Newflash: The Banks win special leave to appeal Bell Group to the High Court

It is being reported that this morning, Westpac and the other 19 banks in the Bell Group litigation have won special leave to appeal their loss last year in the West Australian courts to the High Court of Australia.

At first instance in 2008 the Banks were ordered by his Honour Justice Owen to pay about $1.58 billion to the liquidators of Bell Group (link). Their appeal of that decision to the Court of Appeal of the West Australian Supreme Court failed – see that judgment here. This morning, the full bench of the High Court granted the Banks special leave to appeal.

The brief media report may be read here. And thus Australia’s reportedly most expensive and longest-running court case continues…

The Rinehart family trust dispute – an overview of trust law principles as to the removal of trustees

On 31 October 2012 Brereton J of the NSW Supreme Court handed down his judgment on an application by Gina Rinehart and her daughter Ginia, for the summary dismissal of the application of her other children Hope Welker, John Hancock and Bianca Rinehart for inter alia the removal of their mother as trustee of the Hope Margaret Hancock Trust – Welker v Rinehart (No 10) [2012] NSWSC 1330.

His Honour summarised the application for removal of Ms Rinehart as trustee as based upon grounds that, particularly in connection with giving consideration to the extension of its vesting date in September 2011, she so misconducted herself as to demonstrate unfitness to retain the office of trustee. At the core of this were allegations that, as the vesting date approached, she misrepresented to the beneficiaries that they would incur capital gains tax liabilities with catastrophic financial consequences for them unless she exercised her discretion to extend the vesting date, but also informed them that she would so exercise her discretion only if they gave her comprehensive releases in respect of the whole of her past and future trusteeship, and they entered into nuptial agreements with their respective partners, thereby placing immense pressure on the beneficiaries to obtain benefits for herself as the price of her performing her duties as trustee. His Honour acknowledged that it remained to be seen whether or not those allegations would be established at trial.

His Honour noted countervailing considerations which may count against the plaintiffs’ application for removal of the trustee succeeding at trial. One of these was the argument  that, the trust having by now vested, the trustee’s duties are limited. However Brereton J concluded that it could not be said that the plaintiffs’ application for removal met the test for summary dismissal of having been shown to be “hopeless”, “without prospects of success” or “doomed to fail”. He also noted there were issues that could be resolved only at trial. The application for summary dismissal failed and the proceeding will continue.

This judgment provides an interesting opportunity for a brief review of the principles of trust law that apply on an application for removal of a trustee. To distill the principles to which his Honour refers at [7]-[10] as drawn from the authorities there cited (note this is my own summary from these passages of Brereton J’s judgment, not his Honour’s own list) –

1. A trustee can be removed where he or she demonstrates a want of honesty, of capacity to exercise, or of reasonable fidelity to, the duties of a trustee. [7]

2. The Courts of Equity will not intervene at every mistake, neglect of duty or inaccuracy of conduct of trustees. [7]

3. There must be something which induces the Court to think either that the trust property will not be safe, or that the trust will not be properly executed in the interests of the beneficiaries. [8]

4. The jurisdiction to remove a trustee may also be exercised with a view to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. [9]

5. In deciding to remove a trustee the Court forms a judgment based upon a range of considerations which may be many and varied, and which combine to show that the welfare of the beneficiaries is opposed to the trustee’s continued occupation of the office. [9]

6. The judgment a Court forms must be largely discretionary. However a trustee is not to be removed unless circumstances exist which afford sound ground upon which the jurisdiction may be exercised. [9]

7. The due administration of the trust is one of the Court’s central concerns, if not the predominant one. While the safety of the trust estate is undoubtedly an important element of this, it is far from the only one, and a conclusion that a trustee did not understand the nature of the fiduciary obligation, or had manifested an inclination to act inconsistently with it, might well justify removal, even in the absence of any threat to the safety of the trust property. This is because there would in those circumstances be a risk to the due administration and performance of the trust, even if not to the safety of the trust property.[10]

8. Hostility between the trustee and the beneficiaries is of itself not enough – particularly where that hostility is generated by the beneficiaries – nor is a mere preference of a beneficiary to have a different trustee.[7]

More on Willmott Forests (VSCA) & Grimaldi (HCA special leave refusal), plus new edition Mortgagee’s Power of Sale out soon

First, further to my post on Wednesday discussing the Victorian Court of Appeal’s recent decision on disclaimer of leases by liquidators in Willmott Forests (link), my friend and colleague Sam Hopper has put an excellent analysis of the case on his blog here.

Secondly, I posted last month that the High Court of Australia had denied special leave to appeal to Mr Grimaldi, from the Full Federal Court’s important decision in Grimaldi v Chameleon Mining. That post can be viewed here and includes links to my article and other previous posts about this case. If you recall, key issues of equity and company law arose in the Full Federal Court’s decision, including de facto directors, Barnes v Addy (both limbs), secret commission/bribes, directors’ fiduciary duties and equitable remedies.

I had promised to return and post an update as to the High Court’s refusal of special leave to Mr Grimaldi. In short, the transcript (link) shows that the special leave application centred on the issue of de facto directors and officers, and that special leave was refused on grounds which included –

1. Even if Mr Grimaldi was not a director or officer, on his own case he acted as a third party consultant. Chameleon Mining had good prospects of demonstrating on the findings made that in that role he would have owed fiduciary duties to the company, and that he knowingly participated in a breach of duty by an appointed director (Mr Barnes) of the company. Thus Chameleon Mining had good prospects of demonstrating that the relief ordered by Jacobson J (and undisturbed on appeal) is supportable, even if Mr Grimaldi were not a director or officer. The contemplated appeal would therefore be futile;

2. Even if Mr Grimaldi were not a director, he was an officer. The Full Court’s reasoning is consistent with the more recent High Court decision in Shafron v ASIC [2012] HCA 18; (2012) 86 ALJR 584 (link );

3. Mr Grimaldi had insufficient prospects of demonstrating that the Full Court erred on the director issue. He had alleged that the Full Court failed to consider the governance structure of Chameleon Mining. As Heydon J observed, in fact it did.

Thirdly and finally, the third edition of Mortgagee’s Power of Sale will be released soon, written by Clyde Croft J and Robert Hay. The previous edition was released in 2004, so the updated edition will be an excellent and current resource for practitioners. For more details, see Robert’s post on his property law blog here.