New South Wales Supreme Court CITATION : Morrison v Lainson [2006] NSWSC 1347 HEARING DATE(S) : 1 December 2006 JUDGMENT OF : Biscoe AJ EX TEMPORE JUDGMENT DATE : 12/01/2006 DECISION : Proceeds of sale of land to be distributed to beneficiaries in accordance with their interests. CATCHWORDS : Trusts - trustees for sale of land under s 66G Conveyancing Act 1919 - Trustees' entitlement to be indemnified out of trust estate - burden to fall upon beneficiaries equitably having regard to circumstances under which costs, charges and expenses incurred CASES CITED : Melic Pty Ltd v Lainson [2006] NSW Conv R 56-139 National Trustees Executors and Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268 PARTIES : Stanley Arthur Morrison and Ron Dean-Willcocks (Plaintiffs) Charles William Milton Lainson and Douglas Roy Lainson (Defendants) FILE NUMBER(S) : SC 5505/05 Mr J Whyte (Plaintiff) COUNSEL : Mr M Boulton (First Defendant) Mr M Howling (Second Defendant) Solari Legal (Plaintiff) SOLICITORS : Brock Partners (First Defendant) Gibson Howlin Lawyers (Second Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BISCOE AJ 1 December 2006 5505/05 STANLEY ARTHUR MORRISON AND RON DEAN-WILLCOCKS v CHARLES WILLIAM MILTON LAINSON AND DOUGLAS ROY LAINSON EX TEMPORE JUDGMENT 1 HIS HONOUR: The plaintiffs were appointed trustees for sale of certain land under s 66G of the Conveyancing Act 1919 in proceedings 2129 of 2004. In these proceedings they seek a declaration and orders as to how the proceeds of sale should be distributed. BACKGROUND 2 The defendants are Charles Lainson, who has a three-eighths interest in the land and Douglas Lainson, who also has a three-eighths interest. The remaining one quarter is owned by the estate of the late Nora Lainson. Charles is the executor of her estate. 3 On 17 February 2004 Douglas contracted to sell his three-eighths interest to Melic Pty Ltd (Melic). On 26 March 2004 Charles applied to this Court for the appointment of trustees for the sale of the property. On 11 June 2004 the plaintiffs were appointed as trustees for sale with the consent of Charles and Douglas. On the evidence before me, Charles did not know Douglas had contracted to sell his interest in the land prior to the appointment of the trustees for sale. In or about October 2004, the solicitors for the trustees became aware of that contract of sale. 4 On 27 November 2004 the trustees contracted to sell the property to Lainson Holdings Pty Ltd, a company said to be controlled by Charles and his wife. On 8 December 2004 the trustees' solicitors received a letter from Douglas' solicitor foreshadowing a claim by Melic. On 13 December 2004 the trustees were notified of Melic's claim. 5 The trustees became parties to two legal proceedings involving Melic. The first arose because on 14 January 2005 a caveat was lodged by Melic over the property alleging an equitable interest in the land pursuant to its contract of sale with Douglas. In February 2005, on the application of the trustees, this Court ordered removal of the caveat. Melic was ordered to pay the trustees costs. On 15 March 2005 the contract of sale between the trustees and Lainson Holdings Pty Ltd was completed. 6 The second of those legal proceedings commenced on 29 March 2005 when Melic sued Douglas and the trustees seeking return of the deposit paid under its contract with Douglas. The trustees filed a submitting appearance save as to costs. There was a cross claim by Douglas. On 14 July 2005 Hamilton J gave judgment for the defendants: Melic Pty Ltd v Lainson [2006] NSW Conv R 56-139. Subsequently, he ordered Melic to pay the defendants' costs. His Honour noted clause 43.1.2 of the Melic contract which required completion within 21 days after the appointment of a trustee in respect of the property pursuant to s 66G of the Conveyancing Act 1919. Melic did not complete in accordance with that provision. Relevantly, his Honour said at [7] and [14]: 7 Before contracts were exchanged there were negotiations between the vendor and the purchaser in which the possibility of the appointment of trustees for sale was discussed and as a result of which clause 43.1 of the contract was formulated. These exchanges have been admitted into evidence as relevant to the issue under s 55(2A) of the CA. However, issue is taken by the defendant as to whether they can be used to assist in the construction of the contract or whether that use would contravene the parol evidence rule. 14 That evidence, as noted above, was in communications made in the course of negotiations. There was a telephone conversation between the solicitors on 2 February 2004, of which Mr Ellison, the solicitor for the defendant, made a note, in part as follows: We discussed the situation and his understanding is that if the property is to be sold (by Section 66G order) then Doug would be paid out 14 or 21 days after the liquidator [sic] was appointed by the Court ie before the actual auction. Mr Ellison confirmed in oral evidence that s 66G was discussed in terms in that conversation. Mr Chalabian, the purchaser's solicitor, agreed in oral evidence that s 66G was mentioned in that conversation. Further communications took place between the solicitors in the course of negotiating the terms of clause 43.1.2. The communications referred to in this paragraph are adverted to as showing facts known to both parties which may be taken into account in resolving any ambiguity in the contract, but for no other purpose. 7 The trustees distributed part of the sale proceeds in or about March 2005 in accordance with the interests to which I have earlier referred. Charles by his solicitors disputed further distribution in those proportions on the basis that Douglas should bear the costs associated with the Melic proceedings. In effect, this meant such costs insofar as they were not recoverable from Melic under the two costs orders in favour of the trustees. Proposals by the trustees' solicitors that there should be a meeting between the parties and their legal representatives to endeavour to resolve the issue were not acceptable to Charles. Eventually, in October 2005, the trustees commenced these proceedings seeking directions as to how the sale proceeds should be distributed. In November 2005 Douglas made a without prejudice offer, reserving the right to rely upon it at any stage on the issue of costs, that the sum of $16,508.56 referred to in the trustees' bill of costs be deducted from his percentage entitlement to the balance of the proceeds of sale. The offer was not accepted. 8 This matter was before the Registrar on 30 March 2006. Counsel for the trustees announced that the beneficiaries had agreed upon a formula for the distribution of the balance of the proceeds of sale and that the only thing outstanding was that they needed to reduce the agreement to writing. A written agreement was not executed. I understand this was because Charles declined to execute it. 9 On 15 June 2006 Douglas' solicitors wrote confirming that all offers made on his behalf had either formally lapsed or been withdrawn. On 31 October 2006, after this matter had been set down for hearing, they wrote a further letter saying that he would consent to final orders in the proceedings on the basis that he would receive the sum of $70,000 from the funds held. It appears that at that time the funds held were in the order of $183,000, to which sum there would have to be added any costs recovered by the trustees from Melic pursuant to the costs order in favour of the trustees in the two proceedings to which I have referred. THE DISTRIBUTION ISSUE 10 Against this background I come finally to the issue before me. Charles submitted that Douglas should bear the burden of the trustees' costs and remuneration so far as they relate to time spent and costs incurred in, first, considering what to do about the contract of sale by Douglas to Melic; secondly, dealing with the caveat lodged by Melic; and, thirdly, dealing with the proceedings brought by Melic to maintain its caveat and to recover its deposit. The legal principle upon which this claim was founded was said to be that expressed in National Trustees Executors and Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268 at 279 by Williams J in the context of a trustee's entitlement to be indemnified out of the trust estate against all its proper costs, charges and expenses incidental to the execution of the trust: …The indemnity must be given effect to in such a way as to make the burden fall upon the beneficiaries equitably having regard to the circumstances under which the costs, charges and expenses were incurred. 11 It was submitted for Charles that these costs should fall upon Douglas because they related to the problems created by Douglas in selling his interest in the property to Melic when he knew full well that trustees were about to be appointed to sell the whole property. The evidentiary basis for that proposition was paragraphs 7 and 14 of the judgment of Hamilton J which I have set out earlier. In my view, the judgment did not go so far. Rather, it evidences that Douglas knew when he sold his interest that there was a possibility that trustees would be appointed to sell the whole property. This, I think, came to be accepted by counsel for Charles during the course of oral submissions. In my view, Douglas' conduct in contracting to sell his interest when he knew of the possibility that trustees for sale might be appointed was not such as to make it equitable for the burden of the costs in issue to fall on Douglas. If Melic had completed the contract of sale, as required by its provisions, within 21 days after the appointment of the trustees, the litigation which subsequently ensued would have been avoided. It was therefore the conduct of Melic, not Douglas, which, viewed in a commonsense way, was the true cause of the costs incurred by the trustees in the two legal proceedings. 12 It was submitted for Charles, however, that the Melic litigation would not have ensued but for Douglas' conduct in entering into his contract for sale. In contracting to sell his interest, Douglas did what he was legally entitled to do and there was no apparent equity to restrain him from exercising that legal right. In the circumstances, a "but for" test of causation is, I think, irrelevant. It was also submitted, rather faintly, that Douglas behaved inequitably in not informing the trustees sooner of the fact of his contract of sale. That was not causative of the costs in issue nor, in my view, is it is sufficient to invoke the principle upon which Charles relies. Furthermore, it seems to me that Douglas conducted himself reasonably in offering without prejudice – albeit without success – to settle the issue raised by Charles. 13 For these reasons, I do not accept Charles' submission that Douglas should bear the costs of remuneration of the trustees associated with the Melic proceedings. 14 There was criticism made in Douglas' submissions about the conduct of the trustees which does not seem to bear upon the relief they seek. If it were necessary to pass judgment on the criticism, and I do not think it is, I would, as presently advised, not uphold it. The trustees seem to me to have acted reasonably in attempting to resolve the differences between the beneficiaries and, when that failed, in seeking directions from the Court. 15 I grant the following relief: (1) Declaration that the balance of the proceeds of the sale of land the subject of the orders made by this Court in proceedings 2129 of 2004 be apportioned as follows: (a) Charles William Milton Lainson, three-eighths; (b) Douglas Roy Lainson, three-eighths; (c) the estate of the late Nora Lainson, one quarter. (2) Order that the plaintiffs distribute the proceeds of the sale of the said land in accordance with order 1. (3) Order that the plaintiffs' costs be paid out of the funds held by the plaintiffs. (4) Liberty to apply on five days' notice. (5) The exhibits may be returned. 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.