New South Wales Supreme Court CITATION : Perpetual Trustee Co Ltd [2006] NSWSC 842 HEARING DATE(S) : 08/08/06, 17/08/06 JUDGMENT OF : Gzell J EX TEMPORE JUDGMENT DATE : 08/17/2006 DECISION : Advice that would be justified in applying for the appointment of a manager of the infant's estate under the Protected Estates Act 1983 and seeking authority from the Protective Commissioner to take the steps - Advice that trustee would be justified in funding the manager CATCHWORDS : PROCEDURE - Supreme Court Procedure - Court advice to Trustees - Trustee of trust for brain damaged infant seeking advice from Court under the Trustee Act 1925, s 63 - Mother of infant bare trustee of house property - Series of mortgages for personal interests of infant's grandmother - Weather trustee justified in applying to remove and replace mother and seek to unemcumber house property Trustee Act 1925 LEGISLATION CITED : Real Property Act 1900 Conveyancing Act 1919 Protected Estates Act 1983 PARTIES : Perpetual Trustee Co Ltd In its capacity as trustee of The Blake Leahy Trust FILE NUMBER(S) : SC 3938/06 COUNSEL : Mr P Whitford SC/ Ms V McWilliam SOLICITORS : Henry Davis York Lawyers IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J THURSDAY 17 AUGUST 2006 3938/06 PERPETUAL TRUSTEE COMPANY LTD V EX TEMPORE JUDGMENT 1 There is before the Court an application under the Trustee Act 1925, s 63 for an opinion, advice or direction of the Court. 2 Blake Adam James Leahy is an infant currently aged 11. He is in the care and custody of his mother, Stacey Leahy. 3 The Blake Leahy Trust was constituted on 14 December 2001 by the approval of the Court of a trust deed appointing Perpetual Trustee Company Ltd and Ellen Leahy, Blake's grandmother, as co-trustees to administer a fund of approximately $5.5 million, part of the proceeds of a settlement of proceedings brought on Blake's behalf to recover damages for medical negligence involving birth trauma which caused him brain damage. 4 Prior to the establishment of The Blake Leahy Trust, the Court ordered the defendant in the medical negligence proceedings to pay $750,000 into Court for the purpose of Stacey Leahy purchasing, in her name, a home to be held on a bare trust for Blake. Stacey Leahy purchased a property at Castlereagh in New South Wales, in which she presently resides with her children, including Blake. Perpetual is not, and never has been, a trustee of that bare trust. 5 In the period April 2003 to August 2005, apparently under the influence of her mother, Stacey Leahy entered into a succession of mortgages over the bare trust property to secure advances made for the purposes of a Central Coast property development in which her mother was involved. Neither Stacey Leahy nor Blake have any interest in that development so far as Perpetual is aware. 6 On 15 September 2005, Ellen Leahy resigned as a trustee of The Blake Leahy Trust. 7 There are presently two claims concerning the bare trust property arising out of the succession of mortgages and related dealings. The first is a claim made by First Mortgage Company Home Loans Pty Ltd. The mortgage in its favour was registered against the bare trust property on 18 August 2005 to secure funds advanced to Stacey Leahy but used for the purpose of the development in which her mother was interested or other purposes related only to her mother. 8 On 2 May 2006, First Mortgage, which had instructed Deacons to act on its behalf, issued notices to Stacey Leahy pursuant to the Real Property Act 1900, s 57(2)(b) and the Conveyancing Act 1919, s111(b). The loan secured by mortgage was in arrears in the amount of $21,124.44 as at 23 June 2006. 9 The second claim was made by Crown and Gleeson Securities Pty Ltd, which apparently advanced funds used by Blake's grandmother to purchase her former partner's interest in the development and other property. Crown and Gleeson has commenced proceedings in the District Court of New South Wales against both Ellen Leahy and Stacey Leahy personally, seeking to recover the moneys owing under the Crown and Gleeson loan. 10 Crown and Gleeson have lodged a caveat on the title of the bare trust property that asserts an interest arising from a mortgage that had been discharged. It has asserted in correspondence an entitlement pursuant to an alleged oral agreement to have a second mortgage registered over the bare trust property. 11 Deacons, on behalf of First Mortgage, has recently corresponded with Perpetual's solicitors by letter dated 17 July 2006. Deacons have indicated that First Mortgage wishes to meet with Perpetual to determine whether The Blake Leahy Trust is amenable either to paying out in full the moneys owed to First Mortgage or bringing that loan into order by paying all arrears and continuing to service the loan pending a permanent resolution of the matter. 12 Blake Leahy is not protected by a manager. The Protected Estates Act 1983 provides for the appointment of a manager under s 22 consequent upon a declaration under s 13. The latter section provides that where the Court is satisfied that a person is incapable of managing his or her affairs it may make a declaration to that effect and order that the estate of the person be subject to management under the Act. The former section provides that the Court may, by order, appoint a suitable person as manager of the estate of a person in respect of whom it has made an order under s 13 or may, by such an order, commit the management of the estate of such a person to the Protective Commissioner. If a manager is appointed, s 30 provides that the Protective Commissioner may, by order, authorise the manager to have all, or any specified, functions necessary and incidental to the management and care of the estate and, such other functions as the Protective Commissioner may direct or authorise the manager to have or exercise. 13 The Court is asked whether Perpetual is justified in continuing to act as trustee of The Blake Leahy Trust. The fact that it had no capacity to remedy the situation that arose with respect to the bare trust does not debar it from carrying out its functions. It is a stranger to the bare trust and had no right to interfere in its processes. It is, therefore, in my view, appropriate that Perpetual continue to act as trustee of The Blake Leahy Trust. 14 The Court is asked whether Perpetual is justified in applying to the Court for orders removing Stacey Leahy and appointing Perpetual as trustee of the bare trust. In my view that is not an appropriate course for Perpetual to take in its capacity as trustee of The Blake Leahy Trust. As I have said, it is a stranger to the bare trust and is not the appropriate party to move to have the current trustee removed. A manager appointed under the Protected Estates Act 1983 is the appropriate person to take that action for it is Blake who is the sole beneficiary and interested person under that trust. 15 The Court is asked whether Perpetual is justified in expending funds from The Blake Leahy Trust in investigating and, if appropriate, taking steps to attempt to unencumber the bare trust property. In my view, the funds of The Blake Leahy Trust must be used in the interests of Blake himself, and since he is the only party interested in the bare trust it seems to me to be appropriate that Perpetual expend funds in appropriate proceedings to protect that interest. In other words, it is appropriate for Perpetual to support a manager appointed under the Protected Estates Act 1983 in its endeavours to protect Blake under the bare trust. The actions are appropriate to a manager and since the only funds available to enable the manager to act are the assets of The Blake Leahy Trust, I am of the view that it is appropriate for Perpetual to make funds available to the manager in appropriate circumstances. 16 The Court is asked whether Perpetual is justified in adopting one or other of the courses proposed by Deacons in their letter of 17 July 2006 to Henry Davis York. In my view it is not. That is an appropriate matter for a manager once appointed. 17 Finally, the Court is asked whether there are any additional steps that Perpetual is justified in taking to protect Blake Leahy's interests in the bare trust property. At this stage the answer to that question is no. It is appropriate that steps be taken by a manager appointed under the Protected Estates Act 1983. 18 I therefore make the following orders. In answer to the questions raised for the Court's opinion, advice or direction under the Trustee Act 1925 s 63 the Court orders that: (a) Perpetual Trustee Company Ltd (Perpetual) would be justified in continuing to act as trustee of The Blake Leahy Trust (Blake Trust). (b) Perpetual would not be justified in applying to the Court for orders removing Stacey Leahy as trustee of the bare trust for Blake Leahy of the house property at Castlereagh, New South Wales (Bare Trust). Perpetual would be justified in taking steps to have a declaration made under the Protected Estates Act 1983, s 13 and either the Protective Commissioner or some other person, including itself, appointed as manager of the estate of Blake Leahy under s 22. If it is appointed manager, Perpetual would be justified in seeking specific authorisation under s 30 to take appropriate steps. Those steps might include an application to remove and replace Stacey Leahy as trustee of the Bare Trust, authorization to compromise the claim of First Mortgage Company Home Loans Pty Limited and authorization to apply to remove the caveat of Crown and Gleeson Securities Pty Ltd from the property at Castlereagh. (c) Perpetual would be justified in expending funds from the Blake Trust to support the appointment of a manager and to support appropriate steps taken by the manager. (d) Perpetual is not justified in adopting one or other of the courses proposed in Deacon's letter of 17 July 2006 to Henry Davis York. That is a matter for a manager. (e) At this stage Perpetual is not justified in taking any additional steps to protect Blake Leahy's interest in the Bare Trust. The Court orders that the costs of and incidental to the summons, including the costs of and incidental to obtaining the advice of Senior Counsel on the questions the subject of the application be paid out of the Blake Trust. ********** 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.