New South Wales Supreme Court CITATION : Nicholls v Nelson [2006] NSWSC 813 HEARING DATE(S) : 9 August 2006 JURISDICTION : Equity JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 08/09/2006 DECISION : Declare that first defendant grandmother holds property upon trust for child. Order that grandmother be removed as trustee. Upon undertaking of insurer to pay fees, order that the Public Trustee be appointed trustee. Order that property vest in Public Trustee. No order as to costs. CATCHWORDS : TRUSTS – Trustees – Removal and Appointment – where property acquired for benefit of child in name of his grandmother with funds advanced by insurer pending personal injuries claim to be brought by child against mother – where child's parents divorced – where residence order in favour of father made by Family Court – where child residing with father and siblings in trust property - alternative proposals for appointment of father and Public Trustee – need for affidavit of fitness - relevant considerations. LEGISLATION CITED : Supreme Court Rules 1970 (NSW) Pt 70 rr 8, 9 Jonathan Nicholls (plaintiff) PARTIES : Vincenta Nelson (first defendant) Allianz Australia Insurance Limited (second defendant) FILE NUMBER(S) : SC 6062/05 COUNSEL : M W Hadley (plaintiff) A P Capelin (defendants) SOLICITORS : P D Banister (plaintiff) Dibbs Abbott Stillman (defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRERETON J Wednesday 9 August 2006 6062/05 Jonathan Nicholls v Vincenta Nelson JUDGMENT (ex tempore) 1 HIS HONOUR: The defendant Vincenta Nelson is the registered proprietor of the land comprised in folio identifier 153/253099 situate at and known as 9 Gossell Grove, Carlingford, in the State of New South Wales, which was purchased in her name with funds provided by the second defendant, Allianz Australia Insurance Limited, as an advance on a claim to be made by her as next friend for her grandson, Dylan Gregory Nelson, arising out of a motor vehicle accident in which he was seriously injured when a passenger in a vehicle driven by his mother, Mrs Nelson's daughter, Chantal Nelson, of which Allianz was the CTP insurer. The plaintiff Jonathan Nicholls is Dylan's father. He claims a declaration that Mrs Nelson holds the Carlingford property upon trust for Dylan, and an order removing Mrs Nelson as trustee and appointing himself as trustee in her place. Mrs Nelson consents to the declaration and to being removed as trustee, but proposes that the Public Trustee be appointed in her place. Allianz also seeks the appointment of the Public Trustee. 2 Mr Nicholls and Dylan's mother, Chantal, had separated before the motor vehicle accident, and were divorced in 1998. Initially, Dylan and their two other children resided with Chantal and had contact with Mr Nicholls. 3 Following the motor vehicle accident, which occurred on 6 July 2001, the Carlingford property was purchased in or about July 2002. It is clear from the correspondence which passed between Allianz and Dylan's solicitors at that time that it was contemplated that the trust would endure at least until Dylan is eighteen years of age. Although Dylan suffered serious injuries, including a traumatic brain injury, in the accident, his cognitive skills seems generally to be average or better than average, although some concerns have been expressed about some aspects of them, I particular concentration and maintaining attention. Nonetheless it is likely, though on the limited material before me neither possible nor necessary to say with certainty, that in due course Dylan will be capable of managing his own affairs; at least, that is a sufficiently significant possibility that I should take into account on this application that Dylan may well have the capacity to manage his own affairs and to form his own judgments. 4 On 20 June 2003, Chantal was sentenced to a term of imprisonment, presumably for culpable driving, in relation to the motor vehicle accident, and on the same day Mr Nicholls moved into the Carlingford property to take care of the children. He and the children have lived there ever since. On 11 November 2003, the Family Court at Parramatta made an order that until further order the children, including Dylan, reside with Mr Nicholls and have contact with Chantal. 5 Chantal has now completed her fixed term of imprisonment and is on parole. On 1 June 2006, the Family Court at Parramatta, after what I infer was a contested hearing, made an order that the children, including Dylan, reside with Mr Nicholls and have contact with Chantal on alternate weekends, and half school holidays. It is not without significance that, in respect of parental responsibility, the court ordered that both Mr Nicholls and Chantal have responsibility for the long-term care, welfare and development of the children. As both parents are to have long-term parental responsibility, the potential for ongoing conflict about matters of where the children live and where they are educated remains. 6 There is no reason at all to doubt that Mr Nicholls has been a fine father for these children, and in the very difficult circumstances which have followed – no doubt from the separation as well as from the motor vehicle accident - has devoted himself to their care and upbringing. There is also no reason to think affirmatively that he would be other than honest as a trustee, or that he would not do his best in administering the property of the trust for Dylan's benefit. However, I do not accept that it can be inferred, from the residence order made by the Family Court in favour of Mr Nicholls, that he is a fit and proper person to be a trustee. As I have said, I do not suggest that he is not such a person, but the mere making of a residence order in favour of one parent over another says nothing as to the fitness of the parent in whose favour it is made as a trustee as distinct from as a parent, and even in the latter respect it indicates only that having regard to, amongst other considerations, the respective parenting capacities of the parties, the court concluded that the best interests of the children would be served by residing with the parent in whose favour the order was made. Moreover, as I have pointed out in the course of argument, no affidavit of fitness, as is required by SCR Pt 70 rr 8 and 9, has been filed, and having regard to the terms of those rules I am unable to accept Mr Hadley's submission that such an affidavit is unnecessary. 7 Accordingly, in the absence of an affidavit of fitness, I cannot appoint Mr Nicholls. But even if there were an affidavit of his fitness, it would not in the circumstances of this case persuade me that it is appropriate to appoint Mr Nicholls as the replacement trustee. That is for a number of reasons. 8 First, the court usually does not favour the appointment of a beneficiary's spouse as trustee. Similarly, the appointment of a parent as trustee for a minor child is not usually an attractive course, at least partly because of the concurrent emotional and dependent relationships, which operate at the same time as the relationship of trustee and beneficiary and have the potential to compromise the independent judgment of the trustee. This reluctance is often seen in personal injuries jurisdictions, where awards of damages to minor children are typically entrusted to the Public Trustee or a trustee company for management rather than to a parent, notwithstanding that the parent has acted as next friend in the proceedings in which the damages have been recovered. 9 Secondly, it is usually undesirable to appoint a natural person as sole trustee, because of the difficulties which arise in the event of death or disability of a single trustee, and because of the absence of the safeguard which having two trustees, a reputable corporate trustee, provides. 10 Thirdly, Mr Nicholls will, I think, at least potentially be in a very difficult position of conflict of interest and duty, were he appointed as trustee. One aspect of this is that, as things stand at the moment, he derives and will continue to derive significant benefits from the trust property for himself. Those benefits include free accommodation for himself, and free accommodation for his children other than Dylan, who otherwise would have to be housed at his expense elsewhere. I completely accept that it is in Dylan's interests that Mr Nicholls and Dylan's siblings continue to reside with him, and it will be necessary for the new trustee, once appointed, to make arrangements, probably more formal than those presently in place, for the management of the property by Mr Nicholls, so that he and the other children can remain there with Dylan. But there is in families, and certainly in this one, given what has already happened between Dylan's parents, always a potential for conflict. In the closest of families there may sometimes be unhappy conflict between children and parents. As Dylan becomes older and surer of himself and more conscious of his own rights, there is a potential, albeit one which it is to be hoped will never be realised, for conflict between Dylan and his father. In the event of such conflict, Mr Nicholls would be left in a very difficult position as the adult occupier and legal owner of the house, conceivably in conflict with the child who is its beneficial owner. 11 Fourthly, although I have said and reiterate that there is no reason at all to doubt Mr Nicholls' honesty and that he would do his best as trustee, it is better to avert the opportunity for temptation rather than to rely on a potential trustee's honesty when faced with it. It is not unknown for a parent, having received an advancement of this type and acquired a house in his or her name upon trust for a child, to have mortgaged the house to raise funds for speculative investment and thereby to have jeopardised the trust property. I am not suggesting for a moment that Mr Nicholls would do that but it is better to avert the opportunity for it to happen at all. 12 Fifthly, in the context of this case - in which the trust fund is a result of an advancement in respect of which the trustee has an ongoing obligation to repay in the event of the personal injuries claim failing - to take into account the wishes of Allianz and of Mrs Nelson – Allianz because it was the provider of the capital and is entitled to have it repaid in certain eventualities, and Mrs Nelson because she is the person who has bound herself to repay the advance, and would be entitled to indemnity out of the trust property, the obligation being one incurred in her capacity as trustee. Alternatively, if the effect of the orders that I propose to make is that the new trustee succeeds to that liability, then it will be entitled to indemnity out of the trust property. So Allianz and Mrs Nelson have an interest in the property sufficient to warrant having regard to their wishes, which I give some, albeit slight, weight. 13 The major arguments raised on behalf of Mr Nicholls against the appointment of the Public Trustee can be addressed as follows. 14 First, the additional costs involved. The appointment of the Public Trustee would incur fees for instituting and for managing the trust, which would not be incurred were Mr Nicholls appointed. However, Allianz has offered to pay those fees, albeit upon terms that, in the event that Dylan is recovers an amount of damages for the management of settlement or judgment funds, then the amount paid by Allianz for the management of the trust would be deducted from the judgment. The condition proposed by Allianz in this respect does not refer to Dylan being entitled to damages generally, but is specifically conditional upon Dylan being entitled to damages for the settlement or management of judgment funds. Upon that condition it is only reasonable that funds paid in advance for the management of the judgment funds would be deducted by way of set-off from the ultimate settlement. Accordingly, there is no disadvantage in terms of cost in appointing the Public Trustee over Mr Nicholls. But even if cost were involved, that would not deter me from the view that it was preferable to appoint the Public Trustee, even at that cost. 15 Secondly, a group of concerns expressed on behalf of Mr Nicholls relate to control of the property. As I have said, it will be necessary for the new trustee once appointed to establish arrangements with Mr Nicholls as to the basis upon which he may occupy the property, and which enable him as an occupant to attend to repairs and maintenance, and to exclude other entrants. He would presumably do so as the trustee's agent, or perhaps as a licensee or tenant; that is a matter for Mr Nicholls and the Public Trustee to work out, and I do not by the reference to "tenant" necessarily intend to suggest that he should be paying any rent; the value of the services he provides to Dylan and the opportunity cost to him of foregoing remunerative employment to do so needs to be taken into account. 16 The third matter mentioned on behalf of Mr Nicholls was potential delay by the Public Trustee in making decisions about maintenance and repair of the property. The Public Trustee has considerable experience and proficiency in managing trusts of this kind. In any event, other than the property, there does not appear to be any trust fund to which there could be resort for money to expend on the property. If urgent repairs and maintenance prove necessary, Mr Nicholls should be entitled to recoup the cost of effecting them from the Public Trustee, but that is a matter which in any event should be addressed in the management arrangements. 17 For the foregoing reasons, I am satisfied that it is appropriate to make a declaration generally to the effect which Mr Nicholls seeks, to remove Mrs Nelson as trustee, and to appoint the Public Trustee in her place. There should also be a vesting order in favour of the Public Trustee. 18 The plaintiff will have succeeded in obtaining the declaration and an order for removal of the existing trustee, but will have failed on the sole issue argued, namely, the appointment of himself as the replacement trustee. Although Mrs Nelson has consented to being removed as trustee, her consent does not involve any admission of a breach of trust, but is offered in circumstances where she now resides in Western Australia and is no longer in a position to supervise the property. I am far from satisfied that the matters relied upon as supporting her removal would have been sustained as breaches of trust justifying removal had the matter been contested; in particular, reliance was placed on the fact that the title did not show that Mrs Nelson held as trustee, an argument which overlooks the fact that under the Torrens system, trusts are not to be shown on the register [Real Property Act, s 82(1)]. Allianz became a party at the last moment, probably unnecessarily, and only offered at the last moment to pay the additional costs incurred as a result of appointing the Public Trustee. In those circumstances, it is appropriate that each party bear its own costs; to the extent that any costs incurred by Mr Nicholls are thought to be sufficiently connected with Dylan's injuries, it may be that they could be claimed as damages in the District Court proceedings. 19 Accordingly, and subject to any submissions, which might be made as to their form, I propose to make the following orders. 1. Declare that the first defendant Vincenta Nelson holds the property comprised in folio identifier 153/253099 situate at and known as 9 Gossell Grove, Carlingford, upon trust for Dylan Gregory Nelson. 2. Order that Vincenta Nelson be removed as trustee of the said trust. 3. Upon the undertaking of Allianz Australia Insurance Limited that it will pay the Public Trustee's capital commission fee and ongoing monthly and ancillary fees upon the terms set out in the correspondence comprised in exhibit PX01, order that the Public Trustee be appointed trustee of the said trust. 4. Order that the land described in order 1 vest in the Public Trustee as such trustee for an estate in fee simple. 5. No order as to costs, to the intent that each party bear his her and its own costs. 20 There being no further submissions as to form, I make those orders. ********** 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.