Hargrave v Schumann

[2010] NSWSC 1415

CITATION:	Hargrave v Schumann & Anor [2010] NSWSC 1415
HEARING DATE(S):	26 November 2010
JURISDICTION:
JUDGMENT OF:	Ball J
EX TEMPORE JUDGMENT DATE:	26 November 2010
DECISION:	The Court orders that: 1. Order 4 made 5 November 2010 be varied by: a. vacating it in its current form; and b. Substituting the following order: "Until further order the net proceeds of sale (as defined in Order 1 of the orders dated 5 November 2010) shall be paid into the Trust Account of Stuart Cook & Braham and from the amount then in the trust account of Stuart Cook & Braham, the second defendant, as trustee, may pay to the first defendant as a beneficiary under the Nasrat Family Trust: (i) $2,000 representing the first defendants stipend for November 2010 as soon as practicable; (ii) $2,000 representing the first defendants stipend for December 2010 as soon as practicable; (iii) $2,000 on or about the first business day of every month thereafter; (iv) $60,000 to the first defendants legal representatives upon presentation of tax invoices from time to time as soon as practicable; (v) With the balance (less the sum on $18,000) then to be paid into an interest bearing deposit at the sole discretion of Rober Hardinge Braham, Solicitor at Tenterfield." 2. The defendants costs of the notice of motion dated 4 November 2010 be the defendants costs in the cause,
CATCHWORDS:	EQUITY – trusts – where litigation is on foot concerning proceeds of sale of trust property – whether appropriate to grant order permitting trustee to make distributions to defendant for living expenses and legal costs
CATEGORY:	Procedural and other rulings
CASES CITED:	Application by Gnitekram Marketing Pty Limited [2010] NSWSC 1328]
PARTIES:	Elizabeth Hargrave (Plaintiff) Paul Schumann (First Defendant) Gnitekram*Marketing Pty Limited (Second Defendant)
FILE NUMBER(S):	SC 2010/317164
COUNSEL:	No Appearance (Plaintiff) I W Raine (First Defendant) J Walsh (Second Defendant)
SOLICITORS:	No Appearance (Plaintiff) Martin Legal (First Defendant) John Walsh & Partners (Second Defendant)

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IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BALL J

26 NOVEMBER 2010

2010/317164 ELIZABETH HARGRAVE v PAUL SCHUMANN & ANOR

JUDGMENT

1 The second defendant in this matter is the trustee of the Nasrat Family Trust. The shareholder of the second defendant and the “Principal” of the trust is the first defendant. The sole asset of the trust is a farming property at Tenterfield. Settlement of the sale of that property is to occur today. The sale price is approximately $200,000.

2 The family trust was established by the first defendant following the death of his wife, who is the mother of the plaintiff. The Tenterfield property was originally owned by his wife but he inherited it from her on her death. It was either transferred directly to the second defendant as trustee or to the first defendant and then to the second defendant as trustee.

3 Following the first defendant's wife's death, the first defendant remarried. That marriage broke down and, apparently with the intention of protecting the trust assets from his second wife, the first defendant transferred his share in the second defendant to the plaintiff. Following his divorce, that share was transferred back to the first defendant. There is a dispute about the circumstances in which that happened and the plaintiff has commenced proceedings seeking to have that transfer set aside. Recently, however, the plaintiff's solicitors have ceased to act for her and there has been no appearance by the plaintiff in the proceedings on several occasions. Although the plaintiff was given notice of today's application, she did not appear.

4 On 5 November 2010 the court made orders permitting the trust to sell the Tenterfield property, but requiring the proceeds of sale to be paid into the trust account of Stuart Cook & Braham. The first defendant seeks a variation of that order permitting the second defendant to make distributions to him of, first, an amount of $2,000 per calendar month for his living expenses and, second, an amount not exceeding $92,642.45 in respect of the first defendant's legal costs.

5 The first defendant submits that those variations are appropriate having regard to three main factors. First, the first defendant points out that at present the orders sought by the plaintiff require him to retransfer the share he holds in the second defendant to the plaintiff. In the event that that happened there would be nothing to prevent the first defendant from exercising his power as Principal of the trust to appoint a new trustee. Second, the first defendant submits that the plaintiff's case is weak. Third, the first defendant submits that he will suffer considerable hardship if the order is not made.

6 I accept the first defendant's first submission. It is very difficult to see how, as the proceedings stand, any relief the plaintiff obtained would have a practical effect on distribution of the trust assets where the first defendant simply has the power to replace the trustee. In those circumstances I do not think it is necessary for me to embark on an enquiry into the strength of the plaintiff's case in the proceedings as they are currently framed.

7 Mr Raine, who appeared for the first defendant, drew my attention to the fact that, before the plaintiff ceased to be legally represented, her legal representatives had indicated that the plaintiff was considering amending her claim to claim an interest in the property at Tenterfield on the basis that she had worked on that property for a period of time for no wages. No claim of that type, however, has been brought. There seem to be considerable difficulties in the way of it since there is no suggestion that the plaintiff contributed to the purchase price of the property or any mortgage payments made in respect of the property. In any event, any such claim could not be in respect of the whole property or the proceeds of sale from it.

8 The evidence is that the first defendant faces considerable financial hardship. He is living in Cambodia at the moment. He does own one property. However, it appears he has no income and is not entitled to any social security and has very limited cash reserves. In those circumstances I think that it is appropriate that I make an order permitting an amount of up to $2,000 per calendar month to be paid to the first defendant.

9 That leaves the amount in respect of legal fees. Mr Raine drew my attention to the decision of Hallen AsJ handed down on 17 November 2010 (see Application by Gnitekram Marketing Pty Limited [2010] NSWSC 1328) in which his Honour refused to give judicial advice that it would be proper for the second defendant to pay the costs of the second defendant and first defendant of these proceedings at a time when they were jointly represented. I accept, however, that the order now sought in respect of the legal costs is not inconsistent with that judgment. Hallen AsJ’s order was concerned with amounts the trustee could pay as trustee. The present order concerns amounts that the trustee can distribute to a beneficiary.

10 In my opinion it is appropriate that some amount be retained pending the resolution of these proceedings. However, it seems to me that at the most, on any view, the plaintiff is unlikely to recover more than about half the net proceeds of sale so that an order which preserves an amount roughly equivalent to that amount will adequately protect the plaintiff. That is particularly so in circumstances where, as I have mentioned, the first defendant does have one other property and consequently, if necessary, is in a position to meet a judgment against him out of the proceeds of sale of that property.

11 Taking these considerations into account I think that the appropriate order is to permit the second defendant to distribute an amount up to $60,000 in respect of the first defendant's legal fees. That amount, together with the monthly distributions that will be made to the first defendant, will still ensure that substantial amounts remain in the trust by the time this case is heard and determined.

12 I make orders in terms of the short minutes of order which I have initialled and dated today’s date and placed with the papers which give effect to those orders.

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