SMITH v UGLA [1999] NSWSC 1123

New South Wales Supreme Court CITATION : SMITH v UGLA [1999] NSWSC 1123 CURRENT JURISDICTION : Equity FILE NUMBER(S) : 3854/95 HEARING DATE(S) : 8 & 9/11/99 JUDGMENT DATE : 23 November 1999

PARTIES : James Robert Smith & Anor v UGLA Pty Ltd & 5 Ors JUDGMENT OF : Bryson J at 1

COUNSEL : N. Cotman S.C. with E. Finnane for Plaintiffs D. Williams for second to sixth Defendants SOLICITORS : Garrett Walmsley Madgwick for Plaintiffs Alan Jessup for second to sixth Defendants CATCHWORDS : TRUSTS and TRUSTEES - creation of trust by informal statements - decision on construction of words used in conversation - it was held that no trust was created. DECISION : See paragraph 51

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

BRYSON J.

TUESDAY 23 NOVEMBER 1999

3854/95 JAMES R. SMITH & ANOR v UGLA P/L & 5 ORS

JUDGMENT 1 HIS HONOUR: The plaintiff Dr Smith is a medical practitioner and he has been a director of the Eastern Suburbs Private Hospital since 1980 or earlier, and practiced professionally there. In 1980 the plaintiff Dr Smith and the fourth defendant Dr Tom Wenkart were directors of the Hospital. Dr Smith is still employed there and is a member of its superannuation fund, although having regard to his age and state of health he may well retire in the near future. In these proceedings he made a number of claims relating to the conduct of the superannuation fund and his interest in it, but all areas of dispute but one have been resolved, some by orders of the Court and some by an arrangement which I was told by counsel at the hearing would result in consent orders, although I have not yet been shown the form of orders. I was told that the effect of these arrangements and concessions is that it is conceded that certain of the defendants (and I am yet to learn which) are liable to pay $300,000 to Dr Smith as his retirement benefit under the Superannuation Fund when he should retire; or are liable to put UGLA in funds to make that payment to him. 2 The matter debated at the hearing on 8 and 9 November relates to Dr Smith's claim to be the beneficial owner of several life insurance policies on his own life; there have been five but two have lapsed. The Superannuation Fund was established in 1980 and its members were the directors of the Hospital, Dr Smith and Dr Tom Wenkart¸ and a number of employees. A large change in superannuation affairs followed the Occupational Superannuation Standards Act 1987 and Regulations thereunder. An industry-wide superannuation fund for private hospitals called the HESTA Fund was established about 1987 and the existing and new employees, but not (so far as appears) the directors became members of the HESTA Fund. As of 30 June 1989 Dr Wenkart ceased to be a member of the Superannuation Fund, in some manner which does not clearly appear, and at various times employees who were members before the establishment of the HESTA Fund have retired and their memberships have ended. In August 1997 three long-serving employees and Dr Smith remained; and apparently they are still members. Employer contributions ceased or became nominal after the establishment of the HESTA Fund. 3 The first defendant UGLA Pty Ltd is the trustee of the Superannuation Fund. It has no other activity or business (but Dr Smith alleges it is also and separately trustee of several life policies). The two shareholders in UGLA are the second plaintiff Shirim Pty Ltd and the sixth defendant Traknew Holdings Pty Ltd. Shirim is controlled by Dr Smith and owns 24 shares and Traknew is controlled by Dr Wenkart and owns 76 shares of the 100 issued shares in UGLA. The interest of these shareholders in the issue before me can be no more than nominal. 4 Dr Smith and Dr Wenkart are the directors of UGLA; they were its only directors in June 1980 when the events opened and they have remained its only directors until the present time. 5 The second defendant Fesena Pty Ltd owns and throughout the events has owned land including the land on which the Eastern Suburbs Private Hospital premises stand. The third defendant Eastern Suburbs Private Hospital Pty Ltd which was formerly named GAB No. 94 Pty Ltd carries on the private hospital and has been the employer to which the Superannuation Fund relates throughout. In 1980 Dr Smith and Dr Wenkart were directors. Dr Wenkart has a controlling majority interest in Fesena and Eastern Suburbs Private Hospital and Dr Smith has a minority interest in both. 6 Dr Wenkart is the fourth defendant. I was informed by counsel that he became a bankrupt on Friday 5 November 1999. However no evidence dealt with this. 7 Ultera Pty Ltd the fifth defendant is the trustee of Morlea Professional Services Superannuation Fund, a fund for employees of companies associated with Dr Wenkart, in which Dr Smith has no shareholding or other involvement. 8 The GAB No. 94 Superannuation Fund was established by a Trust Deed dated 27 June 1980 the parties to which were Eastern Suburbs Private Hospital by its then name and UGLA. 9 UGLA did not appear in the proceedings. It appears that it is not able to take any position in the proceedings because of the state of relations between Dr Smith and Dr Wenkart in which, as they are its only directors, it is not possible for the company to give instructions or come to any decision. It must be attributed to UGLA that it is fully aware of the litigation, although it has not filed an appearance. The second to sixth defendants had common representation in the proceedings and at the hearing. 10 The Schedule to the Trust Deed sets out the rules of the fund including rule 5 dealing with benefits. I set out parts of rule 5: "5. Benefits 5.1 The benefit of a member in the Fund (herein called 'the member's benefit') at any time shall be the sum of: (a) The amount standing to the credit of the member's Contribution Account and the employer's Contribution Account for such member compiled in accordance with these Rules, and in computing the amount of a member's benefit at any time, interest shall be added from the date of the last preceding valuation to the date of the happening of the event upon which the member's benefit becomes payable and such interest shall be calculated at that such rate as the Trustee shall from time to time in its discretion determine; and (b) The amount (if any) payable on the happening of the insured event under any policy of assurance or endowment or disability and/or sickness effected by the Trustee in respect of such member pursuant to the Deed and the Rules. 5.2 The amount of any member's benefit shall become payable on the first to occur of the following dates, namely:- (a) the date upon which such member reaches his normal retirement date and ceases to be employed by the employer; (b) upon the date of the happening of one of the events referred to in sub.Rule 5.4 or sub-Rule 5.5 hereof." 11 Subrules 5.4 and 5.5 deal with contingencies other than retirement in which a benefit for the amount standing to the members' credit may be paid out. These events include (5.4(c)) - death of a member before reaching his normal retirement date. Definitions in the Trust Deed establish the normal retirement date as the 65th birthday, which Dr Smith has passed. Dr Smith's case at the present time is dealt with by cl.5.3 in these terms: "5.3 In the event of any member remaining in the employment of the Employer after reaching his normal retirement date he shall at his option be entitled to remain a member of the Scheme and continue to be entitled to benefits thereunder until he ceases to be employed by the employer, at which date the member's benefit shall become payable." 12 The amount of death benefit payable can under provisions in r.5 be affected by discretionary decisions of the trustee; whereas on retirement Dr Smith will be entitled under subr.5.3 to the whole benefit prescribed by subr.5.1. 13 Late in 1980 three life insurance policies on Dr Smith's life were taken out by Ultera, and on the face of the documents they were taken out for the Morlea Professional Services Superannuation Fund, of which Dr Smith was not in fact a member. The court's order of 8 December 1998, which was made by consent, ordered that the three policies which remain current be transferred by Ultera to UGLA "who will hold the same as trustee of the GAB No. 94 Superannuation Fund or upon such other trust as the court may otherwise declare." The order was based not only on the parties' consent but also on an admission in pleadings by Ultera. 14 The three policies referred to in the Order are described in para 10 of the Amended Statement of Claim at subpars 10(a), 10(b) and 10(c):