Click here for : Richard Tjiong – A Family Feud and the Australian Legal System
Part I
The article “Trustee misconduct will not be tolerated by Australian courts” by Colin Biggers & Paisley Lawyers gave an incomplete picture of a family feud where there were two trusts in existence and two trustees with two separate findings by the New South Wales Supreme Court on two different trustee misconducts. And the two trusts are forensically interlinked.
The CBP article refers to a trust that was disputed in a court case, Katrina Tjiong & Lindsay Tjiong v Richard Tjiong [2010] NSWSC 578 (“the Katrina Case”). This case was about the deceased estate of George Tjiong who died in early 2004; the plaintiffs Katrina and Lindsay are George’s children; the defendant Richard is George’s brother and the executor of George’s estate. The trust in question was set up in 2003. At the commencement of the proceedings, Uncle Richard was also the trustee of the 2003 trust.
Katrina and Lindsay took Uncle Richard to court in an effort to remove him as the executor of their father’s estate and as trustee of the 2003 trust. The trial of the Katrina Case was held in June 2009.
The CBP article did not make any mention of a related trust of a much earlier date- 1976, which surfaced in 2004. The Supreme Court of New South Wales subsequently dealt with the misconduct of George himself as the trustee. Katrina and Lindsay disputed the 1976 Trust, and the dispute was the centre piece in a family feud ever since the 1976 Trust emerged- after George died in 2004. Katrina and Lindsay wrongly believed that the 1976 Trust was a ruse created by Uncle Richard in an effort to steal their inheritance. The 1976 Trust was the cause cèlèbre in the family dispute and the driver behind the children’s attacks on their uncle in the Katrina Case.
The 1976 Trust was litigated in Chang v Tjiong & Ors [2009] NSWSC 122, where George’s sister Chang sought the return of the trust money to its rightfully beneficiary- their mother. Chang acted in her representative capacity at a time when her mother was 98 years old. The defendant was George’s deceased estate with Richard acting as the executor.
The Chang trial was heard by Judge Palmer in March 2004 and followed three months later by the hearing in the Katrina Case. After a two-day hearing of Chang v Tjiong & Ors in March, the Judge found that a trust had [indeed] been set up by George’s father in 1976, that George held the trust property as trustee and that George subsequently breached his duty as trustee by keeping the trust funds as his own property.
The judgment is reproduced in full from court record in Part II of this article.
The 1976 Trust- The Facts
As established by the court, George in life was the first trustee of the 1976 Trust, his father was the settlor and the source of the trust fund when the father bought an apartment in Burwood, a suburb of Sydney, for the benefits of both of George’s parents, and for George’s mother after the father died.
George was the Number One Son in a Chinese family of 9 children; the family was steep in Confucius culture, characterised by age meritocracy and male dominance. George and his father kept the 1976 Trust arrangement to themselves. George’s father died in 1981. In the lead up to the divorce of his marriage in 1984, George executed two affidavits where he swore that the Burwood property was a trust asset, he was holding it on trust for his mother, and he had no beneficial interest. George kept these documents away from his family.
However, around the time of the impending divorce and after the divorce was over, George expressed to various family members that he had bought the Burwood property in a filial act to provide a home for both of his parents- later his widowed mother. The family had no reason not to believe the Number One Son. After his mother had moved out of the property, George rented out the trust property before selling it. He treated the trust funds as his own, and he did not alert his youngest brother Richard – the executor he had nominated in his will – of the existence of the 1976 Trust.
Richard first learned of the 1976 Trust when George’s divorce affidavits surfaced in 2004 after George’s funeral, at which time the 1976 Trust was worth around $350,000, intermingled in George’s estate worth around $2.2 million. On advice, Richard sought to return the misappropriated trust fund to its beneficiary, but was met with an immediate and violent objection by George’s two children.
The 1976 Trust: the Judge’s Findings and the Misconduct of George the Trustee
The trial over the 1976 Trust suffered considerable delay while Katrina and her lawyers sought to stop the proceedings altogether, but was eventually heard in March 2009. Richard’s lawyers advised him that the estate should not waste the estate funds by defending the indefensible. Katrina’s lawyers took on the active defence in the trial.
The trial Judge found that George breached his duty as trustee on two counts: when he later sold the trust property and intermingled the rental and sale money with his own assets; and secondly when he did not advise the beneficiary (his mother) of the Trust and he did not inform his incoming executor of the existence of the Trust – the 1976 Trust was kept a secret by George during his lifetime, and was discovered accidentally after his funeral.
The Judge ordered that the costs of all the parties in the proceedings be paid out from George’s estate. This was because it was George’s failure to manage the 1976 Trust that led to the family dispute and the court proceedings.
Katrina’s lawyers failed in a defence based on the Limitation Act, claiming that the claim was out of time. Australian courts would deal with an action for fraud and for fraudulent breach by a trustee long after the breach– it is common knowledge in the learned profession that there is no time limit for an action for fraudulent breach by a trustee- and interest on the misappropriated trust funds continues to run until the trust fund is restored.
Connection between the Two Trusts
The connection between the two Trusts was lost not only in the CBP article, it was also overlooked by the court in a subsequent hearing of the Katrina Case where Richard was the defendant.
The Psychological Dynamics
The connection between the two Trusts has a long history. George’s relationship with his children was highly dysfunctional throughout their entire life- especially in relation to Katrina. In a letter to Katrina’s godfather, her mother described her as a “disturbed little girl”. A hospital social worker in 1996 described Katrina as George’s “estranged daughter”. These documents were in evidence at the trial referred to in the CBP article, but their existence was not highlighted in the court.
His relationships with both his children were strained after the divorce when he perceived that the two children sided with their mother. Nevertheless, George remained concerned over his son who had suffered some brain damage in a car accident as a teenager.
Before their father died, the two children enjoyed a good relationship with Uncle Richard, who had displayed many acts of benevolence to both children- and Uncle Richard is Katrina’s godfather. In his will, George had named his youngest brother Richard as sole executor, a fact accepted without demur by the children before their father died.
In the language of forensic psychology, George’s death was the significant event that crystallised Katrina’s grievance over her father’s not having named her as executrix. In a process of transference, she started characterising Uncle Richard as assuming her father’s persona. Her father was the source of her life long pain and frustrations. With her pain refreshed by the event of his death, Katrina readily found a new target in Uncle Richard to blame for her painful memories; and her attitude and conduct toward Uncle Richard underwent an acute and drastic change. Katrina felt a desperate and growing need to replace Uncle Richard in administering her father’s financial affairs. Such appointment would have given her some sense of redemption vis-à-vis the memory of her father.
The Forensic Connection
Katrina conveniently developed the belief that Richard was the author of her Grandmother’s claim in relation to the 1976 Trust. The belief gave her justification for wanting to remove Uncle Richard and provided her with the foundation for a crusade against Uncle Richard. the Katrina Case became a tool in her efforts to gain personal control of their father’s estate, and in the process, to punish Uncle Richard for his contrived misconduct- it seems that to her, it was far more palatable to use Uncle Richard as proxy and blame him rather than to blame her departed father, the real source of her life-long anguish, now no longer exist to receive the blame.
In the initiating Statement of Claim in the Katrina Case (2005), Katrina’s lawyers relied on an alleged misconduct by Richard over his management of the 1976 Trust. However, by June 2009 when the Katrina Case reached the court for hearing, the plaintiffs’ lawyers dropped any reference to this allegation let alone any connection between the 1976 Trust and the instant hearing. Three months earlier, Judge Palmer had already made a positive finding on a trustee’s duty to manage the 1976 Trust, in effect vindicating Richard’s conduct in managing the Trust.
Sadly, the real truth behind the Katrina Case proved elusive when the connection between the two Trusts was not considered by the court in an adversarial trial.
Both the 1976 Trust and the 2003 Trust are explored in detail in “A Family Feud and the Australian Legal System”.
—ooOoo—
Part II
NEW SOUTH WALES SUPREME COURT
CITATION:
Chang v Tjiong & Ors [2009] NSWSC 122
JURISDICTION:
Equity Division
FILE NUMBER(S):
2078/06
HEARING DATE(S):
3 and 4 March 2009
JUDGMENT DATE:
4 March 2009
EX TEMPORE DATE:
4 March 2009
PARTIES:
Soei Lan Chang (Plaintiff)
Richard Tat Tjhien Tjiong (First Defendant)
Katrina May Lan Tjiong (Second Defendant)
Lindsay Kuang Djin Tjiong (Third Defendant)
JUDGMENT OF:
Palmer J
LOWER COURT JURISDICTION:
Not Applicable
LOWER COURT FILE NUMBER(S):
Not Applicable
LOWER COURT JUDICIAL OFFICER:
Not Applicable
COUNSEL:
L.J. Ellison SC (Plaintiff)
- Kennedy (Sol) (First Defendant)
M.B. Evans (Second and Third Defendants)
SOLICITORS:
Colquhoun & Colquhoun (Plaintiff)
Ebsworth & Ebsworth (Submitting appearance) (First Defendant)
O’Brien Lawyers (Second and Third Defendants)
CATCHWORDS:
TRUSTS – whether property held upon a trust in terms contained in letters between father and son – whether letters precatory – whether terms of trust contained limited power of appointment.
COSTS – proceedings arose from trustee’s failure to document terms of trust and make them apparent to executor – whether usual costs order should be made.
LEGISLATION CITED:
Limitation Act 1969 (NSW) – s.48
CATEGORY:
Principal judgment
CASES CITED:
– Baden’s Deed Trusts, Re (No 2) [1973] Ch 9
– Cutcliffe’s Estate, Re [1959] P 6
– Emmet’s Estate, In re (1881) 17 Ch D 142
– Hawkesley v May [1956] 1 QB 304
– Hodges, Re (1988) 14 NSWLR 698
– McPhail v Doulton [1971] AC 424
– Shorten v Shorten (No 2) [2003] NSWCA 60
TEXTS CITED:
– Ford & Lee “Principles of the Law of Trusts” [9150]
DECISION:
Judgment for Defendants; Plaintiff’s costs to be paid out of trustee’s estate.
JUDGMENT:
2078/06 Chang v Tjiong & Ors
JUDGMENT – Ex tempore
4 March, 2009
Introduction
1 George Tjiong, Richard Tjiong, Harry Tjiong and Soei Lan Chang are children of Mr Hok Njan Tjiong and Mrs Kwat Nio Tjiong. For the sake of convenience, and without intending disrespect, I will refer to the parents as “the father” and “the mother” and to their children and other members of the family by their first names.
2 Between 1976 and 1996, George had been sole registered proprietor of a home unit at Burwood. The parents had resided there together until 1981, when the father died, and the mother continued to reside there until 1994, when she moved out to live with family members. George rented out the unit until December 1996, when he sold it.
3 By a will made on 23 December 2001, George left the whole of his estate to his children, Katrina and Lindsay. He died on 30 January 2004 and probate of his will was granted to Richard.
4 On 28 December 2006, the mother died and probate of her will was granted to Soei.
5 Soei now brings these proceedings as Executrix of the mother’s estate. She claims that the unit at Burwood was held by George on trust for the father and that, on the father’s death, his beneficial interest passed, on his intestacy, to the mother. She seeks declarations to that effect and an order that Richard, as Executor of George’s estate, account to the mother’s estate for the nett proceeds of sale of the unit and for rental received by George while it was rented.
6 Katrina and Lindsay, as sole beneficiaries of George’s estate, have been joined as parties to the proceedings. They have been the active Defendants; Richard has filed a submitting appearance.
7 Mr M.B. Evans of Counsel, who appears for Katrina and Lindsay, submits that:
– there is insufficient evidence to establish that George held the unit on trust for the father;
– in the alternative, if there was such a trust, George did not commit a breach of that trust in dealing with the property as he did because the terms of the trust were to permit the father and the mother to live in the unit for as long as they wished and, thereafter, the proceeds of sale were for the benefit of such of the father’s family as George should appoint;
– in the alternative, if George has committed a breach of trust, Soei’s claim is barred by s 48 of the Limitation Act 1969 (NSW) or else is barred by laches and acquiescence on the part of the mother and Soei.
8 The parties have proceeded on the basis that if there was a trust, the father alone was the settlor and he alone was entitled to stipulate the terms of the trust. I will proceed on that basis also.
The facts
9 The unit was purchased in George’s name as sole registered proprietor in 1976 for the sum of $25,000. The members of the family directly involved in the purchase – that is, the father, the mother and George – are dead and no other members of the family were directly involved in the transaction. No other person directly involved has given evidence. Accordingly, a finding as to the manner in which, and the terms upon which, the unit was purchased depends essentially upon documentary evidence.
10 Apparently no one in the family raised the issue whether George held the unit upon trust until, by chance, it was brought to the attention of Richard as George’s executor that, in May 1984, George had sworn an affidavit in divorce proceedings in the Family Court stating that he did not own the unit beneficially but held it on trust. Other documents have subsequently come to light which are critical, as I shall shortly explain.
11 George was divorced in 1984. There were property settlement proceedings. In an affidavit sworn 14 May 1984 George said:
“I do not have any beneficial interest in [the unit].”
“I am the registered proprietor of [the unit]. I hold this property on trust for my mother and I do not hold any beneficial interest in the property. The property was purchased in 1976 for $25,000 for my father (since deceased) and my mother. My father provided approximately $10,000 of the purchase money, I provided approximately $5,000 and each of my brothers Harry Tjiong and Richard Tjiong provided approximately $5,000 each of the sons providing the said money by way of gift to our parents. I believe that the current market value of the Unit is to the order of $65,000.”
12 There are in evidence the originals of two copy letters said to have been written by the father to George. Both are written in a mixture of Indonesian, Dutch and English. The father was fluent in all three languages. Certified translations have been provided.
13 The first letter is dated 15 March 1976. It was written, as other evidence shows, eight days before settlement of the purchase of the unit. The letter reads:
“March 15, 1976
Dear [George],
Purchase of [the unit] is to finalise next week. Enclosed is a CTB cheque for $18,000 to you making my contribution $20,500 in total. As discussed per phone, I am now lacking $5,000. I have money which will arrive after an export shipment in 6 weeks.
[Richard] gave me $7,500 for a new refrigerator and furniture.
I have already phoned our solicitor Mrs Ballard, and confirmed that the home unit is to register in [your] name without caveat of my interests, to avoid death duty. After I go, Mamie [i..e the mother] is better to live in the home of a child. The money in Belmore St is for Mamie’s needs, and after she is gone give the remainder to Kazuko Nikaido in Yokohama. You already know her address.
Hope all is well and Margaret’s health is improving.
Love.”
14 This letter, if genuine, shows that it was the father’s intention that the unit be held, not by George beneficially, but on trust to permit both parents to live there; after the father’s death, the proceeds of sale were for the benefit of the mother during her lifetime and thereafter for the benefit of a named person who has been identified as the father’s mistress. The father’s reference to his “interest” in the unit not being protected by caveat makes this interpretation clear.
15 Next in the sequence of documentary evidence are documents emanating from the solicitors who acted on the purchase of the unit. The first is a letter dated 8 April 1976. It is addressed to George and headed “Purchase for [the father and the mother]”, and then follows the address of the unit. The letter shows that a copy was sent to the father. The first paragraph of the letter reads:
“We wish to confirm that settlement of this purchase took place in Sydney on 23 March 1976 and that your father took possession of the relevant keys, combinations and other relevant papers on that date.”
16 This letter is of critical importance. It confirms what appears in George’s affidavit and in the father’s letter of 15 March 1976, that is, that the unit was not purchased by George for his own benefit. It is inherently probable that, if the unit was held upon the terms of a trust stipulated by the father, it is because the father had paid the whole of the purchase price, as he had asserted in his letter of 15 March 1976, from his own monies and from gifts to him by his sons. Attached to the solicitor’s letter is a settlement sheet which supports the inference that the $20,500 referred to by the father as contributed by him to the cost of the unit comprises a deposit of $2,500 and the cheque for $18,000 enclosed with the father’s letter.
17 On 5 May 1976, the solicitors wrote to the father under the heading “Purchase Unit”, enclosing an insurance policy “as requested”. The letter confirms the inference that the solicitors acting on the purchase sent the insurance policy covering the unit to the father because the father was the beneficial owner of the unit.
18 On 30 June 1976, the solicitor sent the documents of title to George. This is consistent with George holding the documents of title as trustee.
19 The second letter said to be from the father to George is dated 10 October 1978. It is in the following terms:
“I think that you have a need for money to build a new house. You gave me a gift of $5,000 when I bought my home unit in 1976, if there is a need I can return the $5,000.
I have already ended the relationship with Kazuko and I have already closed my account in the Tokyo bank. Over many years, I gave her enough, a home in Yokohama and 100,000¥ every month. She is now marrying her boss at work.
My son, Roy Grant, is finishing his higher degree; he wants to do more specialist study. My spirit will rest when you and the rest of the family accept him. I cannot expect that from Mum. Take care of this child’s needs. He is very clever. I have sent him a minimum of DF1,000 every month for many years via my bank account at … . Roy has authority to withdraw money, his address is … .
My ways have offended and upset Mum. Look after her after I am gone. It is better that she live with a child. Use the money from the home unit for her. If there is any left over after she is gone, use it for Roy if he still needs it. There are also others in the family who need the money for their studies.”
Roy is the father’s illegitimate son.
20 Mr Evans says that I should not be satisfied that the letters are authentic. He says that the explanation for their production in the proceedings is not credible. His submission is in aid of the proposition that insufficient evidence of a trust has been adduced and that, accordingly, George should be found to have held the unit for his own benefit.
21 Soei says that she found the father’s letters to George in 1981, amongst letters from Roy to the father. She says that she removed them from the parents’ home so that the mother would not see the letters and be upset. The evidence shows that the Japanese lady named had been the father’s mistress in Tokyo for many years. It is clear from the evidence that this circumstance caused pain to the mother and to the family. Soei says that she did not find the letters again until 2005 and did not realise the significance of the two letters now in question until recently.
22 The Court will examine most carefully documentary evidence, said to contain statements of a deceased person, which are produced by someone seeking to benefit from those statements. The reason is obvious: such documents may be forged, but it may be hard to prove the forgery.
23 In the present case I am in no doubt whatsoever that the letters from the father to George are genuine. First, their appearance strongly supports the conclusion that they were produced at the time that they purport to have been written. The paper is aged, yellowing and creased. The typing is on a manual typewriter. If these appearances have been simulated recently then the letters are the most successful forgeries I have ever encountered. Even more telling is the content of the letters. The language in which they are expressed and the personal details referred to strongly support the authorship of the letters by the father. Finally, the essential facts to which the letters refer are supported by the independent evidence of the solicitors’ correspondence.
24 In those circumstances, I am satisfied of the truth of George’s statement in his Family Court affidavit that he held the unit on trust. By the time the affidavit was sworn, the father had died and the mother was living alone in the unit. Under the terms of his father’s letters to him, it would have been correct for George to say that he held the unit on trust for his mother.
25 Mr Evans points to an apparent inconsistency between the affidavit, where it says that the father contributed $10,000 of the purchase price of the unit and that the remainder was provided by gifts from George, Harry and Richard, and the evidence, on the other hand, of Richard, who says that he did not make a gift to the father towards the purchase price of the property. However, George may have been mistaken as to the purpose of Richard’s contribution, possibly having had different accounts from Richard and the father or possibly having forgotten the precise circumstances.
26 George’s statement that gifts were made to the father by himself and his brothers is consistent with the father’s statement that he had a total of $20,500 to contribute towards the unit. The money had come from gifts from George’s brothers and the father’s own resources. The remaining $5,000 required to complete the purchase was a gift from George himself to the father.
27 I am satisfied, therefore, that it has been proved that the whole of the purchase price for the unit was provided by the father and that both the father and George acknowledged that the unit was to be held by George as trustee upon the terms of the father’s letters to George.
The terms of the trust
28 Mr Ellison SC, who appears for Soei, submits that the unit was held by George upon a bare resulting trust for the father alone, by reason of the fact that the father had provided the whole of the purchase price for the unit. Mr Ellison says that, when the father died in 1981, his beneficial estate in the unit passed wholly to the mother on intestacy. When the property was sold in 1996 the proceeds, received in early 1997, were impressed with the trust for the mother when, on George’s death in 2004, the whole of his estate, including the proceeds of sale of the unit, was left by George’s will to Katrina and Lindsay. Mr Ellison says that a breach of trust then occurred for which George’s executor is liable, so that Richard must now restore the trust fund to the mother’s estate and must account for the rents received by George from the unit from 1994 to 1997.
29 Mr Evans submits that it is clear from the father’s letters and from George’s affidavits that there was a common intention that the unit was held by George upon an express trust, not a resulting trust, and that the terms of the express trust are to be found in the father’s letters. Mr Evans says that the terms of the trust as contained in the 1976 letter were that George was to hold the unit for the benefit of the father and the mother to live in, and for the mother’s benefit while she wished to live in it after the father’s death. The mother was then to have the benefit of the capital and any income to meet her needs during her life, and after her death, such of the capital of the fund as remained was to vest in the father’s mistress absolutely.
30 By the father’s second letter, Mr Evans says, the terms of the trust were altered. The capital and income were still to be held on trust to meet the mother’s needs during her lifetime, but upon her death the remainder was to go to such members of the father’s family as George in his discretion might appoint, having regard to their needs. Mr Evans says that the terms of the trust gave a special power of appointment to George of the remainder of the trust capital and income after the mother’s death, and that George by his will has validly exercised that power of appointment by giving the trust proceeds after the death of the mother to George’s children, who are within the class of beneficiaries nominated by the father.
31 Mr Ellison responds that the terms of the father’s letters are precatory only as between a father and a son. He says that they were not intended to be binding on George as trustee, so that there were no express terms of the trust upon which George held the property. The trust fund was therefore held on a resulting trust for the father and, now, for the mother’s estate.
32 I am unable to accept this submission. It is clear from the father’s letters, from the solicitors’ correspondence and from George’s affidavit that the unit was held upon an express trust. There is a clear, unequivocal and emphatic direction in the father’s letter of 1976 that the unit and the proceeds of its realisation are for the mother’s benefit during her lifetime and for no other purpose during that time. There is an equally clear and emphatic direction that after the mother’s death the trust property is to go to the mistress.
33 The evidence strongly suggests that the father’s family were not on good terms with the mistress. It is unlikely that the father would have wished to rely upon George’s own discretion and goodwill to ensure that after the mother’s death the mistress would receive the benefit of the property. It is inherently probable, in my opinion, that the father therefore intended that George deal with the trust property for the benefit of the mistress as a term of the trust which he had established. The words of the 1976 letter support that inference.
34 I find therefore that the terms of the 1976 letter are not precatory but establish terms of the trust upon which George held the property.
35 Mr Ellison concedes that the father, as settlor of a simple trust, was entitled to vary its terms as he did in the 1978 letter. Again, I find nothing in the terms of that letter to suggest that the father’s intentions were precatory rather than binding as terms of a trust. The directions as to the use of the trust property are clear and emphatic. The trust property is to be used for Roy if he needs it: again, that evidence indicates that the father’s family were not on good terms with Roy, so that the father would not wish to rely merely on George’s goodwill to carry out the father’s wish. The only discretion which George is given is as to which members of the family are to receive the benefit, according to need.
36 I accept Mr Evans’ submission that the terms of the trust as contained in the 1978 letter were to hold the trust property and its proceeds for the benefit of the mother during her lifetime and, thereafter, to apply it according to George’s discretion for the benefit of Roy or other members of the father’s family according to their needs. Such a power of appointment is a limited or special power. The class of beneficiaries – that is, the father’s family – is loosely defined but not to the extent that the core objects cannot be ascertained: see, for example, Re Baden’s Deed Trusts (No 2) [1973] Ch 9
37 When George died, the mother was still alive. The corpus of the trust fund – i.e. the proceeds of sale of the unit – ought to have been kept separate by George, for use in meeting the mother’s needs, if required. Apparently the fund was not kept separate and such of the proceeds of sale as remained were mingled with George’s own property. George’s failure to keep the trust funds separate was a breach of trust. However, one must ask: what are the consequences?
38 There is no evidence to suggest that, after the mother moved out of the unit, her needs required recourse to the capital of the trust fund. There is no evidence which could support a finding that George did not apply the rental of the unit to the mother’s needs. It is clear that he made some contribution to her needs until shortly after the unit was sold and the rental income ceased. It is not possible to say in the state of the evidence that the rental income from the unit was not used for the mother’s needs.
39 While George committed a breach of trust in failing to keep the capital of the trust fund separate during the mother’s lifetime, it has not been demonstrated that the mother’s needs after sale of the unit required recourse to that capital. It has not been shown that the mother’s estate has been diminished by expenses which the mother should not have had to bear had George resorted to capital of the trust fund to meet those needs. The executrix of her estate cannot now call for the trust fund to be restored because the need for its existence has ceased with the mother’s death. In those circumstances, while George has committed a breach of trust, it is a breach for which no remedy is presently required.
40 I have concluded that the terms of the trust upon which George held the property included a limited power of appointment of whatever remained in the trust fund after the mother’s death. The power was to appoint amongst George’s family, according to need. Whether the power has been exercised by George and, if so, how, arose in discussion between myself and Counsel only towards the end of final submissions.
41 I am satisfied from the terms of the father’s letters establishing the trust that he intended that George was to be under a duty to exercise the power of appointment, and that the father had no intention that the trust property should revert to him or to his estate if George failed to exercise that power. Accordingly, the power of appointment was a “trust power”; if George failed to exercise it, there would be no resulting trust in favour of the father or of his estate, but the Court would exercise the power in a manner best calculated to give effect to the father’s intention: see McPhail v Doulton [1971] AC 424, at 441B-442B, 456G, 457B.
42 If George has not exercised the power of appointment in favour of Katrina and Lindsay by his last will, or in some other way – none of these issues were explored in these proceedings – then how the power must now be exercised is a matter arising in the administration of George’s estate. Soei, in her personal capacity as a member of the father’s family, may have an interest in that issue but not, it would seem, in her character as executrix of the mother’s estate. If no resolution can be reached between the relevant members of the family as to the fate of the funds subject to the power of appointment, then new proceedings will have to be commenced by Richard as executor of George’s estate.
43 In the result, the Plaintiff has failed to show that the unit, and the proceeds of its sale, were held by George upon trust for the father alone and absolutely and that, upon his death, they were held wholly for the benefit of the mother’s estate. The Plaintiff’s Third Amended Statement of Claim will therefore be dismissed.
Costs
44 The remaining question is what is the appropriate costs order, the Plaintiff’s claims having failed. Normally, of course, the usual rule would be applied and that is that the unsuccessful party should bear the costs of the successful party. However, these proceedings arise in the administration of two estates and somewhat discretionary considerations may apply: see generally Re Cutcliffe’s Estate [1959] P 6; Re Hodges (1988) 14 NSWLR 698, at 709; Shorten v Shorten (No 2) [2003] NSWCA 60.
45 The litigation has arisen out of a trust of which George was trustee. The fact that there was a trust emerged almost by accident when someone discovered a Family Court affidavit of George, and further investigations were made which resulted in the father’s letters becoming available and the terms of the trust becoming known. It is the duty of a trustee to ensure that beneficiaries are made aware of their rights: see In re Emmet’s Estate (1881) 17 Ch D 142, at 149; Hawkesley v May [1956] 1 QB 304, at 322. A trustee can hardly comply with this duty unless he or she keeps the terms of the trust readily available so that they may be explained, or produced, to beneficiaries and made known to successor trustees: see Ford & Lee Principles of the Law of Trusts [9150].
46 George did not comply with his duties as a trustee in this regard. Ideally, he could have executed a formal declaration of trust incorporating the terms which have now been found by the Court. At the very least he could have ensured that his executor was aware of the terms of the trust imposed by his father’s letters by placing those letters in a position where they would have been easily discoverable, rather than keeping them amongst letters from Roy. Elucidation of facts in this case and of the terms of the trust ought not to have required investigation and litigation after George’s death. In a real sense, this litigation has arisen because of George’s failure to administer properly and transparently the trust of which he was trustee.
47 While the Plaintiff’s claim against George’s estate has failed, I do not think that it was a claim without merit and that the Plaintiff should not have brought it. Indeed, she should have her own costs of the proceedings out of George’s estate. While the Plaintiff should be ordered to pay the Defendants’ costs of the proceedings, she should be indemnified for those costs out of George’s estate. The practical result is that George’s estate will bear the whole of the costs of the proceedings. The costs of the Plaintiff and the First Defendant, if any, should be assessed on the trustee basis.
Orders
48 I make orders as follows:
- i) judgment for the Defendants on the Third Amended Statement of Claim;
- ii) order that the Plaintiff pay the Defendants’ costs of the proceedings;
iii) order that the First Defendant, as executor of the estate of George, indemnify the Plaintiff in respect of that costs order;
- iv) order that the First Defendant pay the Plaintiff’s own costs out of the estate of George;
- v) direct that the costs of the Plaintiff and the costs, if any, of the First Defendant be assessed on the trustee basis.
– oOo –
LAST UPDATED:
9 March 2009
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