New South Wales Supreme Court CITATION : Fay v Moramba Services Pty Ltd [2009] NSWSC 1428 HEARING DATE(S) : 11 April, 19, 21-23, 26 & 27 May, 12-13 June, 17-18 September, 17-24 December 2008 JUDGMENT DATE : 16 December 2009 JURISDICTION : Equity Division JUDGMENT OF : Brereton J DECISION : Proceedings for removal of trustees dismissed. CATCHWORDS : TRUSTS AND TRUSTEES – Retirement removal and replacement of trustees – by the Court – application for removal and replacement of trustees of discretionary trusts – test for removal of trustees – rights of potential beneficiaries of discretionary trust - duties of trustees of a discretionary trust – to give real and genuine consideration to exercise of discretion LEGISLATION CITED : (NSW) Trustee Act 1925, s 59(4) (NSW) Probate and Administration Act 1898, s46 CATEGORY : Principal judgment Attorney General (Cth) v Breckler (1999) 197 CLR 83 Australian Securities Commision v AS Nominees Ltd (1995) 62 FCR 504 Avanes v Marshall (2007) 68 NSWLR 595 Brunninghausen v Glavanics (1999) 46 NSWLR 538, 32 ACSR 294, [99] NSWCA 199 Collie v Merlaw Nominees Pty Ltd [1998] VSC 203 Fay v Moramba Services Pty Ltd [2008] NSWSC 424 FCT v Vegners (1989) 90 ALR 547 Forster v Davies (1861) 4 De G F & J 133, 45 ER 1134 Gartside v IRC [1968] AC 553 Guazzini v Pateson (1918) 18 SR(NSW) 275 Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 Hurley v BGH Nominees Pty Ltd (1984) 2 ACLC 497 Karger v Paul [1984] VR 161 Kennon v Spry (2008) 83 ALJR 145 Lee v Young (1843) 2 Y&C Ch Cas 532, 63 ER 238 Leerac Pty Ltd v Garrick E Fay [2008] NSWSC 1082 CASES CITED : Letterstedt v Broers (1884) 9 App Cas 371 Lutheran Church of Australia South Australia District Inc v Farmers Co-operative Executives and Trustees Limited (1970) 121 CLR 628 Manson v Public Trustee [1925] GLR 153 McDonald v Ellis [2007] NSWSC 1068 McPhail v Doulton [1971] ACV 424 Miller v Cameron (1936) 54 CLR 572 O'Keeffe v Calthorpe (1739) 1 Atk 17, 26 ER 12 Pope v Butcher (1996) 20 ACSR 37 Quinton v Proctor [1998] 4 VR 469 Re Brock Bank [1948] Ch 206 Re Hay's Settlement Trusts [1981] 3 All ER 786 Re Henderson [1940] Ch 764, [1940] 3 All ER 295 Re Smith [1928] Ch 915 Re Wrightson [1908] 1 Ch 789 Sainsbury v IRC [1970] Ch 712 Schmidt v Rosewood Trust Limited [2003] 2 AC 709 Wilkinson v Clerical Administrative and Related Employees Superannuation Pty Ltd (1998) 79 FCR 469 Young v Murphy [1996] 1 VR 279 TEXTS CITED : R I Barrett, "Recent Cases", (1985) 59 ALJ 46 RP Meagher and WM Gummow, Jacob's Law of Trusts in Australia, 5th ed 3365/07 Garrick E Fay (first plaintiff/first cross defendant) Dallas Fay (second plaintiff) Lisa Fay (second cross defendant) Moramba Services Pty Ltd (defendant/cross claimant) 5032/06 PARTIES : Garrick E Fay (first plaintiff/first cross defendant) Dallas Fay (second plaintiff/second cross defendant) Justinthyme Pty Ltd (third plaintiff/third cross defendant) Henry Kai Tong Au (first defendant/first cross claimant) Hugh Edward Halliday (second defendant/second cross claimant) Allan Ni Kwan Kwok (third defendant/third cross claimant) Stephen Thomas Pollitt (fourth defendant/ fourth cross claimant) FILE NUMBER(S) : SC 3365/07; 5032/06 COUNSEL : Mr D E Grieve QC w Ms J F Merkel (plaintiffs) Mr R M Smith SC w Mr P W Flynn (defendants) SOLICITORS : Whittens Lawyers & Consultants (plaintiffs) Corrs Chambers Westgarth (defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EXPEDITION LIST BRERETON J Wednesday, 16 December 2009 5032/06 Garrick E Fay & 2 Ors v Henry Kai Tong Au & 3 Ors 3365/07 Garrick E Fay & 1 Or v Moramba Services Pty Ltd JUDGMENT 1 HIS HONOUR: The late Claude Augustus Fay died on 10 November 1998, leaving a substantial estate in New South Wales and four adult children – the first and second plaintiffs Garrick E Fay and Dallas Fay, and their sisters Sioned Fay and Louisa Young – his wife having pre-deceased him. For convenience, I shall refer to the deceased as "Mr Fay", and without intending the slightest disrespect, to his children individually by their first names, and collectively as "the children". By his last will, made on 21 December 1994 and varied by a codicil of 31 July 1996, he appointed as executors and trustees of his will the first defendant – his manager Henry Kai Tong Au; the second defendant – his solicitor Hugh Edward Halliday; the third defendant – his accountant Allan Ni Kwan Kwok and the fourth defendant – Stephen Thomas Pollitt, a banker. Clause 3 of the will gave Mr Fay's shares in Leerac Pty Ltd – which itself, as trustee of a number of discretionary trusts created by Mr Fay during his lifetime for the benefit of his family, directly or indirectly held all the shares in Moramba Holdings Pty Limited, the holding company of Moramba Services Pty Limited in which most of the assets under Mr Fay's control resided – to his trustees upon discretionary trust until a vesting day 80 years from the date of his death (or such earlier date as the trustees may determine), to stand possessed of the shares upon trust for such one or more of his children and their descendants as are living on the vesting day (in such proportions as the trustees in their absolute discretion determine), and until the vesting date to pay the income to or for those beneficiaries (in such proportions as the trustees may in their absolute discretion determine). By deed dated 28 January 1999, Garrick assigned his interest as a beneficiary under Mr Fay's will to the Bobbie Billicart Family Company Pty Ltd as trustee of the Garrick Fay Family Trust, and on 22 May 2007, by deed of removal of trustee and appointment of new trustee, the third plaintiff Justinthyme Pty Ltd was appointed trustee of that trust. 2 In proceedings 5032/06 ("the main proceedings"), Garrick, Dallas and Justinthyme claim a declaration that the defendants in breach of duty have failed to give real and genuine consideration to winding up the trusts of Mr Fay's will and distributing their capital, an order that they be removed as trustees of the estate, and an order appointing new trustees. In proceedings 3365/07 ("the mortgage proceedings"), Garrick and his (now estranged) wife Lisa sought an injunction restraining Moramba Services from calling up, enforcing or exercising remedies in respect of a loan made to them by Moramba Services and secured on their property at Moss Vale; and Moramba Services cross-claimed for possession of that property. Garrick and Lisa no longer press their claim in the mortgage proceedings, and do not oppose Moramba Services' claim for possession. The inter vivos settlements and the Moramba companies 3 During his lifetime, Mr Fay by deeds dated 3 March 1967 (and amended by amending deeds on 1 December 1975 and 6 May 1986) between James Barnes as settlor and Leerac as trustee caused to be created four discretionary trusts – respectively called the Barnes CA Garrick Settlement, the Barnes CA Dallas Settlement, the Barnes CA Louisa Settlement and the Barnes CA Sioned Settlement ("the Barnes Settlements"). In each of the Barnes Settlement trust deeds, the beneficiaries are defined to include Mr Fay and "any child or children or grandchild or grandchildren or issue of the said Claude Augustus Fay who are already in being or who shall be born before the Vesting Day". 4 The vesting day in the Barnes Settlement trust deeds is defined (in clause 1(a)) as the day 60 years after the execution of the deeds of settlement (3 March 1967) or 21 years from the death of the last survivor of the descendants of His Late Majesty King George VI, whichever shall be the earlier, but provision is made (by clause 6, as amended by the Amending Deed of 1 December 1975) that the trustee after duly giving notice of its intention to appoint an earlier date for the vesting of the trust funds in whole or in part "may by deed appoint as to so much of the trust funds as such notice relates as aforesaid an earlier date than the Vesting Day for the purposes of clauses 2, 5A and 5 hereof". 5 Each of the Barnes Settlement trust deeds also contained, in clause 13, a provision as follows: The trustee shall not be liable or answerable or accountable hereunder for any loss not attributable to: (i) its own dishonesty; or (ii) the wilful commission by it of an act known to be a breach of a trust that may be suffered or incurred in exercising any of the directions powers authorities or discretions given to or conferred upon the trustee under this settlement or in investing moneys available for investment. 6 By four deeds dated 1 December 1975, between Peter Barnes as settlor and Leaford Nominees Pty Ltd as trustee, another four trusts – respectively called the Lorraine Garrick Settlement, the Lorraine Dallas Settlement, Lorraine Sioned Settlement and the Lorraine Louisa Settlement ("the Lorraine Settlements") – were constituted, with Leaford as trustee. By deeds made on or about 28 July 1998, Leerac became the trustee of each of the Lorraine Settlements. In each of the Lorraine Settlement trust deeds, the beneficiaries are defined to include "any child or children or grandchild or grandchildren or issue of Gertrude Alice Fay … who are already in being or who shall be born before the Vesting Day", their wives and husbands, and other classes. 7 In the Lorraine Settlement trust deeds, the vesting day is defined in clause 1(a) as the day 80 years after execution of the deeds (1 December 1975) or 21 years from the death of the last survivor of the descendants of His Majesty King George VI living on 1 December 1975, whichever shall be the earlier, but (by clause 5) the trustee after duly giving notice "may in its absolute discretion by deed or under hand or in the case of a corporation by resolution of its board of directors (passed in accordance with its Articles of Association for the time being) appoint as to so much of the trust funds as such notice relates as aforesaid an earlier date than the vesting date for the purposes of clause 2, 6(A) and 6(B) hereof". 8 Each of the Lorraine Settlement Deeds contained a clause 14, to the following effect: The trustee shall not be liable or answerable or accountable hereunder for any liability whatever or for any loss or diminution whatever in respect of the trust funds (or any part thereof) whether arising out of negligence or otherwise (except where attributable to its own dishonesty) and the trustee shall be indemnified and saved harmless at all times by and out of the trust funds against any such liability or loss as aforesaid. 9 In respect of each of the Barnes Settlements and the Lorraine Settlements, there is a "default beneficiary", who takes in default of any determination by the trustee as to distribution of income or capital. In respect of the Barnes Settlement, the default beneficiary is that child whose name the trust bears: thus Garrick is the default beneficiary in respect of the Barnes CA Garrick Settlement. In respect of the Lorraine Settlements, the first default beneficiary is Mr Fay's wife Lorraine, and the second default beneficiary (if Lorraine is not alive) is that child whose name the settlement bears: thus in the events that have happened, Lorraine having pre-deceased Mr Fay, Dallas is now the default beneficiary of the Lorraine Dallas Settlement, and so on. 10 The substantial assets of the Fay Group of Companies were and are held in Moramba Services, all the shares in which are held by Moramba Holdings. The shares in Moramba Holdings are held, as to 89 percent, by Leerac upon trust equally for the Barnes CA Settlement, the Barnes CA Dallas Settlement, the Barnes CA Louisa Settlement and the Barnes CA Sioned Settlement; and as to the other 11 percent, by Windsmead Pty Ltd ("Windsmead"), all the shares in which are in turn held by Leerac upon trust equally for the Lorraine Garrick Settlement, the Lorraine Dallas Settlement, the Lorraine Louisa Settlement and the Lorraine Sioned Settlement. The Will 11 Mr Fay's will, by clause 3, relevantly gave his shares in Leerac to the defendants, to be held on trust as follows: (i) I direct my trustees to stand possessed of my Leerac shares upon trust for such one or more of the beneficiaries as are living at the vesting day and if more than one then for such one or more of them exclusive of the other or others in such shares and proportions as my trustees in their absolute discretion may determine prior to the vesting day and in default of any such determination by my trustees for such of the beneficiaries as are living at the vesting day in equal shares. (ii) Until the vesting day, my trustees shall hold the income from my Leerac shares upon trust to pay or apply the whole or any part of such income for such of the beneficiaries or any one or more of them exclusive of the other or others in such shares or proportions as my trustees in their absolute discretion may from year to year determine and in default thereof upon trust for such of the beneficiaries as are living at the expiration of that year and if more than one in equal shares. 12 Clause 3 of the will contains the following relevant definitions: "The Vesting Day" means the day expiring 80 years from the date of my death or such earlier day or days upon which my trustees may in their uncontrolled discretion (as they are hereby empowered to do) elect to determine as the vesting day in respect of the whole or any one or more of the Leerac shares. "The beneficiaries" means any of my children and their descendants. 13 By the time of his death, Mr Fay already had several grandchildren. 14 The effect of the structure created by the companies, the inter vivos settlements and the clause 3 will trust is that: · Each of the children (and remoter descendants) of Mr Fay is a potential beneficiary of each of the inter vivos settlements; · The defendants, as well as being executors and trustees of Mr Fay's will, are in that capacity the shareholders in Leerac, of which they are also the directors, and as such control Leerac's administration of the inter vivos settlements; · Under the clause 3 will trust, they will continue to control the trustee of the inter vivos settlements until November 2078, unless they exercise their discretion to accelerate the vesting day in respect of any one or more of the Leerac shares; · Each of the inter vivos settlements, of which Leerac is the trustee, will not vest until 2027 (in the case of the Barnes Settlements) or 2055 (in the case of the Lorraine Settlements), unless Leerac exercises its discretion to nominate an earlier vesting day in respect of some or all of the capital of the settlement; · The only potential source of income of the Barnes Settlements is a dividend paid by Moramba Services to Moramba Holdings and then to Leerac; · The only potential source of income of the Lorraine Settlements is a dividend paid by Moramba Services to Moramba Holdings, then to Windsmead, and then to Leerac; · Any dividends declared by Moramba Holdings must be apportioned between the Barnes Settlements as to 89 percent and the Lorraine Settlements as to 11 percent. The Cohabitation Agreement 15 On 17 June 1996, Mr Fay, Moramba Services and Zona Tripp executed a cohabitation agreement, which recited that Mr Fay and Mrs Tripp were concerned to ensure that their relationship (which they did not then regard as a de facto relationship, but recognised might develop to that point, although not presently intended to do so) not affect their perceived financial and other obligations to their respective children and other members of their respective families, and provided that Mrs Tripp would be entitled to occupy a home unit in the Connaught, of which Moramba Services was the proprietor, rent free until she married, separated from Mr Fay other than as a consequence of his death, died, entered into another relationship or gave one month's notice of termination; and Moramba Services would pay Mrs Tripp a sum of $400 per week net after tax, indexed to the CPI, and also for her health insurance cover at the highest rate, and provide for her a motor vehicle and pay outgoings in respect of it. 16 During Mr Fay's lifetime, payments pursuant to the cohabitation agreement were made by Moramba Services, but were debited to Mr Fay's loan account with that company. 17 Mrs Zona Tripp survived Mr Fay, and she continues to survive him. The plaintiffs' case 18 The ultimate issue for determination in the main proceedings is whether the defendants ought to be removed and replaced as trustees of Mr Fay's will. That course, if implemented, would have the consequence that the new trustees would gain control of Leerac, and thus of the inter vivos settlements also. However, while that is the likely result of removing and replacing the defendants as trustees of the will, it is not relief sought in the proceedings. 19 The plaintiffs contend that the defendants ought to be removed on the ground that "the welfare of the beneficiaries is opposed to [their] continuation in office" [cf Miller v Cameron (1936) 54 CLR 572, 581]. The plaintiffs say that the defendants "have not carefully borne in mind the welfare of the beneficiaries", and cannot be relied upon to administer the estate (and in particular the clause 3 will trust, which in substance is all that remains in the estate) benevolently, impartially and properly. Their fundamental complaint is that the defendants as directors or Leerac have failed to give proper consideration to accelerating the vesting of the inter vivos settlements – or, as the case evolved, that having determined in 2002 that the inter vivos settlements should vest, they without good reason have failed and neglected to give effect to that determination; alternatively that they have failed to give proper consideration to accelerating the vesting of the clause 3 will trust of the Leerac shares. Additional matters relied upon as evidencing the inappropriateness of the defendants remaining in office as trustees of the will are that: · As directors of Leerac, they have failed to appreciate the terms of the inter vivos settlements; · As directors of Leerac, they have failed to cause Leerac to provide information concerning the inter vivos settlements to the prospective beneficiaries; · As directors of Leerac and Moramba Services and as executors, they have acted improperly in procuring the children's execution of deeds of indemnity in favour of the defendants; · As directors of Leerac, they have become incapable of acting impartially following the creation of the mortgage over Garrick and Lisa's Moss Vale property; · They bear animus towards the plaintiffs; · As directors of Leerac, they mischievously attempted to invoke a "non contest" clause in the inter vivos trust deeds to exclude Garrick and Dallas as beneficiairies on account of their having commenced the main proceedings; · Mr Halliday, by resigning as an executor other than in respect of the clause 3 will trust, but not as a director of the Moramba companies, had assumed an unsatisfactory position; · As directors of Moramba Services, they allowed Moramba Services to make excessive payments to one of their number, Mr Au; · As directors of Leerac, they caused or concurred in Leerac, in breach of trust, by paying money to their solicitors to fund their defence of these proceedings. The test for removal of trustees 20 The plaintiffs invoke the court's inherent jurisdiction to remove trustees and appoint others in their place, in order to ensure that trusts are property executed. In Letterstedt v Broers (1884) 9 App Cas 371, Lord Blackburn, speaking for the Judicial Committee, said (at 385-387) (emphasis added): Story ( Equity Jurisprudence ) says, s. 1289, "But in cases of positive misconduct, Courts of Equity have no difficulty in interposing to remove trustees who have abused their trust; it is not indeed every mistake or neglect of duty, or inaccuracy of conduct of trustees, which will induce Courts of Equity to adopt such a course. But the acts or omissions must be such as to endanger the trust property or to show a want of honesty, or a want of proper capacity to execute the duties, or a want of reasonable fidelity ." It seems to their Lordships that the jurisdiction which a Court of Equity has no difficulty in exercising under the circumstances indicated by Story is merely ancillary to its principal duty, to see that the trusts are properly executed. This duty is constantly being performed by the substitution of new trustees in the place of original trustees for a variety of reasons in non-contentious cases. And therefore, though it should appear that the charges of misconduct were either not made out, or were greatly exaggerated, so that the trustee was justified in resisting them, and the Court might consider that in awarding costs, yet if satisfied that the continuance of the trustee would prevent the trusts being properly executed, the trustee might be removed . It must always be borne in mind that trustees exist for the benefit of those to whom the creator of the trust has given the trust estate. The reason why there is so little to be found in the books on this subject is probably that suggested by Mr. Davey in his argument. As soon as all questions of character are as far settled as the nature of the case admits, if it appears clear that the continuance of the trustee would be detrimental to the execution of the trusts , even if for no other reason than that human infirmity would prevent those beneficially interested, or those who act for them, from working in harmony with the trustee, and if there is no reason to the contrary from the intentions of the framer of the trust to give this trustee a benefit or otherwise, the trustee is always advised by his own counsel to resign, and does so. If, without any reasonable ground, he refused to do so, it seems to their Lordships that the Court might think it proper to remove him; but cases involving the necessity of deciding this, if they ever arise, do so without getting reported. … In exercising so delicarte a jurisdiction as that of removing trustees, their Lordships do not venture to lay down any general rule beyond the very broad principle above enunciated, that their main guide must be the welfare of the beneficiaries. 21 In Re Wrightson [1908] 1 Ch 789, Warrington J said (at 803): You must find something which induces the Court to think either that the trust property will not be safe, or that the trust will not be properly executed in the interests of the beneficiaries. 22 Those cases were considered by P W Street CJ in Eq (as he then was) in Guazzini v Pateson (1918) 18 SR(NSW) 275 (at 292-4). His Honour observed (at 293): In considering the interests of the beneficiaries, I have to consider the interests of all, not those of the plaintiff only, and I have to ask myself whether the facts disclosed in the case establish that it is for the welfare of the trust estate as a whole that the trustees should be removed. 23 The principles were described by Dixon J in Miller v Cameron as follows (at 580-581) (emphasis added): The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property, and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove a trustee the court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office . Such a judgment must be largely discretionary. A trustee is not to be removed unless circumstances exist which afford sound ground upon which the jurisdiction may be exercised . 24 The first relevant consideration that emerges from the above cases is the "the welfare of the beneficiaries". Indeed, in Miller v Cameron, Latham CJ (at 575) and Starke J (at 579) considered the welfare of the beneficiaries to be "the dominant consideration" and "the only guide" respectively. However, that was said in the context of a trust in which, although the trustee had significant discretionary powers, all the beneficiaries were identified and were parties seeking his removal. In the context of discretionary trusts such as the clause 3 will trust, where no beneficiary has a vested interest but only a right to due administration, the formulation of Street CJ in Eq in Guazzini v Pateson, that in each case it is ultimately a matter of what is best "for the welfare for the trust estate as a whole", is of more assistance. The essential issue in that context is whether the due and proper administration of the trust is opposed to the trustee's remaining in office. In this respect, regard must be had not only to the interests of the plaintiffs, but to those of all the potential beneficiaries. Moreover, in the context of discretionary trusts, some consideration is to be given to the confidence reposed by the settlor – and in the case, here, of the will trusts, by the testator – in his selected trustees to exercise appropriately the discretions vested in them. 25 The second consideration that emerges is that a trustee is not lightly to be removed. Insofar as it might be implicit in the plaintiffs' submissions, and in particular in the reliance on Lord Blackburn's observations in Letterstedt v Broers, that the suit having been brought the trustees should have resigned, or in any event should be removed on the basis that their continuance would be detrimental to the execution of the trusts, that overstates the position. Removal is not inevitable, just because some or even all of the beneficiaries wish it [Guazzini v Pateson, 294; Re Brock Bank [1948] Ch 206]. The court will not remove a trustee for the mere caprice of a beneficiary or without reasonable cause [O'Keeffe v Calthorpe (1739) 1 Atk 17, 26 ER 12]. Friction or hostility between the trustee and the beneficiaries is not of itself a reason for the removal of the trustee [Lee v Young (1843) 2 Y&C Ch Cas 532, 63 ER 238; Forster v Davies (1861) 4 De G F & J 133, 45 ER 1134; Re Henderson [1940] Ch 764, [1940] 3 All ER 295], although where the hostility is grounded on the mode in which the trust has been administered, or has been caused wholly or partially by substantial overcharges against the trust estate, it is not to be disregarded [Letterstedt v Broers, 389]. Some preliminary matters 26 Originally, the plaintiffs proposed the appointment of Messrs Whitten and Frost as new trustees. Those nominees were plainly not independent, but were firmly allied with the plaintiffs – in particular, Mr Whitten was the plaintiffs' solicitor, Garrick's closest personal friend, and personally interested in the plaintiffs' obtaining a distribution so that his fees could be paid. In due course, when the inappropriateness of their nomination became manifest, the plaintiffs instead proposed Messrs Fairley and Ellison, about whose independence no complaint is made. 27 The defendants advanced two main arguments to the effect that allegations of breach of duty by them in their capacity as directors of Leerac could not be used in these proceedings as matters which could found their removal as trustees of the will. The first was that, in the absence of Leerac being joined, the proceedings were improperly constituted; and the second was that as directors of Leerac they owed no duties directly to the beneficiaries of the inter vivos trusts. 28 As to the first, the defendants maintained that the proceedings are inadequately constituted, being proceedings relating to a trust within the meaning of UCPR Rule 7.11 – specifically, the Barnes Settlements and the Lorraine Settlements – yet the trustee Leerac was not joined as a party. No doubt the plaintiffs made a deliberate forensic decision not to join Leerac, in order to avoid the invocation of clause 17 [for the background, see Fay v Moramba Services Pty Ltd [2008] NSWSC 424]. However, I do not accept that Leerac is a necessary party, nor that the proceedings are inadequately constituted. The ultimate issue in these proceedings is whether the defendants ought to be removed as trustees of the will. While, in support of their contention that the defendants ought to be removed, the plaintiffs refer to the defendants' conduct in their capacities as directors of Leerac, the trustee of the inter vivos settlements, that does not mean that the proceedings are proceedings relating to the inter vivos settlements. No relief is sought in respect of the inter vivos settlements. Reliance on their conduct as directors of Leerac in respect of the inter vivos settlements is merely for the evidentiary purpose of demonstrating that that the defendants cannot be relied on properly to administer the will trust. 29 As to the second, the defendants submitted that no duty is owed by the directors of a trustee company, such as Leerac, to the beneficiaries of the trust. There is significant authority against the proposition that directors of a trustee company owe a fiduciary duty to the beneficiaries merely by reason of their position as directors [Australian Securities Commision v AS Nominees Ltd (1995) 62 FCR 504, 522 (Finn J); Young v Murphy [1996] 1 VR 279, 301-2, (J D Phillips J); Pope v Butcher (1996) 20 ACSR 37; Collie v Merlaw Nominees Pty Ltd [1998] VSC 203, [96] (Byrne J); cf Hurley v BGH Nominees Pty Ltd (1984) 2 ACLC 497, which was to the contrary, but is criticised in R I Barrett, "Recent Cases", (1985) 59 ALJ 46, 47; cf also Brunninghausen v Glavanics (1999) 46 NSWLR 538, 32 ACSR 294, [99] NSWCA 199, holding that in some circumstances a director of a closely held company could owe fiduciary duties directly to a shareholder]. However, it is unnecessary to resolve this issue, because the plaintiffs' case does not depend upon establishing that there was any such duty or breach of it. Rather, the plaintiffs rely on the conduct of the defendants as directors (of Leerac and the Moramba companies), not directly to establish a breach of fiduciary duty owed to the plaintiffs, but as informing an assessment of their fitness to hold the office of trustees of the will trusts, and their likely conduct as such trustees in the future. The principal complaint – failure to consider acceleration of vesting dates 30 The plaintiffs' principal complaint – that the inappropriateness of the defendants remaining as trustees of the will trust is demonstrated by their failure to give proper consideration to whether in their capacity as directors of Leerac they should cause the inter vivos settlements to vest, or to implement a determination already made to do so, and alternatively in their capacity as trustees of the will to cause the clause 3 will trust to vest – encompasses allegations pleaded in the Third Further Amended Statement of Claim to the effect that the defendants: · In breach of their duties as directors of Moramba Services, have failed and neglected to institute proceedings to have the cohabitation agreement set aside (paragraph 23A); · In breach of their duties as executors and trustees of the estate to distribute the assets in a timely manner to the persons entitled, have failed and neglected to conclude the administration of the estate expeditiously by distributing the assets to the persons entitled in a timely manner for the stated reason that they could not do so for so long as the cohabitation agreement remained in force, when they knew or ought to have known that it was void or voidable (paragraph 27); · In breach of their duties as directors of Leerac (said to be owed to the children as prospective beneficiaries of the inter vivos settlements), have failed and neglected to give effect to a determination said to have been made in about 2002 that it was in the best interests of the beneficiaries that they should exercise their powers to wind up the Fay group of companies and distribute their capital and accumulated income to the beneficiaries, permitting the subsistence of the cohabitation agreement to constitute an impediment without justification and failing and neglecting to negotiate any compromise with Mrs Tripp (paragraph 27A); and · In breach of their duty as executors and trustees of the will to act expeditiously in concluding the administration of the estate, have failed and neglected to give due consideration to the exercise of their power as trustees of the clause 3 will trust to vest that trust and transfer Mr Fay's shares in Leerac to such of the beneficiaries as they should determine (paragraph 27AA). 31 In order to evaluate whether the defendants' performance in their office against those allegations, it is necessary first to appreciate what are the rights of potential beneficiaries and the duties of trustees of discretionary trusts such as those involved in this case. It often seemed implicit in the plaintiffs' case that the children had some right or legitimate expectation to have the vesting of the inter vivos settlements accelerated, and the capital distributed equally between them. That, of course, does not reflect the law. A "discretionary trust" – such as those in question here – is a trust coupled with a special power of appointment: the beneficiaries are not determined at the moment of creation of the trust – either as to identity or quantum of interest – and the choice of beneficiary, or determination of the extent of his or her interest, or both, is left to the trustee to decide [Jacob's Law of Trusts in Australia, 5th ed, 736 [2916]]. In FCT v Vegners (1989) 90 ALR 547, Gummow J wrote (at 551-2): There was some discussion by counsel of the term "discretionary trust" and related terms. A fixed trust is used to describe a species of express trust where all the beneficiaries are ascertainable and their beneficial interest are fixed, there being no discretion in the trustee or any other person to vary the group of beneficiaries or the quantum of their interests. The expression "discretionary trust" is used to identify another species of express trust, one where the entitlement of beneficiaries to income, or to corpus, or both, is not immediately ascertainable. Rather, the beneficiaries are selected from a nominated class by the trustee or some other person and this power may be exercisable once or from time to time. The power of selection is a special or hybrid power; a power exercisable in favour of any person including the donee of the power would be a general power and thus would be tantamount to ownership of the property concerned, whilst the objects of a special power would be limited to some class, and the objects of a hybrid power would be such that the donee might appoint to anyone except designated classes or groups. 32 Thus a discretionary trust does not have beneficiaries in the traditional sense, whose interests together aggregate the beneficial ownership of the trust property. Instead, there is a class of persons, usually described in wide terms, who are the objects of a power to appoint either income or corpus or both to selected members of the class. The members of the class are objects of a power, rather than beneficiaries in the strict sense. They do not have a proprietary legal or equitable interest in the trust fund [Re Smith [1928] Ch 915; Gartside v IRC [1968] AC 553; Jacob's Law of Trusts in Australia, 5th ed, 649 [2315]]. They have no beneficial interest in the trust property, and they are not persons for whose benefit the trust property is held by the trustee; at the highest they are members of a class of persons for the benefit of some one or more of whom the trustee may in due course hold property if it so determines. At best, they are potential beneficiaries, not beneficiaries. In terms accepted recently by French CJ, no object of such a trust has any fixed or vested entitlement, and the trustee is not obliged to distribute to anyone; the default distribution gives the default beneficiary no more than a contingent remainder [Kennon v Spry (2008) 83 ALJR 145, [60], [62]]. In the words of Gummow and Hayne JJ in the same case, the word "beneficiary" is inapt insofar as it suggests the existence of any beneficial interest; such a person is "an eligible object" of the trust [Kennon v Spry, [125]]. 33 However, such an eligible object or potential beneficiary is not entirely without rights in respect of the trust and trustees: he or she has a right in equity to due administration of the trust, and the trustees have a corresponding fiduciary obligation at least to consider whether, and in what way, to exercise their discretionary powers of appointment [Re Smith; Sainsbury v IRC [1970] Ch 712, 715; Jacob's Law of Trusts in Australia, 5th ed, 649 [2315]; McPhail v Doulton [1971] ACV 424, 456 (Lord Wilberforce); Kennon v Spry, [77], [78] (French CJ), [125] (Gummow and Hayne JJ)]. This right and correlative duty provided the foundation of the plaintiffs' case, that the defendants owed them a fiduciary obligation to give real and genuine consideration to the exercise of the discretion to accelerate the vesting date of the clause 3 will trust, and that Leerac had a similar obligation to give consideration to the acceleration of the vesting date of the inter vivos settlements. 34 In Lutheran Church of Australia South Australia District Inc v Farmers Co-operative Executives and Trustees Limited (1970) 121 CLR 628, Windeyer J said (at 652): A discretionary power, given to a trustee as such, to act or not to act in a specified manner imposes a duty on the trustee at least consider the matter and decide deliberately whether to exercise the power. Lord Reid recently said, in Re Gulbenkian's Settlement [1970] AC 508 at 518 'A settlor or testator who entrusts a power to his trustees must be reliant on them in their fiduciary capacity so that they cannot simply put aside the power and refuse to consider whether it ought in their judgment be exercised'. If it is a mere power, the Court cannot dictate to the trustees whether it should be exercised or not exercised. That discretion is committed to them. But, even in that case, the Court is not entirely unconcerned; for if trustees having a purely discretionary power refuse to consider whether and now they will exercise their discretion, then the Court will remove them and substitute new trustees – who will have the same discretion but who, it is hoped, will not be recalcitrant. That would not be a usurpation by the Court of the discretion given to trustees. It would be merely a means of accomplishes its exercise one way or another by dutiful trustees: Inland Revenue Commissioners v Portway Colleges Trust [1955] Ch 20 at 35. 35 In Re Hay's Settlement Trusts [1981] 3 All ER 786, Sir Robert Megarry VC said (at 792): That brings me to the second point, namely, the extent of the fiduciary obligations of trustees who have a mere power vested in them, and how far the Court exercises control over them in relation to that power. In the case of a trust, of course, the trustee is bound to execute it, and if he does not, the Court will see its execution. A mere power is very different. Normally the trustee is not bound to exercise it, and the Court will not compel him to do so. That, however, does not mean that he can simply fold his hands and ignore it, for normally he must from time to time consider whether or not to exercise the power, and the Court may direct him to do this. So where he does exercise the power, he must, of course (as in the case of all trusts and powers) confine himself to what is authorised, and not go beyond it. But that is not the only restriction. Whereas a person who is not in the fiduciary position is free to exercise the power in any way that he wishes, unhampered by any fiduciary duties, a trustee to whom, as such, a power is given is bound by the duties of his office in exercising that power to do so in a responsible manner according to its purpose. It is not enough for him to refrain from acting capriciously; he must do more. He must 'make such a survey of the range of objects or possible beneficiaries' as will enable him to carry out his fiduciary duty. He must find out 'the permissible area of selection and then consider responsibly, in individual cases, whether a contemplated beneficiary was within the power and whether, in relation to the possible claimants, a particular grant was appropriate': per Lord Wilberforce in Re Baden (No 1) [1970] 2 All ER 228 at 240, 247, [1971] AC 424 at 449, 457. I pause there. The summary of the law that I have set out above is taken from a variety of sources, principally Re Gestetner (deceased) [1953] 1 All ER 1150, [1953] Ch 672, Re Gulbenkian's Settlement [1968] 3 All ER 785 at 787, 592–594, [1970] AC 508 at 518, 524–525 and Re Baden (No 1) [1970] 2 All ER 228 at 246, [1971] AC 424 at 456. 36 Later, his Lordship continued (at 793): If I am right in these views, the duties of a trustee which are specific to a mere power seem to be threefold. Apart from the obvious duty of obeying the trust instrument, and in particular of making no appointment that is not authorised by it, the trustee must, first, consider periodically whether or not he should exercise the power; second, consider the range of objects; and third, consider the appropriateness of individual appointments. In Re Gestetner's Settlement [1953] Ch 672, Harman J said (at 688), of a discretionary power of distribution, that the trustees were bound "to consider at all times during which the trust is to continue whether or no to distribute any and if so what part of the fund, and, if so, to whom they should distribute it. 37 In a passage much relied upon by the plaintiffs, McGarvie J in Karger v Paul [1984] VR 161, described the obligation in the following terms (at 164): I regard it as an inherent requirement of the exercise of any discretion that it be given real and genuine consideration. To borrow a phrase from passage quoted in Partridge v The Equity Trustees Executors and Agency Co Ltd (1947) 75 CLR 149, at p 164, there must be the 'exercise of an active discretion'. It has been held that when the occasion for the exercise of a discretionary power has arisen, trustees, while not bound to exercise the discretion, are bound to consider whether it ought in their judgment to be exercised: Klug v Klug [1918] 2 Ch 67; In re Gulbenkian's Settlement [1970] AC 508 at p 518. I think that it goes without saying that they must give real and genuine consideration. It seems to me that it is in this sense only that the Court can examine whether the trustees gave 'proper' consideration to the exercise of the discretion. 38 However, if trustees give real and genuine consideration to the exercise of such discretions, their decisions can be impugned only on very limited grounds. As the High Court said in Attorney General (Cth) v Breckler (1999) 197 CLR 83 (at [7]), approving a statement of Northrop J at first instance and subsequently adopted by Heerey J in Wilkinson v Clerical Administrative and Related Employees Superannuation Pty Ltd (1998) 79 FCR 469 (at 480): Where a trustee exercises a discretion, it may be impugned on a number of different bases such as that it was exercised in bad faith, arbitrarily, capriciously [ In re Pauling's Settlement Trust [1964] Ch 303 at 333], wantonly, irresponsibly [ Lutheran Church of Australia South Australia District Inc v Farmers Co-operative Executives and Trustees Limited (1970) 121 CLR 628 at 639], mischievously or irrelevantly to any sensible expectation of the settlor [ In re Manisty's Settlement [1974] Ch 17], or without giving a real or genuine consideration to the exercise of the discretion [ Karger v Paul [1984] VR 161, which incudes a survey of the authorities]. The exercise of a discretion by trustees cannot of course be impugned upon the basis that their decision was unfair or unreasonable [see Dundee General Hospital's Board of Management v Walker [1952] 1 All ER 896] or unwise [ Gisborne v Gisborne (1877) 2 App Cas 300 at 307]. 39 Indeed, where a discretion is expressed to be absolute (or uncontrolled), as is the case in the clause 3 will trust, not only can its exercise not be impugned on the ground that the trustee's decision was unfair, unreasonable or unwise; additionally, bad faith may have to be shown [Attorney General (Cth) v Breckler, [7]]. Of particular relevance in this case, a refusal by trustees for no corrupt motive to exercise a purely discretionary power is no reason for removing them. In Lee v Young, under a marriage settlement the trustees had power, with the consent of the husband and wife or their survivor, to vary the securities by selling the settled stock and investing it in land, including leaseholds. The husband died, and the wife remarried; she and her second husband, desirous of increasing her income under the settlement, asked the trustees to exercise their discretion to invest part of the trust fund in purchasing certain leaseholds; although one of the trustees was content to do so, the other refused. The wife and her second husband brought proceedings for removal and replacement of the trustees. Knight-Bruce VC dismissed their application. Having pointed out that while such investment might increase the income of the plaintiffs during the second husband's life, it would diminish the available capital upon his death, his Lordship continued: One of these trustees, whether he has given a perfectly good reason or not – whether he has given every reason that he might or not – has thought fit to object to the proposed investment. I cannot say that he has not a right to object, or that there do not exist reasons which may justify him in objecting; and when I see that the language of the power has nothing in it imperative, that it does not contain any expression to the effect that the trustees are "required" to exercise it, and that there are other powers in this settlement which leave less to the discretion of the trustees than this clause, I am of opinion that this is a discretionary power; that the discretion has not been corruptly exercised; and that it has been exercised, whether for perfectly good reasons or not, whether for reasons that wholly appear or not, in a manner which the Court cannot say is improper, or upon unreasonable grounds. I therefore cannot interfere. 40 Accordingly, the defendants had and have a fiduciary obligation to give real and genuine consideration from time to time to the exercise of the discretion to accelerate the vesting date of the clause 3 will trust, and Leerac had and has a similar obligation to give consideration to the acceleration of the vesting date of the inter vivos settlements. But if they give such consideration, it is not a ground for their removal that they have not exercised their discretion in the manner which the plaintiffs would wish. 41 Against that background, I turn to the relevant facts. 42 Prior to his death, on 3 March 1998, Mr Fay wrote a letter to the defendants, relevantly as follows: Gentlemen, I am writing this letter to confirm my wishes in respect of all matters relating to the Group's accounts, finances and Company structures. I confirm my instructions that these are not to be disclosed or discussed with members of the family upon my demise. I am confident that the decisions you make will be in their best interests. 43 Then, on 3 April 1998, Mr Fay wrote a letter to his children, relevantly as follows: I believe that my current state of health has concerned you and also as to what arrangements I have put in place for the future of the Claude Fay Group and its day to day running. Henry and I have attended to the running of the business over many hears and have gradually streamlined the operation since the sale of the cellars and the liquor wholesale department in July, 1981 and the Hotel Hornsby in May, 1985. The Group has made good use of its financial resources from the sales. A balanced investment portfolio that includes properties, shares in public companies, mortgages, etc. has been created. I maintain a board of directors to constantly oversee the operation. The board members are Allan Kwok, Henry Au, Hugh Halliday and Steve Pollitt. They are also trustees of family trusts and of my estate. A formal board meeting is held monthly. The auditors of the companies are Messrs. Powell Kwok Baker & Co. Henry has worked very well with me for over 25 years. We have developed a common business approach which we shared with Bill Smith. Over the years I have indicated to Henry my intentions that he will remain in his position and continue his responsibilities upon my retirement and my demise. I have no doubt of his loyalty. I am aware of his commitment that he continue to contribute in the best interests of myself and my family until his retirement at 65 or later if he agrees. Henry is a major part of the strong management team I have selected all of whom have approved of these words. I appreciate your concern over my business affairs which is understandable. I assure you that the business will be well cared for as a going concern on my demise which I have taken into account. Whatever I have done I have always had your best interest at heart. 44 Mr Fay had expressed to Mr Pollitt the wish that after his death, Moramba Services be run separately from his estate, and that he did not want the children involved in the business of the companies. He had also expressed to Mr Halliday a wish that the companies continue in operation, at the defendants' discretion, for five to ten years after finalisation of the estate, to enable the defendants to see how the children handled the moneys received from the estate, and that he did not want the discretionary trust immediately wound up, but continued with a view to orderly distribution to such of the beneficiaries as were seen fit at the appropriate time. 45 Following Mr Fay's death on 11 November 1998, there were meetings between the children and the executors, initially on 19 December 1998. Thereafter, the children and the executors met quite regularly, until 7 November 2005. 46 Probate of the will was granted to the defendants on 19 March 1999. Until June 1999, the defendant, consistent with the position that obtained before Mr Fay's death, caused payments under the cohabitation agreement to be made by Moramba Services but debited to Mr Fay's loan account. From 1 July 1999, they caused such payments to be made by the estate on the basis that they were personal obligations of Mr Fay and not corporate obligations of Moramba Services. 47 By March or April of 2000, the children were making inquiries, progressing to complaints, about the time being taken to finalise the estate and the trusts. By early 2000, the defendants were considering options for finalising the obligations of Moramba Services and the estate to Mrs Tripp under the cohabitation agreement. In April 2000, the defendants sought and obtained advice from Mr Walton SC in respect of the cohabitation agreement, who initially advised that it was binding. 48 At a meeting on 30 May 2000, the defendants communicated to the children that the trusts gave the defendants discretion to distribute money as and when they thought fit; that there was no fixed date for the winding up of the trusts; that they were mindful of the needs of the beneficiaries, but any winding up was subject to the resolution of the obligations to Mrs Tripp, subject to which they would expect the trusts to be wound up within the next seven years. On 22 June 2000, the defendants' then solicitors informed the children that it should be possible to wind up the estate shortly after the sale of Mr Fay's former home in Spit Road, and that – subject to resolving issues pertaining to the cohabitation agreement – it was expected that the trusts may be wound up sooner than Mr Fay had expected of the defendants. 49 At a meeting on 30 November 2000, Garrick asked when the trust would be wound up; he was advised that the estate would be finalised first, and then it was at the defendants' discretion as to when the trust (presumably a reference to the clause 3 will trust) would be wound up. 50 The defendants sought taxation advice from Mr Rodney Rosenblum, an eminent taxation lawyer. He raised some further queries about the enforceability of the cohabitation agreement. Ultimately, after some advice had been obtained in conference from Mr Grieve QC, on 21 March 2001, Mr Walton SC gave a supplementary advice, that it was reasonably arguable that Mr Fay was liable to reimburse Moramba Services for payments under the cohabitation agreement, and that the cohabitation agreement may not be enforceable against Moramba Services. 51 At a meeting on 31 May 2001, the children assented to the view that provided that the estate no longer made the payments to Mrs tripp, they were content for Moramba Services to do so. The children also expressed the view that irrespective of the legal issues, there was a moral obligation to honour their father's wishes to make provision for Mrs Tripp; and that they preferred that Mr Fay's relationship with Mrs Tripp not be aired in court. They also acknowledged the possibility that if the cohabitation agreement were challenged, Mrs Tripp might make a Family Provision application. 52 In about August 2001, at a meeting with the children's then solicitor, the defendants agreed to obtain advice from counsel regarding the legal and taxation consequences of the cohabitation agreement. On 4 December 2001, Mr Edmonds SC advised the defendants that payments by Moramba Services to Mrs Tripp would not be deemed dividends in her hands, but might be regarded as income in which case Moramba Services would have to "gross up" the payments; he suggested that Moramba Services seek to commute the liability with a lump sum payment. 53 Following a meeting between the children and the defendants and their respective solicitors Mr Ford and Mr Jones on 29 January 2002, on 30 January Mr Ford wrote to Mr Jones requesting a substantial interim distribution in the near future, a final distribution as soon as possible, cessation of reimbursement by the estate of payments by Moramba Services under the cohabitation agreement, and the refund of all moneys so reimbursed since Mr Fay's death. This led to the reimbursement to the estate of $177,716, and the execution of the deeds of indemnity to which reference shall later be made. 54 On 2 July 2002, the defendants' solicitors informed the children's solicitors that the defendants were "working towards the winding up of the trusts", but emphasised that any distribution was entirely within the discretion of the defendants. On 15 August, the defendants in their capacity as directors of Moramba Services received advice from their own solicitors as to possible courses of action for resolving the obligations to Mrs Tripp – commuting the payments to a lump sum, or purchasing an annuity to cover them; transferring the unit to the children subject to a life estate for Mrs Tripp; and transferring the car to her, together with a lump sum for associated expenses. On 8 October 2002, Mr Rosenblum obtained ATO Tax Rulings relating to the winding up of the Moramba Group and the inter vivos settlements. 55 On 12 December 2002, the 16 Hunter Street property owned by Moramba Services was sold at auction for $5.36 million; the sale was completed in March 2003. By 31 January 2003, Garrick Fay was negotiating for the purchase of a property at Moss Vale. On 21 March 2003, Lisa Fay entered into a contract to purchase the Moss Vale property with a due completion date of 30 June 2003. By 23 April, Garrick Fay had informed Mr Pollitt that he had committed to the purchase of the Moss Vale property on the basis that he was hoping to receive money from the winding up of Moramba Services, and that he understood that he would have to meet interest payments on the loan from his distributions. On 23 April, he wrote to the directors of Moramba Holdings, requesting to borrow $1.1 million to enable his wife to settle the purchase no later than 30 June 2003, comprising $981,186.50 to complete the purchase, and $118,013.50 to develop the property. His letter proposed a term of 12 months, with provision for early discharge in the event of a distribution from proceeds of any distribution from or winding up of Moramba Services and the estate. The letter stated that the contract was originally entered into on the basis of an expectation of a distribution from the sale of the Hornsby property. On 2 July 2003, Moramba Services lent Garrick and Lisa Fay $800,000, secured by mortgage on the Moss Vale property and repayable on 1 July 2004 with two instalments of interest of $25,200 each at 6.3 percent per annum. 56 On 28 July 2003, Philip Penman, the solicitor then acting for the children, wrote to Bartier Perry, for the defendants, requesting information regarding the proposed finalisation of matters relating to the estate and the cohabitation agreement, suggesting that it may be necessary to discuss any proposals the defendants have with Mrs Tripp and her advisers, and stating that an area of major concern to the children was the likely impact of taxation flowing from whatever course of action might be adopted to finalise the Moramba Group. Bartier Perry replied on 19 August, agreeing that it was necessary to discuss any proposals with Mrs Tripp and her advisers, attaching a document summarising the various options under consideration, and confirming that the defendants wished to finalise matters relating to the trusts and the estate as soon as practicable. 57 Following a meeting between the defendants, the children and Mr Penman on 26 August 2003, Mr Penman reported to his client Dallas the following day, mentioning that the defendants had obtained a favourable tax ruling; that there could be a tax saving of between $2m and $3m if a members voluntary winding up could be effected; addressing the best method of dealing with the Mrs Tripp issue; and reporting that while the defendants did not exclude any private or separate representations based on special circumstances, their preference was to make four even distributions to each child in the most tax effective manner. 58 On 29 August 2003, Mr Halliday wrote to Mrs Tripp to open negotiations about alternative arrangements which would allow Moramba services to be wound up, on the basis of arrangements satisfactory to Mrs Tripp but allowing the balance of the company's assets to be distributed to the children. 59 In a letter written on behalf of the children to the defendants on 1 September 2003, Sioned acknowledged that liquidation of Moramba Services was dependent, inter alia, upon Mrs Tripp's agreement to modify existing arrangements. On 17 December 2003, Bartier Perry reported to the defendants that Mr Ford, then acting for Sioned, Louisa and Dallas, had indicated that the children would prefer to leave matters with Mrs Tripp as they are, with the directors of Moramba setting aside sufficient to cover the obligations to her and distributing the balance. On 23 December, Mr Penman for Garrick confirmed that Garrick remained supportive of any efforts to wind up the companies in a tax effective manner, ensuring that satisfactory arrangements were made for Mrs Tripp. On 4 February 2004, Mr Ford confirmed that Louisa, Sioned and Dallas wished to leave the position with Mrs Tripp as it was. 60 On 13 May 2004, Moramba Services' property in Avenue Road, Mosman was sold at auction for $3.625 million. The sale was settled on 24 June 2004. This was the last significant asset of Moramba Services to be realised (other than the Connaught unit). 61 On 23 May 2004, Garrick requested further financial assistance from the defendants, in the amount of $99,700. By letter dated 4 June 2004, the defendants agreed to increase the principal sum of the mortgage to $951,300. This was implemented by variation of mortgage dated 25 June 2004. 62 On 8 June 2004, the defendants sought advice from Mr Rosenblum as to the taxation consequences of distributions payable on the winding up of the Moramba companies and the trusts; he provided advice on 21 June. On 23 June, the children wrote to the defendants with comments on four proposals relating to Mrs Tripp that had been discussed at their meeting with the defendants on 16 June. On 31 August 2004, Bartier Perry wrote to Hunt & Hunt (for Mrs Tripp), outlining their latest proposal for a new arrangement. Hunt & Hunt responded on 29 October, seeking an indication of the benefit to the children from securing agreement with Mrs Tripp in order to enable them to assess "a proper level of fairness", and foreshadowing that their client would give the release sought to enable Moramba Services to be wound up in return for a "significantly improved offer". 63 On 18 February 2005, the defendants sought further advice from Mr Rosenblum in respect of the winding-up of the Moramba Group. In May 2005, Mr Rosenblum advised that if Moramba Services were wound up during Mrs Tripp's lifetime, she would face a significant capital gains tax liability and would likely require an indemnity from Moramba Services. At a meeting of the defendants as directors of Moramba services on 31 May 2005, Mr Halliday reported that he had spoken to Mr Rosenblum, whose advice was that to distribute the proceeds of the realisation of the assets of the Moramba Group in the most tax effective manner, it was necessary to wind up the group so that there could be a return of capital, ultimately to Leerac; but that such a winding up may cause Mrs Tripp to incur a significant capital gains tax liability for which she would likely require an indemnity from Moramba Services. On 21 June 2005, at a meeting with the defendants and the children, Mr Rosenblum confirmed that advice. As a result, the defendants decided that it was not in the best interests of the beneficiaries of the inter vivos settlements to conclude an alternative arrangement with Mrs Tripp and wind up the Moramba companies. On 28 June, Bartier Perry wrote to Hunt & Hunt stating that the defendants had decided that it was not appropriate to proceed any further with changes to the existing arrangements. 64 By letter from his then solicitor Phillip Penman dated 29 July 2005, to the solicitors for the defendants, Garrick requested that advances be made to the four children, while retaining sufficient liquidity and assets to maintain the obligations to Mrs Tripp. A number of alternative courses were proposed. The letter asserted that Garrick had acted on the basis of assurances that the voluntary liquidation of the Moramba companies was imminent in the foreseeable future. On 26 October, the defendants' solicitors responded, noting that the directors had asked them to point out "that at no time did they give any assurances as to the time of a voluntary liquidation, as it was always subject to satisfactory solutions being put in place relating to the winding up of the companies". On 7 November 2005, at a meeting of the defendants and the children with Mr Rosenblum, options in relation to the liquidation of the group and the arrangements with Mrs Tripp were discussed; none of the alternatives suggested by Mr Rosenblum was considered acceptable by the children. Subsequently, the defendants decided to invest the capital of Moramba services with external investment advisers with a view to distributing income by way of franked dividends until Moramba Services could be wound up following the death of Mrs Tripp. 65 On 9 December 2005, Garrick sought a further advance of $75,000 from Moramba Services. Moramba Services offered to lend a further $80,000, provided that the Moss Vale property was put on the market for sale by 30 June 2006. That letter did not receive a response, and the offer was not accepted. By letter of 9 January 2006, Blessington Judd (for the plaintiffs) informed the defendants that senior counsel had advised that the cohabitation agreement was unenforceable, and requested them to cause Moramba Services to bring proceedings for a declaration to that effect. By letter dated 20 February 2006 from Blessington Judd to Carroll & O'Dea (for the defendants), the plaintiffs requested that the defendants retire. By a further letter from Blessington Judd dated 28 April 2006, the plaintiffs demanded that the defendants retire within fourteen days. The main proceedings, for removal of the defendants, were instituted by Statement of Claim filed on 26 September 2006. Following service by Moramba Services of s 57(2)(b) notices on 15 May 2007, Garrick instituted the mortgage proceedings on 27 June 2007. 66 Mr Fay's assets, as at the date of his death, were estimated by the defendants for probate purposes to amount to some $11,428,237, including real property, jewellery and other personal assets, loans due from Leerac as the trustee of the various Barnes Settlements and Lorraine Settlements, Moramba Services, Dallas Fay and Garrick Fay; shares in Leerac and Moramba Holdings and variously publicly listed companies. The last major asset of the estate, Mr Fay's home in Upper Spit Road, Mosman, was sold in May 2001 for $6.1 million. Equal distributions have been made to each child from the estate as follows: · $50,000 each on 29 June 2000, was distributed from the estate to each child. · $425,000 each in October 2001, following the sale of Mr Fay's former home in May 2001; · $350,000 each on 14 May 2002; · $70,000 each on 2 September 2002; · $25,000 each on 3 March 2004. 67 By 30 June 2004, the assets of the Moramba Group had been realised, except for the Connaught unit in which Mrs Tripp resided. As at 30 June 2006, Moramba Services had assets of about $8.127 million (including $5,530,000 in bank-accepted commercial bills, $1,251,304 in secured loans, $378,633 shares in other companies, cash of $270,807, and the Connaught unit worth $678,473 at cost). It had liabilities of $6,732,475, including $6,647,306 due to Moramba Holdings. Equal distributions have been made to each of the four children from the inter vivos settlements, as follows: · $2,000 each in December 1998; · $1,000 to each child in June 1999; · $7,000 each in November 1999; · $8,000 each in April 2000; · $10,000 each in October 2000; · $15,000 each in April 2001; · $25,000 each in October 2001; · $200,000 each in April 2002; · $35,000 each in November 2002; · $300,000 each in July 2003; · $75,000 each in December 2003; · $50,000 each in November 2004; · $50,000 each in July 2005; · $25,000 each in December 2005; · $55,000 each in July 2006; and · $37,500 each in December 2006. 68 On 29 August 2007, the defendants filed a defence asserting that by commencing the proceedings the plaintiffs had disqualified themselves as beneficiaries under the inter vivos settlements, under the "non-contest" clause. On 14 January 2008, the plaintiffs' solicitors requested that the defendants consider making a distribution. In and following January 2008, the defendants resumed consideration of possible arrangements with Mrs Tripp to enable final distributions to be made in the most tax effective manner. On 1 April 2008, the defendants' solicitors informed the plaintiffs' solicitors that further distributions to them would not be made until the effect of the non-contest clause had been determined in the proceedings. In fact, the defendants did not cause Moramba Services to declare a dividend, with the result that no income flowed to Leerac, and there was no need for Leerac to make any decision to distribute income, which might otherwise have required the defendants to decide whether or not to invoke the non-contest clause. 69 Upon this factual background, the plaintiffs mounted arguments which were elaborated in their submissions to the following effect: · The estate could and should have been administered and wholly distributed years ago. Although in theory the trust could subsist for many years, Mr Fay intended or desired that it (and the inter vivos settlements) should be brought to an end "within five to ten years after the estate is finalised", and the plaintiffs are now of comparatively advanced years, in poor health, and in circumstances of financial need; · By 2002, the defendants as directors of Leerac had determined to realise the assets of the Fay group of companies and vest the inter vivos settlements, by distributing the proceeds to the siblings equally; but since then, for no good or sufficient reason, they have failed to give proper consideration to the exercise of Leerac's power to accelerate the vesting (in whole or in part) of the assets of the inter vivos settlements, and/or as trustees of the clause 3 will trust to give proper consideration to the exercise of their power to accelerate the vesting of that trust and the transfer of the Leerac shares to the children; · At least until relatively recently, this appears to have been attributable primarily to the view that the cohabitation agreement was an insuperable obstacle, when it ought not have been. The defendants failed to perceive that the desired result could be obtained by having Moramba Services repay its indebtedness to Moramba Holdings, Moramba Holdings and Windsmead then wound up and their assets or their proceeds (including Moramba Holding's shares in Moramba Services) returned to Leerac and (except for the shares in Moramba Services) distributed to the children equally, with the shareholding in Moramba Services retained on the footing that that company would continue to hold the Connaught apartment and the balance of shareholders' funds as a fund sufficient to meet its obligations under the cohabitation agreement. Since that possibility was presented in the course of the hearing, the defendants have advanced no cogent reason against its adoption, but have not committed to its implementation; · Unless removed, the defendants will continue to do nothing before Mrs Tripp's demise to give effect to their 2002 decision to wind up the inter vivos settlements; · All this shows them to be guilty of a substantial and continuing failure to cause Leerac to act in the interests of the potential beneficiaries of the inter vivos settlements. 70 The plaintiffs' initial proposition was encapsulated in the oft-repeated assertion that the estate (which, in this context, must be intended to include at least the clause 3 will trust) "could and should have been administered and wholly distributed years ago". It is beside the point whether it could have been so administered, unless it should have been so administered. While there is evidence that Mr Fay contemplated that the testamentary trust and the inter vivos settlements might be brought to an end within five to ten years after finalisation of his estate, the legal structure he created provided for those trusts to last until the specified vesting dates, unless accelerated. In any event, Mr Fay's expressed wish was not so much that the trusts be wound up within five to ten years, but that they be continued at least for that period, in order to inform a wise exercise of discretion by the defendants after that time, not necessarily one to vest the trusts there and then, nor necessarily to do so equally. While the defendants would be entitled to have regard to wishes expressed by Mr Fay as settlor, they were and are not obliged to act in accordance with them. They are under no obligation to bring the trusts to an end "within five to ten years after the estate is finalised", and, at least so long as from time to time they give consideration to the exercise of their discretion to accelerate the vesting date, are entitled to continue the trusts until they vest in accordance with their terms. The plaintiffs may be of comparatively advanced years and in circumstances of need, but they are not the only persons to be considered: they are but two of the class of eligible beneficiaries, and the defendants were and are not bound to have regard to the circumstances of the children – let alone Garrick and Dallas alone – to the exclusion of other potential beneficiaries. Their circumstances do not entitle them to have the defendants' discretion exercised in their favour. The proposition that there was some obligation on the defendants to accelerate the vesting of the clause 3 will trust – which was prima facie to endure for 80 years – or the inter vivos settlements, is simply wrong. 71 The defendants were, however, bound to give real and genuine consideration to accelerating the vesting date of the Leerac shares under clause 3 will trust. The allegation that they have not done so was formulated by a late amendment, in response to which each of the defendants gave evidence that he had given consideration to accelerating the vesting of the clause 3 will trust, and had decided not to do so pending the winding up of the Moramba Group and the inter vivos settlements – essentially because it was considered not in the best interests of the beneficiaries to transfer control of the trustee to the children at least until the inter vivos settlements and related companies were wound up, and it had been the wish of Mr Fay that the defendants (and not the children) continue to manage the affairs of the Moramba companies after his death; to vest the Leerac shares while the Moramba companies and inter vivos settlements remained in operation would be contrary to those wishes. That evidence was not the subject of challenge; instead, the plaintiffs submitted that the defendants had failed to determine, pursuant to clause 3(ii) of the will, to whom and in what proportion the Leerac shares should in due course be transferred on the vesting day, whenever it might arrive. But there is no obligation to make any such decision until the vesting day. Moreover, any such decision should be informed by the circumstances as they exist at or close to the time of vesting, and not long beforehand. Conceivably, one or more of the children might no longer be alive, or might be in the midst of matrimonial litigation, upon the vesting day when it is appointed. It would be imprudent to decide, until the vesting day is imminent, in which beneficiaries and in what proportions the Leerac shares should be vested. The allegation that the defendants have not given real and genuine consideration to accelerating the vesting of the clause 3 will trust fails: they have given consideration to it, but have decided not to do while the Moramba group and the inter vivos trusts continue in operation. 72 From that, the plaintiffs' ground moved to the proposition that the defendants (qua directors of Leerac) were bound to but did not give real and genuine consideration to accelerating the vesting date of the inter vivos settlements. However, it is manifest that the defendants (qua directors of Leerac) plainly did give consideration to accelerating the vesting of the inter vivos settlements. The correspondence, the advice sought and obtained, and the meetings which took place manifestly show that Leerac's directors gave the question anxious and earnest consideration and took legal and taxation advice in respect of it. Not only did they themselves give consideration to the matter: in addition, they sought and obtained expert legal and taxation advice as to the implications of doing so, they consulted with the children and the children's advisers, and they opened negotiations with Mrs Tripp to endeavour to facilitate that course. The defendants favoured acceleration of distribution of capital, if it could achieve a tax-effective distribution, but they were alert to the need to resolve the impediment apparently posed by Moramba Services' ongoing obligations under the cohabitation agreement. From 2000 onwards, Leerac gave careful consideration, with the benefit of legal and taxation advice, as to how it could make provision for the obligations owed to Ms Tripp. This included consideration of various plans that might be implemented during her lifetime, none of which ultimately were considered appropriate by the defendants. The case that Leerac did not give real and genuine consideration to the winding up of the inter vivos settlements cannot be sustained. 73 In reality, the plaintiffs' complaint is that having given consideration to the exercise of the relevant discretion, they have chosen not at this stage to exercise it, for insufficient reasons. As Lee v Young illustrates, even if their reasons were insufficient, that would not justify their removal. However, their reasons included: · First, the defendants as directors of Leerac considered it to be in the best interests of the beneficiaries and in accordance with the wishes of Mr Fay to manage the inter vivos settlements consistently with the manner in which they had been administered during his lifetime, and therefore not move immediately to wind them up but await completion of the administration of the estate; · Secondly, the defendants as directors of Moramba Services had received taxation advice from Mr Rosenblum that any method of distributing its assets to beneficiaries other than by a return of capital to shareholders on a winding up risked incurring a substantial additional taxation liability, and that to vest the assets in a tax effective manner required progressively the winding up of Moramba Services, Moramba Holdings and Windsmead, and the return of capital to shareholders. · Thirdly, Moramba Services owed obligations to Mrs Tripp under the cohabitation agreement, which continued for her lifetime. The defendants as directors of Leerac and Moramba Services were advised that by reason of those obligations, Moramba Services could not be wound up without making alternative arrangements acceptable to Mrs Tripp, and that so long as she wished to continue to occupy the Connaught unit as a tenant of Moramba Services there was no realistic scheme which would allow Moramba Services to be wound up. Moreover, Mrs Tripp had made unacceptable demands in negotiations for alternative arrangements – a view which the children shared – so it was not possible to conclude alternative arrangements with her. Further, the defendants as directors of Moramba Services had received taxation advice from Mr Rosenblum that paying out Mrs Tripp's rights was likely to result in her incurring a capital gains tax liability, for which she would seek indemnity from Moramba Services. · Fourthly, they discussed the various options for dealing with Mrs Tripp with the children who, until 2005, were in unanimous agreement that the cohabitation agreement should be left on foot, and that Ms Tripp was asking too much for its variation or release. 74 The scheme now proposed by the plaintiffs – involving Moramba Services repaying the loan to Moramba Holdings but retaining sufficient assets to meet its obligations under the cohabitation agreement, the winding up of Moramba Holdings and the return of capital to Leerac for distribution to beneficiaries – is a new one, not previously identified by the defendants or the plaintiffs and first suggested in cross-examination of Mr Halliday during the hearing. That, during the course of the hearing, a new and different means of achieving an accelerated distribution, which appears feasible, has emerged, does not mean that Leerac did not in the past give due consideration to the exercise of its relevant discretionary powers. 75 The plaintiffs characterised the defendants' failure to perceive this means as a failure to place themselves in a position to exercise their duty to consider whether or not the trust should vest, and submitted that while the defendants may have given consideration to their ability to bring about a situation which would enable them to consider exercising the discretion to accelerate the vesting date, the fact that they ultimately concluded that they could not bring about that situation did not discharge their duty. I reject this submission. The defendants plainly considered and explored the possibility of accelerating the vesting of the inter vivos settlements between 2002 and 2005 (indeed, the plaintiffs seize on this as a "decision in principle"). It was their preference to do so. However, there were legal and taxation issues arising from the cohabitation agreement that posed impediments to that course. For that reason, the defendants did not exercise Leerac's discretion to accelerate the vesting date at that stage. That was a decision within their remit, and one not open to review by the Court. Potential beneficiaries are not entitled to have trustees removed because the trustees do not exercise a discretion in favour of that beneficiary. The defendants were entirely entitled to determine, having given the matter due consideration, not to accelerate the vesting date, at least at this stage. The reasonableness or fairness of that decision is not open to review, and they are not liable to be removed on account of having made a decision with which the plaintiffs disagree. 76 The plaintiffs submitted that the making of the loan to Garrick and Lisa to fund their acquisition of the Moss Vale property accentuated the requirement for the defendants to give proper consideration to an early distribution of capital in order to fund its repayment. Even if it might be considered a reason for favouring an early distribution, it does not follow that the defendants were obliged to exercise their discretion to accelerate the vesting date. 77 Having abandoned their claim in the mortgage proceedings, the plaintiffs did not contend that any promise or representation bound the defendants to exercise their discretion to accelerate. In any event, the evidence does not support any such claim. When Garrick, by letter of 23 April 2003, approached the defendants for a loan, contracts for the purchase of the Moss Vale property had already been exchanged, and he and Lisa were not in a position to complete the purchase without financial assistance. The most important piece of evidence is that letter, which even in its own terms tells against any assumption that there would be a distribution of capital: The term of the loan requested is 12 months with a provision for an early discharge, in the event of a distribution being made, at the directors' discretion, from proceeds of any distribution from or winding up of Moramba Services and from my late father's estate, in order to expunge the debt and interest thereon in full. … The contract to purchase the property was originally entered into on the basis of an expectation of a distribution from the sale of a commercial office building Moramba Services at Hornsby (which I understand is now settled in full). The proper consideration being given by you as directors to the possibility of 'winding up' the company after June 30, 2003 as an alternative to an earlier distribution of funds to discretionary beneficiaries, has necessitated this loan request. I understand that after the proposed 'winding up' being considered by the directors in July, there is the possibility of a discretionary entitlement in the amount of approximately $2,500,000 to $3 million to each of the discretionary beneficiaries. This amount will of course be subject to any final tax payments etc, and if an amount is paid to me, I am happy to direct that it be utilised to repay any loan and interest outstanding at that time as a priority matter." 78 As the defendants submit, Garrick in this letter stated in effect that a contract for sale had already been entered into, originally on the basis of an "expectation" that there would be a distribution from the sale of the commercial office building at Hornsby; and that because this original "expectation" had not been fulfilled and the directors were giving "proper consideration" to "the possibility" of winding up Moramba Services after 30 June 2003, he needed to request a loan to complete the contract. No time was stipulated for the winding up of the company, other than that it would be considered after 30 June 2003, and even in that event there was only the "possibility" of a discretionary distribution. Undoubtedly Garrick told Mr Pollitt that he had entered into the contract to purchase the property on the basis that he was "hoping to receive money from the winding up", and was distressed that if he did not receive a loan in the meantime he would not be able to complete the contract. But it was never the case, as was once alleged, that the loan was requested on the basis that it would be repayable out of a distribution of capital by Leerac from one or more of the inter vivos settlements. 79 Garrick gave evidence that Mr Kwok had said to him, in March or April 2003, that a distribution would be forthcoming sufficient to cover any loan funds he was proposing to borrow, and that the directors were planning to wind up the Moramba group of companies by the end of June 2003. Garrick also gave evidence that during February and March 2003 he had several conversations with Mr Pollitt, who said that considerable funds would be released from the sale of a commercial building at Hornsby, and that once the sale was finalised the defendants would distribute the funds which would be sufficient to repay the loan taken out by Garrick and his wife. And Garrick also says that, during the months leading up to his purchase of the property, in telephone conversations with Mr Pollitt, the latter said on numerous occasions that Garrick would receive a large distribution from the proceeds of sale of the property owned by Moramba, and that they would be winding up the company very soon and that it should be completed quickly. 80 However, it is not possible to prefer Garrick's evidence on this matter. First, there is the problem with the conversation he attributes to Mr Pollitt "in February or March 2003", that there had been no loan "taken out" in February or March 2003. Secondly, although contracts were not exchanged until 21 March 2003, Garrick had reached agreement in principle with the vendor to purchase the property by 31 January 2003; yet a letter of 27 February 2003 from his solicitor Mr Penman to Mr Kwok, far from asserting any assurance that a distribution would be forthcoming, merely inquired: If there is any amount intended or proposed to be distributed to Garrick, would it be possible to make that distribution direct to the proposed holding company? The new company would utilise the funds to assist in the purchase of the rural property and in the ultimate building of a new family home on the property. 81 Thirdly, Garrick knew (from a communication he received from Sioned on or about 1 April 2003) that Mrs Tripp could, in effect, prevent the liquidation of the Moramba group, and thus that it would not be wound up by the end of June 2003. 82 Fourthly, the terms of his letter of 23 April 2003 requesting the loan were reflective of that knowledge. It does not assert that there had been any previous representation that there would be a distribution forthcoming sufficient to cover any loan funds from the proceeds of sale of Moramba's property. Nor does it allege that a representation had been made that the directors were planning to wind up the Moramba group by the end of June 2003. While it asserts an expectation of a distribution from the sale of the Hornsby building, there is no suggestion in the letter that that had been induced by anything said by the defendants. 83 Fifthly, Mr Penman, who was acting for Garrick at the time, conceded that no representative of the defendants had said to him that the Moramba companies would be liquidated by the end of June 2003; indeed, it was then his understanding that there would be no winding up of the Moramba companies prior to 30 June 2003, and the question of when Moramba Services would be wound up depended in part upon the sale of the Moramba Centre property at Mosman. 84 Sixthly, Mr Kwok's and Mr Pollitt's denials of having made the representations attributed to them are inherently plausible. Consistent with Mr Rosenblum's advice that a winding up was the only way to achieve a tax free distribution, there had never been a proposal to distribute the proceeds of the Hornsby property otherwise than on a winding up; a winding up by 30 June 2003 was never a possibility because the Moramba Centre in Mosman had not been sold; and in any event it could not be implemented until the issues with Mrs Tripp had been resolved. 85 Accordingly, while the defendants in considering whether or not to exercise Leerac's discretion to accelerate the vesting date were entitled to have regard to Garrick's financial position, the circumstances attending the Moss Vale mortgage did not oblige them to exercise that discretion: they were not implicated in the creation of any expectation or assumption that there would necessarily be an acceleration or capital distribution sufficient to fund repayment of the loan. 86 The ultimate version of the plaintiffs' main case was that, having made a determination in or about 2002 that the vesting date of the inter vivos trusts should be accelerated, they failed for no sufficient reason to implement that decision, by permitting the cohabitation agreement to stand as an impediment. Essentially, three successive arguments were mounted as to why the cohabitation agreement ought not have been an impediment: first, that its validity ought to have been challenged; secondly, that a settlement ought to have been negotiated with Mrs Tripp and the defendants ought to have been prepared to be more generous to her to achieve such a settlement; and thirdly, that the defendants ought to have recognised and implemented the means now advanced involving repayment of the Moramba Services loan account. 87 As the plaintiffs submitted, in about 2002 the defendants as trustees of the will and as directors of Leerac and the Moramba companies, formed a view that once the assets of the estate and the Moramba Group had been realised, they would wind up the trusts with a view to distributing the proceeds to the four children equally. For example, Mr Halliday said: … the intention had always been, and continues to be that once the these significant issues in relation to the cohabitation agreement were resolved, the Fay Group companies would be wound up and that an equal division would be made between Mr Fay's children. 88 The other executors have given similar evidence. However, the first answer to this version of the plaintiffs' case is that this intention – which the plaintiffs characterised as a "determination" – did not amount to a decision on the part of the defendants to exercise Leerac's discretion to accelerate the vesting date, and so was a matter of legal insignificance. While the defendants during and after 2002 explored the possibility of winding up and vesting the trusts and realising the assets of the Fay Group of companies, and to distribute capital probably to the four children equally, they did not make any decision to exercise their discretion do so. While the plaintiffs characterise this as an "in principle decision", it is of no legal significance unless and until there was a decision to exercise the discretion, which there was not. It was a present intention to exercise Leerac's discretion in a particular manner at a future time, if the issues with Mrs Tripp could be resolved and a tax-effective solution implemented. The formation of such an intention did not mean that the defendants had to adhere to it; changes in circumstances before the vesting date arrived could well lead to their adopting a different view. 89 In any event, to the extent that the defendants had formed an intention to accelerate the vesting date and distribute capital, it was conditional upon resolving the issues posed by the cohabitation agreement. Initially, the plaintiffs complained that the defendants should have instituted proceedings to have the cohabitation agreement set aside. It is manifest that the defendants gave close consideration to and sought advice in respect of the enforceability of the cohabitation agreement. Relevant considerations included that to take such proceedings would potentially negate the testator's wishes to provide for Mrs Tripp, and that the children were until 2005 united in the view that proceedings should not be taken to impugn the cohabitation agreement. The contention that the defendants should have impugned the cohabitation agreement was a feature of the case as late as opening addresses, but it is no longer pressed. It could not have succeeded, in the light of the uncertain advice as to whether the cohabitation agreement could be impugned, and the expressed wishes of the children that it not be challenged in the courts. 90 Next, it was contended that the defendants should have negotiated a settlement with Mrs Tripp, and in order to achieve one should have been prepared to make more generous offers than in fact were made. Thus the alleged failure to impugn the cohabitation agreement, which was initially at the heart of the plaintiffs' complaint, shifted to a complaint that the defendants ought to have negotiated a compromise with her, if necessary on terms more generous than they had been prepared to at the time. Between 2003 and 2005, considerable efforts were made to achieve some compromise with Ms Tripp. That did not eventuate, largely because the children thought that Ms Tripp was asking too much, and preferred to leave the cohabitation agreement on foot as it was. Even without having regard to those views of the children, that was a position which the defendants were entitled to adopt; but the beneficiaries were consulted, and all four children preferred at that stage not to accede to Ms Tripp's demands. The plaintiffs, who now complain that the defendants should have been more predisposed to accept Mrs Trip's demands – which were at the time regarded by all as excessive – then agreed that that course should be abandoned. This complaint is without substance. 91 Finally, but only halfway through the case, the plaintiffs' main ground shifted further to the contention that, notwithstanding the obligations under the cohabitation agreement, a substantial distribution to the children could be effected by Moramba Services repaying its loan to Moramba Holdings, Moramba Holdings being wound up, while Moramba Services would retain sufficient assets to meet its obligations under the cohabitation agreement. Upon the winding up of Moramba Holdings, and the transmission of its assets (including its shareholding in Moramba Services) to Leerac as trustee of the inter vivos trust, a substantial capital distribution could then be made to each of the children. The plaintiffs' case became that the defendants as directors of Leerac failed to identify and implement this alternative process for bringing about an early distribution, which did not involve the necessity to resolve anything vis-à-vis Mrs Tripp (contrary to the previous contention that it should have sought to escape from those obligations). The plaintiffs now put that this course was a "blindingly obvious one" and that the defendants are open to legitimate criticism for not having perceived and implemented it earlier. However, while it now seems an obvious course, it needs to be borne in mind that not only was it not perceived by the defendants; it was not perceived by their professional advisers (including Mr Rosenblum); nor was it perceived by the plaintiffs' advisers until it emerged in cross-examination of Mr Halliday on 27 May 2008, halfway through the final hearing, it not having formed part of the case as pleaded or opened. 92 Moreover, if the defendants are open to criticism in this respect, it is a criticism that they failed to perceive a means of implementing an early distribution that they were not bound to make. It simply does not manifest a failure to consider the exercise of the discretion to accelerate the vesting date, whether of the will trust or of the inter vivos trust. At the highest, it reveals a failure to advert to a possible course of achieving an end that they were not bound to achieve. That is not a basis for removing them from the office of trustees. 93 Now that this possibility has been identified, the defendants have indicated that they are willing to consider it, without committing to adopting it. It is unnecessary that they advance any reason against its adoption, because they have no obligation to accelerate the vesting date. Underlying the plaintiffs' main case was a fundamental misapprehension that there was some entitlement in the plaintiffs and obligation on the defendants to have the vesting date of the clause 3 will trust and the inter vivos trust accelerated, and the assets of each distributed equally among the four children. There was no such entitlement nor obligation. The plaintiffs' case proceeds on the misconceived basis that there is some, at least prima facie, disposition in favour of an accelerated distribution. If anything, however, the prima facie position is that the trusts will subsist until they vest in accordance with their terms. At the highest, the defendants as trustees of the will trust, and Leerac as trustee of the inter vivos trust, were required to give due consideration from time to time as to whether they should exercise their respective discretion to accelerate the vesting date in respect of the whole or part of the assets of the will trust or the inter vivos settlements. For the foregoing reasons, I do not accept that they have not done so, nor that if not removed they will do nothing before Ms Tripp's demise to effect any distribution of capital or to wind up the inter vivos settlements. I am entirely unpersuaded that the defendants will not from time to time in the future give due consideration to the exercise of the discretion to accelerate the vesting date, whether of the inter vivos settlements or of the testamentary trust, and whether in whole or in part. Accordingly, the plaintiffs' principal complaint – that the unfitness or inappropriateness of the defendants remaining as trustees of the will trust is demonstrated by their failure to give proper consideration to the vesting of the inter vivos settlements and/or the clause 3 will trust – fails. Failure to Appreciate Terms of Trusts 94 The first of the ancillary complaints – that the defendants failed to appreciate the terms of the inter vivos settlements – which is not at least distinctly pleaded, but was raised in the plaintiffs' submissions – seizes on Mr Halliday response, in cross-examination, to a suggestion that the directors of Moramba Services could resolve to declare a dividend ultimately to Leerac as ultimate parent which could then be distributed by that company to Mr Garrick Fay: I am not sure we could just make a distribution to him alone if we passed a dividend up. I don't think we could separately just pay it to him. I think it would have effected all the other trusts as well, because a dividend goes up. 95 Reference is also made to a further statement by Mr Halliday to the effect that he did not believe that Mr Garrick Fay was a discretionary beneficiary under every one of the trusts, and to a statement by Mr Kwok to the effect that his understanding was that the structure was such that Leerac was obliged to distribute capital and income, if at all, equally to the siblings. 96 It is true that these statements might betray a misconception of the trusts. While it is correct that, upon declaration of a dividend in the Moramba companies, it would be received by Leerac as trustee for each of the trusts according to their respective shareholdings in Moramba, the circumstance that each of the children is a potential beneficiary of each trust means that there is no obligation to distribute capital and income, if at all, equally between the four children. These statements would suggest that the defendants may not have appreciated that. However, it is not entirely clear that Mr Halliday's evidence in fact bespeaks any such misunderstanding: it may be a reference to the need for Moramba Holdings to pay an equal dividend to each of the inter vivos settlements. Moreover, there is contrary evidence suggesting that the defendants do appreciate that Leerac can differentiate between beneficiaries, in that at the meeting of 23 August 2003, the defendants stated that while they did not exclude any private or separate representations based on special circumstances, their preference was to make four even distributions to each child in the most tax effective manner. 97 In any event, this is an entirely opportunistic complaint. The very gravamen of the plaintiffs' case is that there should be equal (and early) distributions to the four children. In circumstances where the possibility of such a course has been contemplated by the defendants. Even if the defendants have misconceived Leerac's ability to discriminate between beneficiaries, it does not appear that any executive act or decision has been founded on any such misapprehension; whereas they have expressly preserved the possibility of differential treatment. This complaint is without merit. Failure to provide information to prospective beneficiaries 98 As pleaded, this complaint is that the defendants (as directors of Leerac) have failed to provide proper accounts in relation to the Barnes Settlements and the Lorraine Settlements, although in the plaintiffs' submissions, it was articulated as a contention that the defendants have an adversarial attitude to the children and apparently regard themselves bound by Mr Fay's apparent desire for the financial affairs of the Moramba companies not to be divulged to them, despite an asserted entitlement to such information. The plaintiffs particularly refer to the defendants' decision to "sell" the shares held by Mr Fay personally in Moramba Holdings to Windsmead for the stated purpose of paying outstanding debts, when in fact the "sale" provided no funds for that purpose, the sale being financed by a loan to Windsmead by Moramba Holdings; and in any event such funds were not required to discharge any liabilities of the estate, having regard to the liquid resources in the estate. 99 A potential beneficiary of a discretionary trust has no entitlement as of right to disclosure of information concerning the trust, except for the trust accounts [Avanes v Marshall (2007) 68 NSWLR 595; Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405; Schmidt v Rosewood Trust Limited [2003] 2 AC 709]. There is doubt even as to whether the object of a discretionary trust has a right to see trust accounts, or whether the Court merely has a discretion, in the exercise of its supervisory jurisdiction over trustees, to order the provision of accounts [Schmidt v Rosewood Trust Limited; contra McDonald v Ellis [2007] NSWSC 1068, and cf Avanes v Marshall in relation to trust accounts where the trust is not discretionary]. But, for present purposes, I shall assume that a potential beneficiary of a discretionary trust is entitled to see the trust accounts. 100 Mr Penman – a solicitor who at relevant times acted for the plaintiffs – gave evidence to the effect that he was provided with all information he requested on behalf of his clients in his letter of 27 August 2003. Financial accounts and tax returns for the Barnes Settlements, the Lorraine Settlements, Windsmead and Leerac for the year ended 30 June 2006 were provided to the children under cover of letters dated 17 April 2007. Accounts and returns for the years ended 30 June 2004 to 2006 for Moramba Services and Moramba Holdings were provided to the children under cover of letters dated 26 April 2007. 101 Ultimately, the plaintiffs' submissions focused on the sale of the shares in Moramba Holdings to Windsmead. It needs to be borne in mind that these were only two shares out of 5,667 issued shares in Moramba Holdings, and that the underlying assets of the inter vivos settlements were held by Moramba Holdings' subsidiary, Moramba Services. 102 The plaintiffs' objection that the letter written on 25 May 2000 to the children by Marshall Marks Kennedy, the then solicitors for the defendants, which asserted that their power to sell the estate's shares in Moramba Holdings "for purposes of payment of any outstanding debts, as there still are in estate", arose inter alia under (NSW) Probate and Administration Act 1898, s 46, might on its own be misleading, since the sale was not for any such purpose. But when the context and the terms of s 46 – which gives executors a power of sale of the deceased's real estate - are examined, that statement was made to describe one (and not the only) source of power of sale, as distinct from the reason for the sale. The reason was explained at a meeting between the children and the defendants on 30 May 2000, in which Louisa complained about the transfer of the shares from the estate to Windsmead, and Garrick also expressed his dissatisfaction with it, saying that the transfer of those shares disadvantaged the children because as a result they could not gain access to the Moramba group accounts; Mr Halliday responded that the executors considered that the transfer was in the best interests of the family, and that their father had given strict instructions that they were not to be involved in the running of the companies, and Mr Pollitt expressed a similar view. 103 Mr Halliday said that this was undertaken "in the best interests of the beneficiaries", as Mr Fay had given strict instructions to the defendants that he did not want his children involved "in the running of the Fay Group". There was also the practical problem that with two shares in Moramba Holdings and four children, these shares would not easily be divisible amongst the four children, whereas sale of the shares by the estate to Windsmead resolved that. 104 In his 3 March 1998 letter to the defendants, Mr Fay expressed the wish that matters relating to the group's accounts, finances and company structures not be disclosed to or discussed with members of the family upon his demise, and his confidence that their decisions would be in the best interests of family members. I do not accept that the evidence reveals that the defendants considered themselves "bound" by Mr Fay's wishes in this respect: Mr Halliday said that he was "mindful" of Mr Fay's request not to disclose financial affairs to members of the family; and Mr Kwok's acknowledgement that he felt it his obligation to observe Mr Fay's wish that his children not be provided with financial information concerning the assets of the discretionary trusts, in context, was not in my view an acceptance that he was bound by such wish. Mr Halliday certainly considered that Mr Fay's request not to disclose such information was a significant factor to be taken in account; and the general consensus of the defendants was to that effect. But the defendants were entitled, though not bound, to have regard to wishes expressed by the settlor dehors the trust instrument, at least so long as those wishes are not inconsistent with the trusts created by the instrument. In that context, I do not accept that their conduct in this respect bespeaks an inappropriately adversarial attitude to the beneficiaries. The Deeds of Indemnity 105 On 30 January 2002, following a meeting with the defendants the previous day, Mr David Ford, the solicitor then acting for the children wrote to the solicitors for the defendants, confirming requests made at that meeting on behalf of the children that the estate cease to reimburse Moramba Services for the payments it was making to Ms Tripp under the cohabitation agreement, and to obtain from Moramba Services a refund of all money so reimbursed to it by the estate since Mr Fay's death in relation to Ms Tripp. In essence, this was a request that, retrospectively as well as prospectively, payments to Ms Tripp under the cohabitation agreement not be treated as charges against Mr Fay and his estate and debited as such to his loan account, so that the burden of such payments be borne by Moramba Services and not by the estate. The practical consequence of that course, upon implementation, would be to shift the burden of the obligations to Ms Tripp from Mr Fay's estate to Moramba Services (and thus ultimately the trusts). In turn, this would operate for the benefit of the children by increasing the immediately distributable estate, at the expense of trusts. 106 The defendants sought advice on this proposal from Mr Rosenblum, which he provided on 4 March 2002. Mr Rosenblum's advice assumed that Moramba Services was legally bound to make the payments, but also pointed out that it must have been assumed by Moramba Services and Mr Fay during his lifetime that ultimately the obligation was Mr Fay's personally, as there was no other explanation for debiting his loan account as it had been. Mr Rosenblum's advice was in many respects opaque, but on a fair reading included that the course proposed by the children might result in the defendants being assessed for income tax under Division 7A, and that it was difficult to see how in that event they could recover from the beneficiaries. After setting out those matters, he concluded: It would appear essential that prior to any action being taken pursuant to the requests a total and complete indemnity should be obtained by the directors of Moramba Services Pty Limited, Moramba Holdings Pty Limited, Windsmead Pty Limited and Leerac Pty Limited and the trustees of the estate. The directors and trustees should also ensure that the children have received advice on the income tax consequences to them of such action. 107 The defendants were advised by their own solicitors, Cornwall Stoddart (on 4 April 2002), that they were not legally obliged to provide that advice to the beneficiaries, although the personal relationships were such that they might feel some moral imperative to do so: While the beneficiaries have their own independent legal advice and I do not think the trustees have any legal responsibilities to the beneficiaries, it is nevertheless a matter upon which the trustees may feel some legal obligation outside of their strict legal responsibility. 108 In due course, on 21 May 2002, deeds of indemnity were executed by each of the children. It can fairly be said, as the plaintiffs contend, that it does not appear that the defendants ensured that the children received advice on the potential income tax consequences to them. The question is whether that reveals an attitude or conduct on the part of the defendants incompatible with the proper discharge of their office. 109 Mr Rosenblum's advice was privileged advice to the defendants. Although the defendants say that they did not make any positive decision not to advise the children of the potential taxation consequences, the probabilities are that they did not take steps to ensure that Mr Rosenblum's advice was provided to the children. However, to their knowledge, the children were independently advised: the deeds of indemnity had attached to them statutory declarations by the plaintiffs declaring that they had obtained independent advice in respect of the deeds. 110 This was an instance in which the children were asking the defendants to depart from a settled (and prima facie appropriate) accounting practice, fundamentally for the financial benefit of the children, and potentially involving some risk to the defendants. In that context, it was not inappropriate for the defendants to perceive that there was some need to take steps for the protection of their own position. In the light of the nature of the transaction involved, the circumstance that the children were independently advised, and the advice that the defendants had received that they had no legal responsibility to advise the beneficiaries in that respect even if they might feel some moral obligation to do so arising from their personal as distinct from legal relationships, I do think this matter tells against the defendants' fitness. Impartiality and the Moss Vale Mortgage 111 The complaint that the defendants are unable to discharge their duties with impartiality following the termination of the Moss Vale mortgage is articulated in the plaintiffs' written submissions, although it is not separately pleaded. In essence, the complaint is that by their failure to wind up the estate and the discretionary trusts in a timely manner the defendants have engendered a measure of significant ill will between the siblings; that a particular cause of this is their decision to have Moramba Services make substantial loans to Garrick and his then wife Lisa on terms that they could not meet, absent a substantial capital distribution from the trusts; and that rather than implementing steps that would enable repayment of the loan, the defendants have commenced proceedings for possession of the Moss Vale property. Although Garrick and Lisa originally sought relief restraining Moramba Services from exercising its power of sale, that claim is no longer pressed, and the order for possession sought by the defendants was not opposed. Nonetheless, Garrick seeks to maintain the allegation that the defendants' decisions to have Moramba Services make the loans, and then – instead of taking steps to bring about a capital distribution to Garrick – to bring a cross claim for possession of the Moss Vale property, manifest a lack of impartiality towards him, and that it could not now be expected that Garrick would be treated impartially. 112 I have already explained why it cannot be accepted that Garrick had any legitimate expectation that there would necessarily be an acceleration of the vesting date of the inter vivos settlements, or distribution of capital, to permit him to repay the Moss Vale loan. When the defendants agreed to make the loan to Garrick, he was in a difficult position, having exchanged contracts for purchase of the Moss Vale property but not being in a position to complete without financial assistance. He asked for that assistance, and he was given it substantially upon the terms sought, including a term of 12 months. He believed that there was a possibility that during that time frame he would receive a distribution which would enable repayment of the loan, but he was aware that it was no more than a possibility. In any event, the defendants did nothing to encourage a belief that it was anything more than a possibility. Had they not provided the loan, Garrick would either have defaulted under the contract for purchase (and lost the deposit and potentially been exposed to a claim for damages), or been forced to engage a "lender of last resort" on far more disadvantageous terms. The alternative to the defendants agreeing to Garrick's request was to leave him in that position. In that context, it is impossible to see how acceding to his request for a loan, notwithstanding the risk of default if there was not a distribution of capital within 12 months, could be seen as manifesting some lack of impartiality towards him. 113 By the time Moramba's cross claim for possession was instituted, the term of the loan had long since expired, and the total amount of the debt was approaching the value of the security property. As a trustee, Leerac was obliged to protect the trust assets, and not to recover and sell the security property would risk the trust assets and if anything demonstrate partiality in favour of Garrick at the expense of the other beneficiaries. Garrick was offered but declined an opportunity to sell the property, even with financial assistance. A trustee's duty of impartiality as between beneficiaries does not apply to a beneficiary in his or her capacity as a debtor [cf Manson v Public Trustee [1925] GLR 153]. 114 In my view, nothing about the defendants' agreement to make the Moss Vale loan, or their decision eventually to claim its repayment and possession of the property, exposes them to legitimate criticism. Invoking the non-contest clause 115 The trust deed of each of the inter vivos settlements contains a clause in the following terms: Notwithstanding any other provisions of this deed if any beneficiary should at any time commence any action in any court whatever or wheresoever situated against the trustee or any person who shall at any time have been a trustee of a specified trust in respect of any matter arising under or in relation to a specified trust other than for wilful default on the part of the trustee or any other such person as aforesaid then such beneficiary shall be deemed not to be and never to have been a beneficiary hereunder and shall be incapable of taking any benefit and shall be liable to repay to the trustee for the time being forthwith upon the commencement of any such action all moneys or other benefits theretofore received by him. The words 'specified trust' in this clause mean any trust created by or arising pursuant to any determination by the trustee or any such other person as aforesaid under clauses 6(A) or 6(B) hereof. 116 In their defence, the defendants pleaded that clause in answer to the allegation that the plaintiffs were presumptive beneficiaries under the Barnes Settlements and the Lorraine Settlements. In late 2006, the defendants determined to withhold further distributions of income pending determination of whether the non-contest clause had been triggered by the institution of the present proceedings so as to disentitle the plaintiffs from further distributions. On 1 April 2008, the defendants' solicitors informed the plaintiffs' solicitors that further distributions to them would not be made until the effect of the non-contest clause had been determined in the proceedings. In fact, the defendants did not cause Moramba Services to declare a dividend, with the result that no income flowed to Leerac, and there was no need for Leerac to make any decision to distribute income, which might otherwise have required the defendants to decide whether or not to invoke the non-contest clause. In their further amended statement of claim, the plaintiffs complain that the defendants wrongly treated the commencement of the present proceedings as conduct disentitling the plaintiffs to be considered as objects of the Settlements. 117 The defendants contended that if the Court held that the non-contest clause was valid, the consequences provided for by it would follow; but that if the Court held it to be invalid the defendants could not be criticised, it being the primary duty of a trustee to comply with the terms of the trust deed and seek to uphold its provisions; similarly, if the Court determined that on its proper construction clause 17 did not operate to disentitle Garrick and Dallas by commencement of these proceedings, the construction adopted by Leerac was sufficiently arguable to negate any suggestion that it manifested unfitness on the part of the defendants. 118 Although the defendants took the view, at least initially, that the Court would determine the validity and effect of clause 17 in the circumstances in the course of the main proceedings, ultimately Leerac sought judicial advice as to whether Garrick and Dallas were excluded from the class of beneficiaries under the Barnes Settlements and the Lorraine Settlements by operation of the non-contest clause. The two questions posed for advice were: (1) Are the defendants [Dallas and Garrick] by reason of them having commenced proceedings 5032/06 deemed by clause 17 of the trusts not to be and never to have been beneficiaries under each trust and not entitled to take any benefit under the trusts? (2) If the answer to question (1) is "Yes", are the defendants liable by clause 17 of the trusts to repay to the trustee all money and other benefits received by each of them under any of the trusts? 119 I concluded that, upon the proper construction of clause 17, these proceedings were not proceedings of the type contemplated by clause 17: first, because they were proceedings for the administration of the trust and not proceedings asserting a liability for breach of trust against the trustees; and secondly, because they were not brought against the trustee (Leerac) at all. Alternatively, I concluded that were I wrong in the view that the proceedings were not caught by clause 17 because they are not proceedings asserting a liability for breach of trust, then I would have held that clause 17 was void as contrary to public policy. I answered question (1) in the negative; accordingly question (2) did not arise [Leerac Pty Ltd v Garrick E Fay [2008] NSWSC 1082]. 120 For the reasons explained in Leerac Pty Ltd v Fay, Leerac was not entitled to invoke clause 17. 121 However, Leerac did not actually invoke clause 17; the defendants were able to avoid the issue arising pending determination of the proceedings by causing Moramba Services to refrain from declaring further dividends, so that Leerac did not receive dividends and no occasion arose for it to consider making distributions, and thus to have to decide whether the plaintiffs were excluded. The view they adopted as to the engagement of clause 17 was a provisional one, believing that it would be determined by the Court in the course of the main proceedings. Following the provision of the judicial advice, Leerac abandoned reliance on clause 17; indeed, they have subsequently authorised a distribution to each of the children (equally). The construction contended for by Leerac, though in my opinion wrong, was not unarguable. It was not unreasonable for the defendants not to cause Leerac to seek judicial advice immediately, when it appeared that the validity and construction of clause 17 would fall to be determined in the main proceedings in any event; and in that context it was not unreasonable for the defendants to defer having to make a decision whether or not to invoke clause 17 by refraining from declaring dividends in Moramba Services pending that resolution. 122 I am quite unpersuaded that, properly advised (as they now are) on the construction and application of clause 17, the defendants would not cause Leerac to adhere to the trusts. I am unpersuaded that this matter founds any concern as to the defendants' future administration of the clause 3 will trust. The allegation of animus towards the plaintiffs 123 The plaintiffs' submissions contain a complaint (again, not distinctly pleaded) that the defendants bear animus towards the plaintiffs. As elaborated in the plaintiffs' submissions, the complaint is that the defendants' resistance of the plaintiffs' claim, coupled with their attempt to invoke the provisions of the non-contest clause, and the institution of proceedings for possession of the Moss Vale property, demonstrates an animus on their part towards the plaintiffs. 124 The claim for possession of the Moss Vale property has been addressed above; it cannot found an allegation of lack of impartiality; as already suggested, to fail to institute it would savour of partiality towards Garrick at risk to the trust estate. The complaint about the invocation of the non-contest clause has also already been addressed; that the defendants sought to test whether it had been triggered by the present proceedings does not manifest a lack of impartiality. 125 I am unpersuaded that the defendants harbour such animosity towards the plaintiffs as to render them incapable of properly considering the claims of each. It would be unsurprising if, in proceedings of the magnitude of these, given the nature and gravity of the allegations that have been made against the defendants, some feelings would not have been generated. However, it should not be assumed that a trustee is unable to continue to discharge his or her duties impartially, by reason of animosity towards one or more of the beneficiaries, just because those beneficiaries have brought and prosecuted a misconceived claim alleging serious misconduct against the trustee. As the plaintiffs' submissions acknowledge, the existence of disputes between a trustee and beneficiaries is insufficient of itself to ground an order of removal [Forster v Davies 4 De G F & J 133]. Nor can mere resistance to a claim for removal be enough to manifest such an animosity as to support an order of removal; otherwise, any trustee who resisted a beneficiary's claim would need to consent to judgment, for fear that resistance would found a finding of animosity [cf Quinton v Proctor [1998] 4 VR 469, 475]. Mr Halliday 126 The plaintiffs complain (in their written submissions, though it is not pleaded) that Mr Halliday resigned as one of the trustees of the estate (other than the clause 3 trust of the Leerac shares) in August 2007, because the firm of which he is a member gave advice to the effect that legatees were not entitled to interest on unpaid legacies. Mr Halliday is a partner in the law firm Bartier Perry. Phillip Jones of that firm advised the executors on the issue whether interest accrued on legacies payable to Mr Fay's grandchildren under the will. Ms Needham SC later apparently expressed the opinion that the contrary was at least arguable and that it would be prudent to obtain judicial advice. Mr Halliday at his partners' suggestion agreed to retire as a trustee of the estate (other than the clause 3 will trust), as the situation might found a conflict of duty and interest. 127 The defendants have not sought any such judicial advice as Ms Needham SC suggested; this is said to be another example of "their apparent indifference to the responsibilities of their office", but the evidence does not reveal that any issue concerning interest has been raised by any legatee. 128 The relevant potential conflict of duty and interest was between Mr Halliday's interest as a partner of Bartier Perry, and his duty as a trustee of the estate from which the legacies were payable. Mr Halliday remains a trustee of the clause 3 will trust, and a director of Leerac and of the Moramba companies. The legacies are not payable out of the assets of those entities. It is not apparent how his position as such would be affected by any such conflict as led to his retirement as a trustee of the estate. Nor is it apparent why his resignation would make it appropriate to remove the other trustees. There is no substance in this ground. Mr Au 129 In their amended statement of claim, the plaintiffs allege that the defendants caused or concurred in grossly excessive payments of salary and emoluments to Mr Au by Moramba Services and Moramba Holdings, by awarding increases of salary, back-dated salary increases and interest thereon, and on termination of his employment paid grossly excessive termination payments, without commercial or legal justification. They suggest that there is a stark and ironic contrast between the generous treatment of Mr Au on the one hand, and that of Mr Garrick Fay on the other. 130 Mr Au commenced employment with the Fay Group on 22 May 1972. It is clear that Mr Fay regarded him as a valuable and loyal employee. Mr Au was Mr Fay's "right hand man". For a short period following the sale of the Claude Fay liquor chain to Coles in 1981, Mr Au was employed by Coles (as part of the handover), but Mr Fay agreed with Mr Au that his service with the Fay Group would nonetheless be treated as continuous. After the sale of the liquor stores, the Fay Group's activities consisted mainly of investment on the stock exchange and direct investment in real estate through a commercial property portfolio. For the year ended 30 June 1991, Mr Au was paid a base salary of $93,700. That was not increased for the ensuing nine years, despite a CPI increase of 19.1 percent over that period. In addition to his base salary, Mr Au during Mr Fay's lifetime received a statutory superannuation contribution, an additional superannuation contribution of 10 percent, use of a motor vehicle, an interest free loan, use of a mobile telephone, entertainment expenses, reimbursement of superannuation contributions tax payable on the additional contribution, and sometimes a Christmas bonus. He also received payments in lieu for annual leave and long service leave. 131 It will be recalled that, in his letter to the children of 3 April 1988, Mr Fay recorded his confidence in Mr Au, and his intention that he remain in his position and continue his responsibilities until his retirement at 65 or later if he agrees, and that this was endorsed by the other defendants. 132 Initially, Mr Au's responsibilities increased after Mr Fay's death in 1998. However, it is true that at least in the latter years, there was increasingly less for Mr Au to do. Ultimately, in December 2002, Mr Au was notified that he had been made redundant by the Fay Group effective 30 June 2003. 133 Effective 1 July 2000, Mr Au was awarded a salary increase of 25 percent (from $93,700 to $117,125). That increase reflected the CPI increase over the preceding nine years and the increase in his responsibilities. The interaction of the other components of his package to produce the total amount paid to Mr Au is explained in the affidavit and report of Mr Pettman, an accountant called by the defendants, whose evidence was not challenged. 134 Upon being made redundant, and having worked out his six months' notice, Mr Au received a redundancy payment of $560,029. 135 The plaintiffs' submissions did not identify any particular impropriety in any amount paid to Mr Au. Ultimately, their submission was: On any sensible view, the sums paid to Mr Au were very considerable. The defendants have, once again, gone to great lengths in an endeavour to justify those payments. The plaintiffs are content to respond to their arguments by simply submitting that, given the enormity of the payments, the defendants bore an evidentiary onus to do more than merely rely upon the advice given by a solicitor within the firm of which Mr Halliday is a partner. What they have singularly failed to address is that the payments were made by a company (Moramba Services) of which they were the directors and that the recipient of those payments was one of their fellow directors. 136 It is true that at first sight, the redundancy payment is striking, representing something like four year's salary, and the legal or industrial basis of his entitlement to it was not explained. However, the payment was negotiated at arm's length between two firms of solicitors, based upon a formula which took into account his level of remuneration and years of service. Although the plaintiffs complain that Moramba's decision to pay him that amount was compromised while he remained on the board, Mr Au did not participate in any board meetings in relation to his own redundancy payment. The plaintiffs sought to contrast the defendants' consultation with and deference to the views of the children in relation to the negotiations with Ms Tripp, with their failure to discuss with them the termination payment to Mr Au. The short answer is that the trustees are entitled but not bound to consult with the beneficiaries. Moreover, in the case of Mrs Tripp, what was involved was potentially a frustration of the wishes of Mr Fay to make provision for her; whereas what was involved with Mr Au was consistent with Mr Fay's wish that he retain his position and responsibilities until he was 65 or even later. 137 Even if –which I do not accept – the defendants bore some evidentiary onus on this issue, the evidence that the redundancy was negotiated at arm's length, and Mr Pettman's report as to the various payments, would sufficiently discharge it, and it would remain for the plaintiffs to show that the payments were unjustified. That they have signally failed to do. Despite the apparent enormity of the redundancy payment, there is no basis for me to conclude that it was inappropriate. 138 It is appropriate to address two other matters pertaining to Mr Au's fitness which, although not pleaded, arose in the course of his cross-examination. 139 First, Mr Au was unable to answer why, for the first time since 2006, very recently (after the judgment on the judicial advice application) the Moramba companies had declared dividends, and Leerac had made a distribution to the children – when it is plain enough that the Court's advice must have been an instrumental consideration. His answer that he was unable to remember why they now felt able to do so, when they had not done so since 2006, is very surprising; the obvious answer is the outcome of the judicial advice application. But there does not appear to be any conceivable advantage to Mr Au in not being frank on this issue, if he in fact recalled the reason for the change in position. In addition, it must also be acknowledged that Mr Au was upset and humiliated, first by having been made redundant, and subsequently by having been charged with misconduct as a trustee. During his cross-examination he became visibly upset at the attack upon him, and at the constraints that were placed upon his ability to give fulsome, not necessarily responsive, answers. In that light of those matters, I am unable to conclude his answer was dishonest. 140 Secondly, Mr Au demonstrated some difficulty in appreciating the concept of conflict of interest and duty. However, there is force in the submission that while the questions directed to him (by the Bench) were addressed to the intellectual concept of conflict of interest and duty, his answers rather addressed his own particular fact situation, so that they did not in fact bespeak a failure to comprehend the concept, but were a denial that there was one in his situation. In any event, this is not a pleaded matter. 141 Mr Fay plainly had confidence in Mr Au, particularly as a manager. He appointed a diverse group of persons as his executors, no doubt recognizing that each had his own strengths and weaknesses. Mr Au is not expected to have the same acute appreciation of legal concepts as Mr Halliday, for example. I am unpersuaded that Mr Au's evidence demonstrates that he cannot be expected properly to play his part in the administration of the will trust in the future. Leerac's payments to Corrs Chambers Westgarth 142 By a late amendment, the plaintiffs added a complaint that the defendants have caused Leerac to act in breach of the Barnes Settlements and the Lorraine Settlements by paying money to their solicitors to fund their defence in these proceedings. The raising of this complaint, and the allowance of the amendment involved, required an adjournment and reopening of aspects of the evidence. The evidence that emerged ultimately established that Moramba Services had paid some $413,294.95 to the defendants' solicitors on account of their costs in the main proceedings, and some $260,355.85 on account of its own costs in the mortgage proceedings (to which Moramba Services is a party). The mechanism used was that Moramba Services made loans to Leerac. The essential question then is whether Leerac was entitled to use moneys so borrowed to fund the defence of these proceedings by persons who are its directors, and who are sought to be removed in their capacity as trustees of the will trusts (no longer in their capacity as directors of Leerac). The gravamen of the plaintiffs' complaint is that assets of the inter vivos settlements have been improperly used for a purpose foreign to those settlements and for the benefit of the defendants, namely to fund the defence of the defendants in their capacity as trustees of the will. 143 Until an amended statement of claim was filed on 7 April 2008, a month before the commencement of the final hearing, the proceedings were brought against the defendants in their capacity as directors of Leerac as well as in their capacity as trustees of the will trusts. The earlier version of the statement of claim sought an order that in their capacity as directors of Leerac they give due consideration to winding up the inter vivos settlements. After the statement of claim was amended, that was no longer so; only their removal as trustees of the will was sought. At least until the abandonment of the claim for an order, that in their capacity as directors of Leerac they give due consideration to winding up the inter vivos trusts, it was at least arguable that the defendants were sued inter alia as their capacity as directors of Leerac, and might well have been entitled to look to Leerac for an indemnity. However, that claim was abandoned on the first day of the trial. 144 The defendants were legally advised that they could have resort to the assets of the inter vivos settlements for their costs of defending the proceedings, and that Moramba Services could advance funds to Leerac to fund their costs of the proceedings. 145 The defendants justified the expenditure on the basis that while the relief claimed against them was in their capacity as trustees of the will, much of the evidentiary material relied upon pertained to their conduct in their capacity as directors of Leerac; it was therefore in Leerac's interests to secure a finding that its directors were not guilty of any misconduct which might give rise to a claim against Leerac; and Leerac could reasonably conclude that the funding of its directors' defence was a proper trust expense within the (NSW) Trustee Act, s 59(4), or Article 113 of its Articles (which provides that the directors are entitled to an indemnity for costs incurred by them in defending proceedings where they are successful). 146 I doubt that Article 113 is engaged; it could only refer to the defence of proceedings against them in their capacity as directors. However, the reality is that the facts upon which the case against the defendants was based were facts which arose in large part from their conduct as directors of Leerac. 147 It is unnecessary (and, given that Leerac is not a party, undesirable) to decide definitively in this proceeding whether or not Leerac was in breach of trust by making the payments in question. The issue for me is whether the circumstance that the defendants concurred in permitting those payments to be made is illustrative of an attitude which makes it inappropriate for them to remain as trustees of the will trusts. For those purposes, it suffices that I conclude that it is arguable that it was in the interests of Leerac to have a finding that, as its directors, the defendants had not engaged in improprieties, and thus that for Leerac to use moneys borrowed from Moramba to fund their defence was the meeting of expenses incurred in or about the execution of the trusts, within (NSW) Trustee Act 1925, s 59(4). It is also significant for these purposes that the defendants had advice that they could resort to those funds in order to fund the defence. Leerac has since filed an application for judicial advice in respect of these payments, which is yet to be heard. 148 As a result of those considerations, the defendants' concurrence in the expenditure of Leerac's funds on their defence does not persuade me that the defendants will not duly administer the will trusts in the future. Other Matters 149 There are a number of other considerations which inform an ultimate judgment as to whether, in the interests of the administration of the will trusts, the defendants ought to be removed as trustees. 150 Foremost amongst them is the circumstance that while two of the children – the plaintiffs Garrick and Dallas – wish to have the defendants removed, the other two children, Louisa and Sioned, oppose that course and wish them to remain in office. Before the proceedings were instituted, the defendants offered to retire as trustees and appoint the four children in their place, but this course was opposed by Sioned and Louisa, who asked the defendants to remain. They continue to support the defendants remaining in office. Their wishes are entitled to at least as much weight as the wishes of the plaintiffs. One of them expressed the view that she believed that the defendants were doing the best job possible in circumstances which were very difficult. 151 Secondly, there is the circumstance that it was plainly the wish of Mr Fay that the defendants administer his estate, and he had confidence in their judgment and discretion to do so appropriately. Letters written by Mr Fay to his children on 3 April 1998, and to the defendants on 3 March 1998, and his statements to Mr Halliday and Mr Pollitt, make plain that he had confidence in the defendants' judgement and ability to administer his estate and resources; it may be doubted that he had any such confidence in the ability of his sons to do so. 152 Thirdly, the plaintiffs' arguments tended to overlook that the children are not the only potential beneficiaries. There are already a number of grandchildren of Mr Fay, who fall within the class of eligible beneficiaries under both the clause 3 will trust and the inter vivos settlements. The plaintiffs' arguments seem to proceed on the basis that only the four children require consideration, and that they can be relied on to look after their own children. But although that it is a view that might be open to the defendants to adopt, it is not a view that they must take. 153 Fourthly, Mr Fay plainly intended that the defendants have wide powers and immunities, as reflected in the "non-contest" clauses and exculpatory provisions of the inter vivos trust deeds, and the "absolute" and "uncontrolled" discretions given by the clause 3 will trust. Conclusion 154 My conclusions may be summarised as follows. 155 The plaintiffs' complain that the defendants as trustees of the will have not carefully borne in mind the welfare of the beneficiaries in the discharge of their duties, have failed to appreciate that they must have a conscientious regard for the welfare and interests of the beneficiaries, are blind to the welfare of the beneficiaries, and that one could have no confidence that either Garrick or Dallas would receive benevolent or impartial consideration for so long as the defendants remain in control; thus, it is said, they must be removed. 156 As to the plaintiffs' main case – that the inappropriateness of the defendants remaining as trustees of the will trust is demonstrated by their failure to give proper consideration to whether in their capacity as directors of Leerac they should cause the inter vivos settlements to vest, or to implement a determination already made to do so, and alternatively in their capacity as trustees of the will to cause the clause 3 will trust to vest: the proposition that there was some obligation on the defendants to accelerate the vesting of the clause 3 will trust – which was prima facie to endure for 80 years – or the inter vivos settlements, is simply wrong. 157 The allegation that the defendants have not given real and genuine consideration to accelerating the vesting of the clause 3 will trust fails: they have given consideration to it, but have decided not to while the Moramba group and the inter vivos trusts continue in operation. 158 The case that Leerac did not give real and genuine consideration to the winding up of the inter vivos settlements cannot be sustained. The defendants plainly considered and explored the possibility of accelerating the vesting of the inter vivos settlements between 2002 and 2005, and it was their preference to do so. However, there were legal and taxation issues arising from the cohabitation agreement that posed impediments to that course. For that reason, the defendants did not exercise Leerac's discretion to accelerate the vesting date at that stage. That was a decision within their remit, and one not open to review by the Court. Potential beneficiaries are not entitled to have trustees removed because the trustees do not exercise a discretion in favour of that beneficiary. The defendants were entirely entitled to determine, having given the matter due consideration, not to accelerate the vesting date, at least at this stage. The reasonableness or fairness of that decision is not open to review, and they are not liable to be removed on account of having made a decision with which the plaintiffs disagree. In reality, the plaintiffs' complaint is that having given consideration to the exercise of the relevant discretion, the defendants as directors of Leerac have chosen not at this stage to exercise it, for insufficient reasons. Even if their reasons were insufficient, that would not justify their removal. 159 While the defendants in considering whether or not to exercise Leerac's discretion to accelerate the vesting date were entitled to have regard to Garrick's financial position, the circumstances attending the Moss Vale mortgage did not oblige them to exercise that discretion: they were not implicated in the creation of any expectation or assumption that there would necessarily be an acceleration or capital distribution sufficient to fund repayment of the loan, and Garrick had no right to have their discretion exercised in his favour. 160 The intention formed by the defendants in or about 2002 to accelerate the vesting date and distribute capital to the children equally, if the issues with Mrs Tripp could be resolved and a tax-effective solution implemented, was not a decision of legal significance; it was not an exercise of any relevant discretion but a provisional intention. In any event, to the extent that the defendants had formed an intention to accelerate the vesting date and distribute capital, it was conditional upon resolving the issues posed by the cohabitation agreement. The initial contention that the defendants should have impugned the cohabitation agreement is no longer pressed; it could not have succeeded, in the light of the uncertain advice as to whether the cohabitation agreement could be impugned, and the expressed wishes of the children that it not be challenged in the courts. The subsequent contention, that the defendants should have been more predisposed to accept Mrs Trip's demands in return for a release, is contrary to the views of all, including the plaintiffs, at the time. 161 Even if the defendants are open to criticism for not perceiving the recently proposed means of achieving a capital distribution through repayment of the Moramba Services loan (notwithstanding that neither their professional advisers, nor those of the plaintiff, did so), it is a criticism that they failed to perceive a means of implementing an accelerated distribution that they were not bound to make, and it simply does not manifest a failure to consider the exercise of the discretion to accelerate the vesting date, whether of the will trust or of the inter vivos settlements. 162 The plaintiffs' case proceeds on the misconceived basis that there is some, at least prima facie, disposition in favour of an accelerated distribution. If anything, however, the prima facie position is that the trusts will subsist until they vest in accordance with their terms. At the highest, the defendants as trustees of the will trust, and Leerac as trustee of the inter vivos trust, were required to give due consideration from time to time as to whether they should exercise their respective discretion to accelerate the vesting date in respect of the whole or part of the assets of the will trust or the inter vivos settlements. I do not accept that they have not done so, and I am entirely unpersuaded that the defendants will not from time to time in the future give due consideration to the exercise of the discretion to accelerate the vesting date, whether of the inter vivos settlements or of the testamentary trust, and whether in whole or in part. 163 Accordingly, the plaintiffs' principal complaint – that the unfitness or inappropriateness of the defendants remaining as trustees of the will trust is demonstrated by their failure to give proper consideration to the vesting of the inter vivos settlements and/or the clause 3 will trust – fails. 164 As to the subsidiary complaints, they are tangential to the real issues between the parties. Some of them (failing to appreciate the terms of the discretionary trusts administered by Leerac; failing to cause Leerac to provide information concerning the discretionary trusts; inability to be impartial following the creation of the Moss Vale mortgage; and Mr Halliday), are entirely without substance. While others (procuring execution of the deeds of indemnity; invoking the non-contest clause; animus towards the plaintiffs; excessive payments to Mr Au; and Leerac's payment of funds to the defendants' solicitors to fund their defence of these proceedings), especially taken together, are cause for deeper thought, nonetheless: · the failure to ensure that the children received advice as to the contents of parts of Mr Rosenblum's letter before executing the deeds of indemnity might suggest an adversarial attitude, but in the context of what the children were then seeking it was reasonable for the defendants to insist on their own position being protected, and the children were independently advised; · the matters relied upon as illustrating animus are not a legitimate basis for that conclusion. To the extent that the institution of prosecution of the present proceedings has created any ill will, the defendants cannot reasonably be blamed for that; · the defendants did not in fact invoke the non-contest clause, but raised it to be tested in the proceedings, suspending distributions in the meantime. That was not an unreasonable course; · although the payments to Mr Au seem prima facie generous, the evidence does not show them to be excessive; · it would be inappropriate in these proceedings, to which Leerac is not a party, to determine whether it was a breach of trust for Leerac to contribute to the funding of the defence. The contrary is arguable - that it was in Leerac's interests to secure a finding that its directors had not acted inappropriately as such. In addition, the defendants had legal advice that they were entitled to resort to the funds held by Leerac for that purpose. Leerac has now sought judicial advice on the question. These factors suffice to warrant rejection of the contention that this matter requires a conclusion that the defendants cannot be relied upon properly to administer the will trusts. 165 Moreover, those matters have to be weighed against the wishes of the daughters, Mr Fay's confidence in the defendants, and his intention that they have wide powers and immunities. 166 Accordingly, I am unpersuaded that the defendants cannot be relied upon properly to administer the will trust in the future, or that the welfare of the trust estate is opposed to their remaining in office. That is all the more so where, as in respect of these trusts, the plaintiffs are but potential beneficiaries, whose rights are limited to having the trusts duly administered. It follows that I will not remove the defendants as trustees. 167 It therefore seems to me that, in the main proceedings (5032/06 – Fay v Au), the proceedings should be dismissed. In the mortgage proceedings (3365/07 – Fay v Moramba Services Pty Ltd), the statement of claim should be dismissed, and on the cross-claim there should be judgment for the cross-claimant for possession of the Moss Vale property. 168 The parties have sought an opportunity to be heard on the question of costs. It will also be necessary to deal with the application for judicial advice in respect of Leerac's funding of the defendants' costs of their defence. 169 My orders are: A. In proceedings 5032/06: 1. Order that the proceedings be dismissed. B. In proceedings 3365/07: 2. Order that the Statement of Claim be dismissed. 3. Give judgment for the cross-claimant Moramba Services Pty Ltd for possession of the property situate at and known as Lot X Mt Ashby Road, Moss Vale in the State of New South Wales being the land comprised in folio identifier X/X97238. 4. Reserve liberty to apply by arrangement with my associate for leave to issue a writ of possession. 170 The proceedings are adjourned to 11 February 2010 for argument as to costs and directions in respect of proceedings 6250/08 (the judicial advice proceedings). ********** 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.