds were for the advancement of the beneficiaries, or to seek an order for contribution or an order excusing any breaches of trust. The intent of the orders was that the preserved rights of the plaintiff and the first defendant would not apply to any payments that were in fact made out of the monies restored for the proper purposes of the trust.

Some uncertainty has arisen, and there appears to be a dispute about whether the preservation of the plaintiff's and the first defendant's rights has stultified the ability of the new trustees to pay the debts of the trusts out of the monies restored by the plaintiff and the first defendant. The purpose of order 5 is to make the position clear. The new trustees are authorised and entitled to pay all of the proper debts of the trusts without being at risk of later being found to have made unauthorised payments. The orders continue:

Orders 6 to 11 are intended as case management orders to deal with the remaining disputes between the plaintiff and the first defendant. As I understand it, it is likely that the reason for order 7 is that the plaintiff will seek to be excused under s 85 of the Trustee Act and will seek contribution or indemnity from the first defendant. The orders are in the form suggested by the plaintiff, save that I have added a requirement suggested by the first defendant and the new trustees that the parties should verify the points of claim and points of defence.

I have not required the parties to file pleadings in order to try to minimise the costs of the exercise. The points of claim and the points of defence and reply should be prepared with clarity and completeness but should be as informal as may be adequate. They should probably be prepared by reference to the schedules prepared by the new trustees in their report.

The plaintiff and the first defendant should be warned that they risk adverse costs orders if they do not comply with the requirements of s 56 of the Civil Procedure Act 2005 (NSW).

The first defendant proposed that any further disputes could be resolved by the new trustees, if necessary, by their role being transformed by order of the Court from new trustees to referees. I would not make an order to that effect unless the new trustees had been given adequate time to consider their position and consented to the appointment. However, it became clear that the plaintiff expressly resisted such an appointment being made, apparently upon the basis that the plaintiff wishes the dispute to be resolved by the Court. In those circumstances, the Court can only consider appointing the new trustees as referees upon a formal application to that effect being made. I strongly suspect that the first defendant is right, and the outstanding dispute will be resolved more quickly and cheaply if the resolution is by referees rather than formal court proceedings.

The first defendant and the new trustees appear to suggest that it will be incompetent for the plaintiff to seek an order for contribution or indemnity against the first defendant until after she has first restored the whole amount of $213,218.02 by payment to the new trustees. An order for contribution or indemnity in equity can be sought before the liability is paid by the claimant because the co-trustee’s right to contribution arises when the beneficiary acquires a right to immediate payment: see McLean v Discount and Finance Ltd (1939) 64 CLR 312 at 341 (Starke J); [1939] HCA 38; Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 at 351 (Kitto J, Windeyer J agreeing at 352); [1969] HCA 55; Mahoney v McManus (1981) 180 CLR 370 at 376 (Gibbs CJ, Murphy J agreeing at 381, Aickin J agreeing at 381, Wilson J agreeing at 382); [1981] HCA 54; J D Heydon, M J Leeming and P G Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (5th ed, 2015, LexisNexis Butterworths) at [10-030]-[10-035].

As the plaintiff has already paid $113,523.34 to the new trustees, I will not make an order now that she pay the balance of the $213,218.02. If the new trustees exhaust the amount already restored by the plaintiff in paying the debts of the trust, they will be free to rely upon their liberty to apply to seek an order from the Court that the plaintiff pay the balance.

The final orders are:

The formal orders that the Court will make will incorporate all of the orders that are separately set out above.