New South Wales Supreme Court CITATION : Cochrane v Cochrane [2006] NSWSC 877 HEARING DATE(S) : 28/08/06 JURISDICTION : Equity Division JUDGMENT OF : Young CJ in Eq EX TEMPORE JUDGMENT DATE : 08/28/2006 DECISION : No formal order made on basis of without prejudice undertakings. CATCHWORDS : EQUITY [184]- Duty of trustees to render accounts- Trustee obliged to account on demand and not entitled to wait until all beneficiary's evidence filed- Trustee/first defendant accused of utilising trust funds for personal profit in an investment scheme whereby a loss resulted- Application by one of the beneficiaries for freezing orders in respect of the trustee's assets and for trustee to provide affidavit of assets or affidavits in reply- Held premature. LEGISLATION CITED : Trustee Act 1925, s 85 Peter John Cochrane (P1) Thomas Argyle Cochrane (P2) Ailswith Anne Barrueto (P3) Emma Elizabeth Siubhal Cochrane (P4) David John Cochrane (D1) PARTIES : Pamela Eve Cochrane (D2) Matthew Charles Scott Cochrane (D3) Ranewell Pty Limited (D4) Twin Peaks Pty Limited (D5) Paul Ward-Harvey (D6) Anne Marie Cochrane (7th Respondent) FILE NUMBER(S) : SC 3277/06 COUNSEL : N Gyle (P) P Hallen SC (D1, 4 & 5 & 7th Respondent) SOLICITORS : Phillip A Biber (P) Hughes & CO (D1, 4 & 5 & 7th Respondent) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG CJ in EQ Monday 28 August 2006 3277/06 – COCHRANE v COCHRANE JUDGMENT 1 HIS HONOUR: This is an application by a beneficiary under a series of trusts for freezing orders in respect of assets of the first defendant, who is the trustee of one of the trusts and who is the controller of the fourth and fifth defendants, these being corporate trustees of three of the other trusts. 2 I do not need to go into the details of the dispute. Essentially, the first plaintiff, who is a son of the first defendant was a beneficiary under his grandmother's will of a property at Bellevue Hill. He says that without his full consent, to put it at its lowest, his father has utilised the trust assets of all four trusts to fund an investment scheme in some home units at Camperdown which has turned out disastrously. He says that considerable loss appears to have been made by the trust, and that the first defendant does not appear to have the assets in ready cash to be able to restore the trust fund. The first defendant does hold property in other parts of the State, but there is some suggestion that he has transferred some of that to his second wife for a relatively nominal consideration. There is also evidence that cheques by the trustees have been returned by the bank dishonoured. 3 Accordingly, the first plaintiff says that there is a situation where considerable loss has been made by the trust and the beneficiaries may not be able to recoup their losses unless there is some freezing order made in respect of the first defendant's properties. 4 Although I ordered that the defence of the first defendant be filed by last week, it has not been filed and it may, I am told, arrive by 6 September. I am told that essentially the defence is: (a) to deny any breach of trust; (b) to say that if there was a breach of trust, the breach of trust has been consented to by at least the first plaintiff, if not all the beneficiaries; and (c) that if there has been a breach of trust then there should be relief to the trustees who have acted honestly and reasonably under s 85 of the Trustee Act 1925. 5 The first defendant says that he was prepared to give an undertaking to the court to give due notice to the first plaintiff of any property that was to be transferred out of his name but that was not accepted by the first plaintiff and the first plaintiff wanted, in addition, an order that the first defendant file an affidavit setting out all his assets within Australia and elsewhere, giving their value, location and details, including any mortgages. 6 It does seem to me that the application for freezing orders is not made out at this stage. The court is prepared to accept undertakings from the first defendant, if he is still prepared to make them, and I understand from his senior counsel that he is with respect to notifying of any possible transfer. As to the affidavit, there is not a strong enough case at this stage. 7 However, the court takes claims by beneficiaries against trustees very seriously. A trustee is in a very strict position and whenever asked to account for the trust assets he must show that the trust fund is fully intact. He is not allowed to say that the trust assets were lost by negligence or were stolen. Unless he can get relief under s 85 of the Trustee Act or unless one of the other defences, such as consent is open to him, he has no option but to restore the trust fund. Questions of costs and remoteness have no part to play, see for instance Hayton J in Degeling, Equity in Commercial Law (Law Book Co, Sydney, 2005) at p 283. 8 Mr Hallen SC for the first defendant suggests that all the first plaintiff's affidavits should be filed before his client need file an answer. That, with respect, is not the way in which the court allows trustees to behave. If even one beneficiary puts forward material which shows a possible loss of the trust fund, then the court will call on the trustee straight away to assure it that the trust fund is fully intact. From what I have heard so far, it is going to be very difficult for the trustees in the instant case to do that. 9 Accordingly, it seems to me that the way out of the present problem is to make order 9 in the notice of motion for the first defendant to give an affidavit of assets, but that order is only to come into effect if the first defendant has not by 10 October 2006 filed affidavits answering the affidavits of the first plaintiff filed on 1 May 2006 and 31 July 2006. I make that order. I also vacate the hearing before the expedition judge on 15 September 2006. I extend the time for filing a defence and any cross-claim by the first defendant to 6 September and the matter should go into the Registrar's list. I stand the matter over to the Registrar's list on 13 October 2006. 10 Mr Hallen has asked for costs. His clients or some of them may eventually succeed in this litigation, but for the moment the court only has the first plaintiff's version and the first plaintiff's version paints the first defendant into a very dark corner. I think it is appropriate at this stage of the litigation merely to reserve costs. 11 I give leave to the plaintiffs to further amend the statement of claim by amending the name of the fifth defendant to Twin Peak Enterprises Pty Limited. Exhibits can be returned. 12 I accept the undertaking by Mr Hallen SC to the court that without admissions and without prejudice the first and seventh respondents, jointly and severally shall not dispose of any interest in real or leasehold property without first giving the solicitor for the plaintiffs ten days' notice of their intention to do so. Liberty to apply to me on two days' notice. ******************** 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.