FEDERAL COURT OF AUSTRALIA

Wily (as Trustee of the Bankrupt Estate of Fuller) v Fuller [2000] FCA 1512

TRUSTS – Discretionary trust in the Channel Islands resettled on other discretionary trust located in Channel Islands – beneficiaries of trust charitable organisations – actions of trustee corresponded with “wishes” of respondent – whether “in reality” trust was bare trust with respondent as sole beneficiary and so available to trustee in bankruptcy as asset in the respondent’s bankrupt estate – whether trustee of Channel Islands trust a necessary party to proceedings brought by trustee in bankruptcy claiming that debt owed by third party to Channel Islands trust was an asset of the respondent’s bankrupt estate.

PRACTICE AND PROCEDURE – parties – application to be dismissed as a party to proceedings – no remedy sought against respondent – respondent throughout interlocutory proceedings had not applied to be dismissed as a party to proceedings – alleged motivation for respondent’s application being to prevent transcript of his examination under s 81 of the Bankruptcy Act 1966 (Cth) being adduced as evidence – whether respondent should be dismissed as a party

Bankruptcy Act 1966 (Cth) ss 81, 121

Sharpe v San Paulo Railway Co (1873) LR 8 Ch App 597 considered

Ramage v Waclaw [1988] 12 NSWLR 84 referred to

Colonial Mutual Life Assurance Society Ltd v Donnelly (1998) 82 FCR 418 discussed

News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 referred to

Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449 cited

HUGH JENNER WILY as Trustee of the Bankrupt Estate of MICHAEL JOHN FULLER AND M J FULLER SERVICES PTY LIMITED (In Liquidation) v

LAIMA ANN FULLER

LYNN WILKINSON and NORA WILKINSON

MICHAEL JOHN FULLER

NG 7049 of 1996

HILL J

27 OCTOBER 2000

SYDNEY

THE COURT ORDERS THAT:

1.         The application be dismissed.

2.         The applicants pay the second respondent’s costs.

3.         No order be made as to the costs of the first and third respondents.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     Before the Court is an application by Hugh Jenner Wily (“Mr Wily”), the trustee of the bankrupt estate of the third respondent, Michael John Fuller (“Mr Fuller”). Mr Wily seeks, inter alia, a declaration that from 16 October 1986 and at all times thereafter St Helier Trustee Company Limited (“St Helier”) was the trustee of a bare trust, the sole beneficiary of which was Mr Fuller, so that the assets of that trust (and specifically a loan made by St Helier as trustee on or about 22 August 1990) to Mr and Mrs Wilkinson (“the Wilkinsons”), the second respondents, formed part of the bankrupt estate of Mr Fuller and vested on his bankruptcy in Mr Wily.

2                     The Wilkinsons do not dispute that a loan has been made to them by St Helier on or about 22 August 1990 but allege that St Helier, in making that loan, did so as trustee of  the Vilnius Trust, a trust of which Mr Fuller was not a beneficiary at all.  If the submissions of the Wilkinsons are accepted, no interest in the loan to them vested in Mr Wily on the bankruptcy of Mr Fuller.

3                     The claim now brought by Mr Wily was but one among a number of claims pleaded in Mr Wily’s statement of claim, filed on 28 May 1998.  The proceedings, as originally commenced, included St Helier as a respondent and made claims against that company.  At some stage a settlement was arrived at between Mr Wily and St Helier and in the result St Helier ceased to be party to the proceedings.

The background facts

4                     The following account of the dealings involving Mr Fuller and St Helier is largely derived from documentary evidence tendered on behalf of Mr Wily and is not substantially in dispute.  

5                     As at October 1986 the documentary material makes it clear that Sovereign Trustees Limited, as trustee of the Chinook Trust, an offshore trust, was about to receive an amount of $US 3,000,000 from the proceeds of sale of options in Independent Resources Limited, an Australian public company.  Just how the Chinook Trust came to be entitled to receive that amount is, however, much less clear.  There is reference to the transaction in the transcript of the examination of Mr Fuller under s 81 of the Bankruptcy Act 1966 (Cth) (“the Act”) and in the transcript of proceedings conducted in the Administrative Appeals Tribunal pursuant to an application by Mr Fuller brought under s 149Q of the Act.   It must be said that Mr Fuller’s answers to questions put to him on both occasions were often vague and it is possible to reach the conclusion that he was deliberately elusive.  In the result it is difficult to be certain precisely what happened.  I  have little doubt that Mr Fuller knew a great deal more about the transaction than appears in the transcripts.

6                     Mr Fuller and Mr Wilkinson, along with another person, a Mr Cook, were the directors of Gloucestershire Investments Pty Limited (“Gloucestershire”).  Gloucestershire was the trustee of a unit trust known either as the Gloucestershire Unit Trust or the Gloucestershire Investment Trust.  The units in this unit trust were held by trustees of a number of discretionary trusts the beneficiaries of which were members of the family of Mr Fuller, Mr Wilkinson, an accountant who also acted for Mr Fuller, and Mr Cook.  There were six such discretionary trusts, two associated with each of the persons just named.  Gloucestershire had previously underwritten the issue of options by Independent Resources Limited.  On issue, the options were undersubscribed so that Gloucestershire, as underwriter, was required to take up options to the extent of the undersubscription

7                     Although the evidence is far from clear, it seems that Mr Wilkinson arranged for Gloucestershire to sell the options to a company in Guernsey at what was said to be market value.  At some stage, when the options had become valuable, they were sold through brokers.  In the result there was a profit of $US 3 million. Whether the company which purchased and sold the options was Sovereign Trustees Limited, the trustee of the Chinook Trust, or whether there was some other interposed entity is not known.  All that is known is that in some way the Chinook Trust became entitled to the profit.

8                     Although the trust deed of the Chinook Trust was not in evidence, it was alleged by Mr Wily and not disputed by either Mr Fuller or the Wilkinsons that the terms of the trust deed constituting the Chinook Trust were similar to the terms of the trust deed constituting the  Vilnius Trust, the relevant provisions of which are later set out.  Although, as will be seen, the beneficiaries named in the deed constituting the Chinook Trust were charities such as the Swiss Red Cross, the contemplation was, it may be inferred, that by the addition at a later point of time of other beneficiaries the assets of that trust would find their way to benefit four families, including the Fuller, Wilkinson and Cook families as well as the family of a Mr Somes.  There is nothing to suggest that Mr Fuller was named as a beneficiary of any of the Australian discretionary trusts or of the Chinook Trust.  In the transcripts to which reference has been made Mr Fuller would have one believe that Mr Wilkinson was the guiding mind of the transaction and that he, Mr Fuller, knew little about it until a meeting in October 1986 which he attended and which is dealt with later.  I would doubt that Mr Fuller was kept by Mr Wilkinson in such a state of ignorance.

9                     In or around September 1986 Pennant Pacific Resources Inc, a United States corporation not in any way associated with the Fuller/Wilkinson interests, entered into an agreement with Gloucestershire under which it was to acquire units in the unit trust and 50% of the shares in Gloucestershire.  The transaction took the form of the American company acquiring by subscription inter alia new units in the trust for $5,000,000.  Documentation associated with the transaction indicates that prior to September 1986 Gloucestershire had sold all its convertible options and had only shares in Independent Resources Limited.  This transaction seems to have nothing to do with the $US 3 million which reached the Chinook Trust.

10                  Ultimately, all that is certain is that Mr Fuller, either in his own right or otherwise, had no entitlement to the amount of $US3,000,000 and that the Chinook Trust received the amount.  No submission was made on behalf of Mr Wily, or for that matter, any other party, that it was relevant to understand how it came about that the Chinook Trust became entitled to receive the $US3,000,000.

11                  Subsequently an agreement was reached by Mr Wilkinson, Mr Fuller, Mr Cook and Mr Somes that the share of trust assets relating to Mr Somes would be segregated from the remaining assets and be held for the ultimate benefit of Mr Somes.  Accordingly on 14 October 1986 Sovereign Trustees resigned as trustee of the Chinook Trust so that it could act as the trustee of another trust for the ultimate benefit of the family of Mr Somes.  In its place, St Helier was appointed the new trustee of the Chinook Trust. 

12                  On 15 October 1986, a meeting was held at the offices of St Helier.  In attendance at that meeting were Messrs Fuller, Wilkinson and Cook as well as Sheldon Cordell, a solicitor from London who acted for Mr Fuller, and two officers of St Helier, Morris Evans and Sydney Holley.  A minute of this meeting records:

“It was agreed that four new Declarations of Trust be created and for the assets comprising the Chinook Trust namely, the cash funds and the bearer shares to be appointed out, or advanced to the four new Declarations of Trust as follows: -

1.         The Wilkinson Trust    -   one-third share

2.         The Vilnius Trust         -   one-third share

3.         The Cook Trust           -   one-sixth share

4.         The Somes Trust         -   one-sixth share

It is agreed that each of the four new parties will prepare a Letter of Wishes addressed to St Helier Trust Company Limited with regard to their respective trust funds and each party submits a note of their handwritten wishes which will be used as the basis to prepare a formal Letter of Wishes for each to sign.”

13                  Four trust deeds were signed that day.  The trusts constituted by them were styled the Vilnius Trust, the Mutley Trust, the Batman Trust and the Robin Trust.  The proceeds of the sale of the options were ultimately distributed to these trusts in the proportions one third to the Vilnius Trust and the Mutley Trust and one sixth to each of the Batman and Robin trusts.  The four trusts were, to put the matter in general terms, intended ultimately to benefit the families of Mr Fuller, Mr Wilkinson, Mr Cook and Mr Somes respectively.  It is only the Vilnius Trust with which the present proceedings are concerned.  It was clearly, although this is not reflected in the terms in which it was written, intended for the benefit of the Fuller family.

14                  The trust deed of the Vilnius Trust, adduced in evidence, provided that at the expiration of a period referred to as “the Discretionary Period” (in effect a perpetuity period, 80 years or such earlier date as the trustee might appoint) the trust fund was to be held upon trust for such of the “beneficiaries”, living or in existence as the trustees should in writing appoint and in default for such of them as should then be living or in existence and if more than one equally.  The deed defined the “beneficiaries” to be the Swiss Red Cross, Lions International, United Nations Children Fund and any person appointed by the trustees in writing.  Prior to the expiration of the Discretionary Period the trustees had a discretion to appoint income or capital among the beneficiaries.  Subject to such appointment income was to be accumulated.

15                  Among the powers of the trustees was a power to resettle for the benefit of any one or more of the beneficiaries or to transfer the whole or part of the capital of the trust to another trust provided that the transfer was for the benefit of all or any one or more of the beneficiaries.  The trustees were empowered to make loans with or without interest and with or without security to any beneficiary.

16                  In the transcript of the proceedings in the Administrative Appeals Tribunal Mr Fuller suggested that the form of the trust deeds was, at least in part, dictated by income tax considerations.  He said that it was his understanding that he could expect discretions of the trustee to be exercised in accordance with his wishes and that that would apply to the wishes of his wife as well, at least so long as the trustees did not have a particular difficulty with a particular request.  He conceded that he had an ability to influence the decisions of the trustee “in a way that was positive in terms of whatever he asked them to do”.

17                  On 20 October 1986 St Helier, according to the ledger account it kept for the Vilnius Trust, exchanged two amounts of $US497,000.00, one for $A778,386.84 and the other for CHF805,637.  It did so at the request of Mr Fuller contained in an undated handwritten note which included an “immediate instruction” to “convert US dollars in equal proportions  or as near as may be in Australian dollars at call and Swiss Francs 30-60 day at best rate with reputable bank”.

18                  On 17 November 1986 Mr Fuller sent a fax to St Helier saying that he “would appreciate [St Helier] making as soon as possible” two transfers out of the Australian dollar deposits of the trust.  These were, first, a transfer of $A410,000 to the Mutley Trust and, secondly, a transfer of $A150,000 to M J Fuller Services Pty Limited (“Fuller Services”) with both transactions “to be recorded as unsecured loans with no fixed term but repayable on demand and for so long as remaining unpaid or satisfied interest shall accrue six monthly in arrears at the rate of 14% per annum”.  On 24 November 1986, the Trustee resolved to lend $A410,000 to the Mutley Trust and on 26 November 1986 the Trustee resolved to lend $A150,082.75 to Fuller Services.  Each loan was made on the terms set out in Mr Fuller’s letter.

19                  On 19 November 1986, Mr Fuller wrote to St Helier as follows:

“This letter is written to you in your capacity as trustee of the Declaration of Trust made by you dated 15 October 1986 and known as the Vilnius Trust…

Although I appreciate that the trusts, powers and discretions given to you by the Trust are exercisable by you and that I do not have any legal right to interfere in any way in the manner in which you exercise the same, I am writing to you to set out my wishes as to the future administration of the Trust.  I would hope that you will deal with the Trust Fund (as defined in the Trust) and will exercise your powers and discretions in accordance with such wishes, although I realise that you are not legally bound to do so.

It is my wish that, during my lifetime, you should have regard to my wishes and that you will exercise the powers and discretions conferred upon you by the Trust in accordance with such wishes.

…

It is, further my wish that you should appoint me Michael John Fuller as investment adviser to the Trust upon such terms as may be agreed between you and myself.”

20                  On 2 December 1987 the ledger account of the Vilnius Trust was debited with $A505,589.18 for the purchase of  300,000 shares in the company Jingellic Minerals NL and 400,000 shares in Enterprise Gold Mines NL.  A letter from Mr Fuller to Morris Evans of St Helier of 20 November 1987 states that the purchase had been arranged by Sheldon Cordell through Kingston Securities Australia Limited.  The letter continues: “Please remit to him funds as requested by him to complete.  Shares will become assets of Trust upon completion”.  It is said that the shares subsequently became valueless.

21                  On 22 May 1989 Mr Fuller requested that $A48,730 be remitted to a bank account in the name of GJ and HM Silvy.  The funds were for the purchase of 160,000 fully paid shares in Claremont Petroleum NL.

22                  On 12 July 1989 Susan Etienne, an officer of St Helier recorded a conversation she had had with Sheldon Cordell in which he advised her that the loan made by the Vilnius Trust to the Mutley Trust (see para 13) “has been repaid in Australia and [that they] are therefore to prepare documentation releasing Mutley from the loan”.  On 15 September 1989, a letter was received by St Helier from Mr Fuller stating that “it is my wish that you should waive the loan of Australian dollars 410,000.00 together with any accrued interest to date”.  That day, St Helier passed a resolution waiving repayment of the loan.  The resolution noted that “a letter [had] been received from ... [Fuller] requesting that the Trustees waive the loan” and that the loan had been repaid by “alternate arrangements outside of the two Trusts”.  The resolution then notes that the trustees had discussed the matter and decided to waive repayment of the loan.

23                  On 22 December 1989 a facsimile was sent by Mr Fuller to Sheldon Cordell requesting that he have the trustee remit $A50,000 to Maifle Proprietary Limited.  A later memorandum from Susan Etienne to Mr Fuller (dated 19 March 1993) notes that “A$150,000 was paid to M J Fuller Services Pty Limited on 28 December 1989 as requested in your fax of 22 December 1989 addressed to Sheldon Cordell.  This payment was treated as a loan to yourself”.  A file note of Susan Etienne dated 16 March 1990 records that Mr Fuller had requested that this loan be written off.  In the course of his examination under s 81 of the Act, Mr Fuller said that Maifle was a company that an acquaintance of his, Mr Fleming, had an interest in and that the $A50,000 remittance had been for the purpose of a loan for the benefit of Maifle to provide for additional capital and the discharge of debts.  Mr Fuller on being asked if the amount has ever been repaid said:  “Yes, not to the trust, I think from memory Fleming has paid some money equivalent to my wife equivalent to that sum.”

24                  On 16 March 1990 Susan Etienne noted:

“Michael Fuller wishes to liquidate some of the Swiss Francs with Vilnius.  The fixed deposit matures on Monday, 19^th March, and I explained that the bank will have already arranged to re-fix the deposit and that it will cost a fair amount to break it.  Mr Fuller is not worried about the costs and wants the fixed to be broken as soon as possible and the following transactions carried out: -

1.                  The Australian Dollar equivalent of [CHF]50,000 to be telegraphically transferred to: -

National Australian [sic] Bank …

A/C Of:            MJ & LA Fuller

…

2.                  [CHF]150,000 is to be held in cash, in the name of Mrs LA Fuller and Mr Fuller will arrange for this to be collected at some stage later this month…

3.                  The balance on the Swiss Franc account is to stay on call for the time being.”

25                  On 19 March 1990, St Helier resolved to appoint Mrs Fuller a beneficiary of the Vilnius Trust with immediate effect.  Further, it resolved to create a fund in favour of Mrs Fuller in the amount of CHF150,000 and that a capital distribution of the Australian dollar equivalent of CHF50,000 be also made to her.

26                  On 23 March 1990 Ms Simon of St Helier sent a fax to the Royal Bank of Scotland referring to a sum of the Swiss franc equivalent of $A10,000 and advising that this was to be collected by a David Andrew Fleming.  This, presumably, is the same Mr Fleming who is referred to earlier in respect of the remittance of $A50,000 to Maifle Pty Ltd.

27                  On 23 July 1990 a fax from St Helier confirmed Mr Fuller’s instructions that $A50,000 be remitted to a trust account in his name with Baker O'Loughlin, an Adelaide firm of solicitors.  At the bottom of the page was written: “treat as a loan to MF for the time being”.  The file note of 19 March 1993 notes that this amount was paid to Baker O'Loughlin’s trust account and was treated as a loan to Mr Fuller.  It does not appear that Mr Fuller had ever personally been appointed a beneficiary by St Helier.  On 26 July 1990, St Helier resolved to lend to Mr Fuller $A50,000 free of interest and repayable on demand.

28                  On 27 July 1990 Susan Etienne confirmed, in a file note, an earlier facsimile dated 24 July 1990 from Mr Fuller instructing that the Swiss Franc equivalent of $A19,000 was to be paid to a Mr Nash in respect of shares that Mr Nash was purchasing on behalf of Mr Fuller.  Ms Etienne also recorded that Mr Fuller did not want the shares to be shown as an asset in the trust books so asked that the remittance be recorded as a loan to Mr Nash which would be repaid at a later date.  That day St Helier resolved to lend CHF20,482 to Mr Nash.

29                  On 15 August 1990 the sum of $A50,000 was transferred to the trust account of Baker O'Loughlin and was treated by St Helier as a loan to Mr Fuller.  The transfer followed a request made by Mr Fuller by fax on 10 August 1990.  This transfer was additional to the transfer referred to in para 20 of these reasons.

30                  On 17 August 1990 Mr Fuller faxed Ms Etienne asking her to remit in Canadian dollars the equivalent of CHF100,000 to the account of the Wilkinsons with the Canadian Imperial Bank of Commerce.  On 20 August 1990, St Helier sent a letter to the Royal Bank of Scotland requesting that CHF100,000 be transferred to the Wilkinsons’ account with the Canadian Imperial Bank of Commerce.  A confirmatory statement from the Royal Bank of Scotland dated 20 August 1990 indicates that a payment order had been issued in relation to the Wilkinsons’ account but that settlement would take place on 22 August.  On 22 August, St Helier resolved that sum of CHF100,000 was to be loaned to the Wilkinsons on the terms that it was to be free of interest “at present” and repayable on demand.  It is this transaction which gave rise to the loan said to have been made to the Wilkinsons from the Fuller Bare Trust.

31                  On 17 September 1990 Mr Fuller requested Ms Etienne remit $A46,400 to an account with the State Bank of South Australia in the name of “Australian Formula 1 Grand Prix Board Operating Account”,allegedly for the purchase of a corporate box.  On 20 September Mr Fuller called Ms Etienne and confirmed to her that the payment was to be treated as a loan to him.  The transaction took place on 17 July 1991 and was recorded as a loan to Mr Fuller by St Helier.

32                  On 18 September 1990, a further CHF129,736.87 was transferred to the Wilkinsons’ account with the Canadian bank.  A similar confirmatory statement from the Royal Bank of Scotland to that referred to above was issued in relation to this transaction.  It appears that this transaction was carried out on the basis of a facsimile dated 17 September 1990 which was signed by Mrs Fuller.

33                  On 15 July 1991 Mr Fuller requested Ms Etienne to remit the Australian dollar equivalent of CHF100,000 to the trust account of Baker O'Loughlin.  Again, the memorandum from Ms Etienne to Mr Fuller of 19 March 1993 indicates that the remittance was made on 17 July 1991 and that St Helier treated this as a loan to Mr Fuller.

34                  While this was happening, proceedings had been commenced at the suit of Claremont Petroleum NL (“Claremont”) and Beach Petroleum NL (“Beach”) against Mr Fuller for breach of his obligations as a director under ss 233 and 229 of the Companies (Qld) Code 1981.  On 11 September 1992, judgment was delivered by Wilcox J in these proceedings.  His Honour ordered that judgment be entered in favour of Claremont against Mr Fuller in the sum of $A493,750. This decision was upheld on appeal to a full Court of this Court.  Claremont thereafter issued and served a bankruptcy notice on Mr Fuller in relation to this judgment debt and then, on his failing to comply, filed with the Court a creditors petition on 7 January 1993.  After an unsuccessful attempt was made by Mr Fuller to organise his affairs under Part X of the Act, a sequestration order was made by this Court on 20 May 1993.

35                  On 21 December 1992, Mr Fuller sent a facsimile to Ms Etienne saying that he would appreciate her transferring all available funds to a bank account in South Australia in the name of Mrs Fuller.  On the next day, another facsimile was sent to Ms Etienne saying:

“Please convert Sterling and Swiss Francs to $A & remit. OK to deduct fees on winding up of Kingston.  I will also wish to close down Vilnius as soon as remaining assets are sold or if not saleable presently can be transferred to LA Fuller.”

36                  On 22 December 1992, Ms Etienne sent a facsimile reply to Mr Fuller confirming that the Sterling and Swiss Franc currency would be sold.

37                  On 25 January 1993 Mr Fuller faxed Ms Etienne as follows:

“Dear Susan,

While I realise that any expression of a wish by me is not binding on the trustee.  In view of the substantial amount of litigation with which I am involved I wish to renounce any capacity I may have to express a wish in favour of my wife Laima Ann Fuller.  I would like you to treat with my wife henceforth after responding to the request next following:

Please supply as soon as convenient a list of debtors & remaining assets of trusts.”

            At the bottom of the copy of facsimile in evidence, is the notation:

“This cancelles [sic] the Letter of Wishes dated 12-11-86.”

            This notation was initialled by Susan Etienne.  Further, a facsimile reply sent that day said:

“Thank you for your fax advising that the Letter of Wishes dated 12^th November 1986 has been cancelled and that we are to look to your wife, Laima Ann Fuller, for guidance regarding the Trust.”

38                  On 1 March 1993, Mr Fuller sent a facsimile to Ms Etienne stating that “it would be appreciated if Kingston would support the proposed scheme for my creditor”.  “Kingston”, here, refers to Kingston Services Inc, a creditor of Mr Fuller.  The following page of that transmission was a memorandum from Laima Fuller to Etienne stating:

“I request that you complete proxy form in the estate of the above so as to appoint as proxy.

Anthony Bernard Fuller c/o Baker O’Lough[lin] or failing him

Greg Parr c/o Andersons

And to vote in favour of a composition and in relation to any other matter in the proxy's discretion.”

39                  In another facsimile to Ms Etienne dated 19 March 1993, Mr Fuller said:

“A statement by you on behalf of the administration of the Trust that neither I nor any member of my family has any interest either present or contingent in the Trust or its assets including assets held by Kingston Services Inc would be helpful.”

            To this fax Ms Etienne replied the same day:

“The reason I wish to speak to you is that in order to prepare the statement confirming that neither you nor any member of your family has any interest either present or contingent in the trust or in its assets, I would need to remove your wife as a beneficiary from the trust.  You may recall that she was appointed a beneficiary on 19 March 1990 and we have distributed funds to her, the latest distributions being on 22 and 23 December 1992 by way of a capital distribution of the remaining cash within the complex.  In the absence of speaking to you, I have therefore arranged for the trustees to remove your wife as a beneficiary of the trust and this has been dated 20 January 1993 so as not to appear immediately after the payments to her in 1992 and before receiving correspondence from Andersons Barker Gossling.  I trust the action taken meets with your approval.”

40                  A facsimile from Laima Fuller to Ms Etienne, stamped as received 19 May 1993 stated:

“The above entities [the Vilnius Trust and Kingston Services] have outstanding loans on their books to third parties eg L & N Wilkinson, Maifle Pty Ltd, L.G. Nash & Others.

I would appreciate the Trust assigning those outstanding loans for a nominal sum in each case to Fidex International Trust Company Limited c/o Volaw Trust of St Helier Jersey.”

41                  A file note of Ms Simon dated 21 May 1993, records a telephone conversation between herself and Mr Fuller as follows:

“Michael Fuller telephoned on 18^th May with reference to the residual loans in Kingston/Vilnius.  He mentioned that Lynn Wilkinson had a Trust with Volaw and he said he wanted us to assign those loans to Volaw.  I said I could do nothing without Lynn Wilkinson's approval and also I would have to check the Deed and speak with Lynn.

Lynn subsequently called me at 11:30 a.m. on the 19^th May to confirm that he was happy that this was done and he had also sent me a long fax.  I asked him who the beneficiaries of his Volaw Trust were and he said it was himself and his family and I therefore told him that, having checked the Deed, there was no way I could assign the loans to that Trust for virtually no consideration as there was no mutual beneficiary.  He asked me to recheck the position, which I did and subsequently telephoned him back the same afternoon.  I also discussed the case with both Brian and Royan and it was agreed that we would have to be extremely careful and certainly could do nothing while there were no common beneficiaries unless the assignment was made for full value.  When I told Lynn this he said he would have to ‘think again’ and revert to us.

One of the worries is that it is being done to maybe defraud Mike Fuller’s creditors and we are to ask Lynn the reason for wanting this next time he phones.  At the time of dictating this file note I have not heard from him again…”

42                  Beach and Claremont took further proceedings against Mr Fuller and others.  On 10 June 1993, von Doussa J gave judgment inter alia against Mr Fuller in the sum of a further $A44,450,000.

The submissions

43                  For Mr Wily it was submitted that the course of dealing outlined above between Mr Fuller and St Helier demonstrated that St Helier routinely gave effect to each and every instruction of Mr Fuller, acknowledging in so doing that Mr Fuller was the real beneficial owner of the trust assets administered by St Helier.  It was thus submitted that the Court should declare that the assets which St Helier purported to hold upon the trusts of the Vilnius Trust were really held upon a bare trust in favour of Mr Fuller as the sole beneficiary.

44                  It was submitted by Mr Fuller, first, that he should cease to be a party to the proceedings and, secondly, that St Helier was a necessary party to the proceedings, but had not been joined, or more accurately had initially been joined but had ceased to be a party.  Without St Helier as a party it was submitted the proceedings were not properly constituted and should be dismissed.  Further, Mr Fuller joined in the submission, made on behalf of the Wilkinsons, that the evidence did not in any event establish that St Helier held assets on a bare trust for Mr Fuller.

45                  Finally, it was submitted on behalf of the Wilkinsons that as Mr Wily had not submitted that the Vilnius Trust was a sham, it took effect in accordance with its tenor, so that the assets of that trust, including the loans made by St Helier to the Wilkinsons, were held upon the trusts of the deed establishing that trust and not for Mr Fuller.

Should St Helier be a party?

46                  The fundamental rule is that in an action to recover trust assets or, in the case of a trustee who has advanced trust money to a debtor, in an action to enforce repayment of that advance, the proceedings should be brought in the name of the trustee.  Where the trustee refuses to institute such proceedings, a beneficiary may commence those proceedings either in his or her own name or in the name of the trustee.  Where the beneficiary takes proceedings in his or her own name the trustee should be joined as a respondent to those proceedings.  That rule is set out in the following passage from Jacobs’ Law of Trusts in Australia at 690-1 as follows:

“[W]here a trustee refuses to institute proceedings against a debtor or to recover trust property, the beneficiary may wish to institute proceedings himself, either in his own name or in the name of the trustee.  The rule here is that the beneficiary may sue in his own name only where the relief sought is in the equitable jurisdiction of the court and even then only where the circumstances are exceptional.  If they are not exceptional or if the proposed action is to be commenced in the common law jurisdiction, the beneficiary's remedy is to sue the trustee for the execution of the trust and then apply for the appointment of a receiver and for leave to sue in the name of the trustee of the receiver…

Where there are special circumstances and the relief sought is in the equitable jurisdiction of the court a beneficiary may take proceedings in its own name, the trustee and other beneficiaries being added as defendants.” (emphasis added)

47                  The learned authors of Jacobs refer to Sharpe v San Paulo Railway Co (1873) LR 8 Ch App 597 at 609-10 where James LJ said:

“I came to the conclusion very clearly, that a person interested in an estate or trust fund could not sue a debtor to that trust fund, or sue for that trust fund merely on the allegation that the trustee would not sue; but that if there was any difficulty of that kind, if the trustee would not take proper steps to enforce the claim, the remedy of the cestui que trust was to file his bill against the trustee for the execution of the trust, or for the realisation of the trust fund, and then to obtain a receiver to use the trustee’s name, who would, on behalf of the whole estate, institute the proper action or the proper suit in this court.”

48                  Both the passage from Jacobs and the quotation from the judgment in Sharpe v San Paulo Railway Co were referred to with approval in Ramage v Waclaw [1988] 12 NSWLR 84 by Powell J.

49                  While it is true that the present is not a case where the trustee of a trust is seeking to recover a trust asset, or seeking to obtain payment of a debt owing to the trust I think the same principle must apply where there is a dispute among beneficiaries as to the beneficial ownership of trust property.  The substance of the present proceeding is a claim by Mr Wily as trustee of the bankrupt estate of Mr Fuller that he is entitled in equity to be repaid the loan to the Wilkinsons.  If St Helier, as trustee, so it is alleged, of the Fuller Bare Trust  were not a party to the proceedings, it would not be bound by the outcome of the case.  Thus even if it were not necessary as a matter of law that the trustee be a party, it would be appropriate as a matter of discretion for the Court to require that the trustee be joined as a party.

50                  When the matter was raised, not surprisingly, senior counsel for Mr Wily submitted that the proceedings should be amended by joining St Helier as a party and that leave should be given to amend the application and statement of claim to permit this, even if, as he submitted, it was unnecessary that this be done.  It was submitted for the respondents that leave should not be given at this late stage, especially where St Helier had originally been a party to the proceedings, but had been removed as such by consent.

51                  After hearing argument I announced to the parties that as presently advised I was of the view that St Helier was a necessary party but that before deciding whether or not to grant leave to join St Helier, notwithstanding that it had been dismissed as a party at an earlier stage in the proceedings, I would consider the merits of Mr Wily’s claim and deliver an interim judgment dealing with that on the evidence presently before me.  Only if I was of the view that Mr Wily could succeed on that evidence in establishing that the loan to the Wilkinsons was held by St Helier on a bare trust for Mr Fuller would I entertain an application to join St Helier again as a party, a course which would subject the parties both to additional expense and delay.  Both counsel and Mr Fuller were content with this course.

52                  Before turning to other matters it is necessary to say something about the circumstances in which St Helier in fact ceased to be a party to the litigation.

53                  The present proceedings commenced in May 1997.  St Helier was a respondent to those proceedings.  Mr Wily claimed that a loan made by St Helier to a trust styled the Mutley Trust on 24 November 1986 was made in breach of trust, that a subsequent waiver of that loan was of no effect or made with the intention to defraud Mr Fuller’s creditors  and was void under s 121 of the Bankruptcy Act or was ultimately ineffectual since St Helier was trustee of the Mutley Trust.  Mr Wily reached a settlement with St Helier which was reflected by an order made by the Court on 15 February 1999.  The terms of that settlement are unknown.  The order made as a consequence of the settlement was that the claim of Mr Wily be dismissed as against St Helier.  It is possible that Mr Wily and St Helier gave mutual releases.  Again, that is something of which the Court and the parties other than Mr Wily are unaware.    These circumstances demonstrate why it would be undesirable, unless it is truly necessary that St Helier once more be joined as a party to the proceeding.

Should Mr Fuller remain as a party to the proceedings?

54                  By virtue of Order 6 Rule 9 of the Federal Court Rules the Court has a discretion, either on application by a party or of its own motion to order that a person cease to be party.  Counsel for Mr Wily submitted that the discretion should not be exercised in the present circumstances to remove Mr Fuller.   It was argued that Mr Fuller had, from the moment the case had been commenced to the present time, been content to take a quite active role in the proceedings and that it was now too late for him to apply to have the proceedings dismissed as against him.  Secondly, it was argued that Mr Fuller was seeking to gain a forensic advantage in having the proceeding dismissed as against him in that, without Mr Fuller as a party, Mr Wily would not be able to get into evidence the transcript of Mr Fuller’s examination under s 81 of the Act.

55                  The matter is somewhat unusual in that ever since the proceedings commenced no remedy has been claimed against Mr Fuller, nor has Mr Fuller at any time until the hearing sought to have the proceedings dismissed as against him.  On 13 January 1999 in an interlocutory judgment I noted then that it was hard to see why Mr Fuller was joined as a party other than that he had an intellectual and perhaps emotional interest in the proceedings.  As I then said, there may be cases where it is appropriate that a bankrupt be a party to proceedings by a trustee in bankruptcy to recover the property of the bankrupt for the benefit of creditors, for example, where there could be a surplus in the estate after creditors were paid in full.   That was not, however, the present case.  Further I pointed this out orally to Mr Fuller on more than one occasion.  On each occasion Mr Fuller appeared more than happy to remain a party.  It may be presumed that he saw an advantage to himself in this course.

56                  In argument, reference was made to the decision of a full Court of this Court in Colonial Mutual Life Assurance Society Ltd v Donnelly (1998) 82 FCR 418.  That case concerned an action by a trustee in bankruptcy against a secured creditor for funds received which were alleged to be the property of the bankrupt’s estate.  In the proceedings before the primary Judge, the trustee in bankruptcy had joined the bankrupt as a party.  The bankrupt had been examined under s 81 of the Act and it was sought to tender a transcript of that examination.  A question which arose on appeal was whether the joinder of the bankrupt as a party was an abuse of process, it being argued that the bankrupt had been joined solely for the purpose of admitting into evidence the transcript of the s 81 examination.  There was,  however, no evidence before the Court that the joinder was motivated by that purpose.

57                  It was held that the primary Judge had not erred in joining the bankrupt.  The judgment at one point treats the issue as being whether the primary Judge erred in not removing the bankrupt as a party.  For present purposes the issues involved would be the same.  The Court said:

“So far as the bankrupt is concerned, the trustee’s case rested on serious allegations against the bankrupt, which, if established in criminal proceedings, would exposed him to a penalty of imprisonment: see Bankruptcy Act, s 265(1)… In these circumstances, it was not an incorrect exercise of the judge’s discretion to permit the bankrupt… to continue as [a party].”

58                  Reference was made by the full Court to News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 at 523-5 as to the relevant tests to be applied in determining whether a person should be a party.  The present case is somewhat unusual in that in prior interlocutory proceedings before me Mr Fuller had sought to argue that his bankruptcy was invalid because the act of bankruptcy was based upon a non compliance with a bankruptcy notice relating to a debt arising from a judgment of this Court entered without jurisdiction and based upon the Corporation Law: cf Re Wakim; Ex parte McNally (1999) 163 ALR 270.  Although I rejected the argument I pointed out in a judgment dated 23 December 1999 to Mr Fuller that it was open to him, if he wished, to seek an annulment of his bankruptcy, but subject to the discretion of the Court.  Should Mr Fuller take that course and an annulment be granted it would be open to Mr Fuller to claim that the assets held by St Helier were held either on a bare trust for him or on the trusts of the Vilnius Trust.  Clearly it would be desirable that both Mr Wily as trustee of Mr Fuller’s bankrupt estate and Mr Fuller both be bound by the outcome of the present proceedings, just as it would be desirable that St Helier as trustee be bound.

59                  As a matter of discretion, I would therefore reject Mr Fuller’s application.  He has had plenty of opportunity during the interlocutory stages of these proceedings to apply to be dismissed as a party.  At no stage did he attempt to take advantage of any opportunity so to do.  His application now is, it may be inferred, motivated by the desire to obtain a forensic advantage, namely of securing the inadmissibility of the s 81 transcript.  Indeed, no attempt was made by Mr Fuller to contradict this.  On the other hand, Mr Wily had, until the date on which the matter was set down for hearing, proceeded on the basis that there was available to him as a method of proof, material in the s 81 transcript.  There is a possibility that an order dismissing the proceedings against Mr Fuller at this late stage would operate unfairly to Mr Wily.

60                  In case I should be of the view that the proceedings should be dismissed against Mr Fuller because no relief was sought against him, senior counsel for Mr Wily applied to amend the application in the present proceedings to seek declaratory relief against Mr Fuller. In effect the amendment  sought a declaration that the property held by St Helier upon trust, i.e. the loan to the Wilkinsons, was held upon the Fuller Bare Trust.  The proposed amendment was opposed, substantially on the basis that it had come at a point too late in the proceedings.  Had I been of the view that the proceedings should be dismissed as against Mr Fuller because no relief was sought against him, but that otherwise Mr Wily would be entitled to succeed, I would have exercised my discretion to permit amendment to the application on the basis that the amendment raised no new substantive issue between the parties.  As this is not the case, and as the amendment would ultimately be futile I have decided to refuse to permit the amendment and I so order.  It may be remarked that at the end of the day the admission into evidence of passages from the transcript was of no consequence anyway.  No submission was sought to be made by the Trustee based upon the transcript.  All that a glance at the transcript shows is that in answering questions about the Vilnius Trust and its dealings Mr Fuller approached the task with a considerable lack of  candour. 

The substantive issue – was there a Fuller Bare Trust?

61                  The real issue in the case is whether the loan made by St Helier to the Wilkinsons was, as at the date of Mr Fuller’s bankruptcy, held upon a bare trust for Mr Fuller as senior counsel for Mr Wily submits, or whether, as the Respondents submit it was held upon the trusts of the Vilnius Trust.

62                  It is important to note here that it is not suggested that the trust deed establishing the Vilnius Trust was a sham in the legal sense of that word: cf Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449.  An instrument, or a transaction will be a sham if there was a common intention of the parties to it that the instrument or transaction was a disguise for some other and real transaction or no transaction at all.  The onus would lie upon the trustee in bankruptcy to establish that a trust deed apparently validly entered into was but a facade or a disguise.  Once it is accepted that the deed establishing the Vilnius Trust was not a sham the case for Mr Wily really amounts to no more than a submission that because Mr Fuller exercised a remarkable degree of control and direction, it necessarily followed that St Helier, which generally observed his directions, held assets upon trust for Mr Fuller.  It is important here to recognise, as indeed Sharrment makes clear, that control is not necessarily to be equated with ownership, particularly equitable ownership.

63                  The starting point in an analysis of the relationship among St Helier, Mr Fuller and the Wilkinsons is the profit made on the sale of the options in Independent Resources Limited.  It is conceded, as I have already noted, that this profit accrued to St Helier in its capacity as trustee of the Chinook Trust.  It was also conceded by senior counsel for Mr Wily in opening that the terms of the Chinook Trust were either the same or similar to those which governed the Vilnius Trust.  That is to say, the only beneficiaries specifically named in the trust deed were charities.  More importantly, Mr Fuller was not named as a beneficiary in the trust deed.

64                  There are two possible ways that the assets of the Chinook Trust were thereafter dealt with by St Helier.  The first is that St Helier, acting as trustee of the Chinook Trust exercised the power in the Chinook Trust deed to apply the assets of the Chinook Trust to another trust having as a beneficiary at least one of the persons named as a beneficiary of the Chinook Trust.  The second is that St Helier acted in flagrant breach of its obligations as trustee of the Chinook Trust and applied the whole of the assets of that trust by thereafter holding them as trustee for Mr Fuller.

65                  As has already been noted there was power in the Vilnius Trust deed (and the Chinook Trust deed is conceded to be in similar form) to apply the assets of the Chinook Trust to another trust having at least one beneficiary in common with the Chinook Trust.  Thus Clause 2(1)(c)(ii) of the deed provided:

(1)               The Trustees shall during the Discretionary Period have the following powers of dealing with the capital and income of the Trust Fund which they may exercise from time to time at their absolute discretion:

(a)…

(b)        The Trustees may pay transfer apply or deal with the whole or any part of the capital to or in any manner which is in their opinion for the benefit of all or any one or more of the Beneficiaries

(c)                In the exercise of the power mentioned in paragraph (b) above the Trustees may (without prejudice to the width and generality of that paragraph)

(ii)               transfer or cause to be transferred the whole or any part of the capital of the Trust Fund to another trust created either by the Trustees or by any other person in any part of the world provided the Trustees are satisfied that the transfer is for the benefit of all or any one or more of the Beneficiaries and notwithstanding that such other trust is governed by a law different from the proper law applicable to this Trust or contains trusts powers and provisions (discretionary or otherwise) in favour of persons or objects other than the Beneficiaries.”

66                  St Helier was a professional trustee.  I would not lightly infer that it would act deliberately in breach of trust.  Indeed, when later it was requested to apply the assets of the Vilnius Trust to another trust for the benefit of Mr Wilkinson, St Helier refused to do so because, there being no common beneficiary, it would have been in breach of trust so to do.  The more likely situation is that St Helier acted in accordance with the provision in the Chinook Trust deed in terms similar to clause 2(1)(c)(ii) of the Vilnius Trust deed and applied the assets of the Chinook Trust to itself to hold on the terms of the Vilnius Trust deed, those terms being virtually identical and referring to the same persons or entities as were named as beneficiaries in the Chinook Trust deed.

67                  If St Helier, holding upon the trusts of the Chinook Trust were to purport to have resettled the assets of the Chinook Trust upon itself as bare trustee for Mr Fuller, as senior counsel for Mr Wily would suggest, not only would it have acted in breach of trust, but also Mr Fuller, having notice of the terms of the Chinook Trust would in equity hold those assets upon constructive trust for the benefit of the beneficiaries of the Chinook Trust and upon the terms of that trust.  Hence, the purported attempt would be legally ineffective.  The assets would not, as Mr Wily would submit, become part of the bankrupt estate of Mr Fuller, but rather would continue to be held under and upon the terms of the Chinook Trust deed. 

68                  It can readily be inferred that Mr Fuller had notice of the terms of the Chinook Trust, if only because when the resettlement occurred, it was done on the instructions of Mr Fuller who was present at the meeting of 15 October 1986, along with Mr Wilkinson and Mr Cook. Clearly the initial arrangement involving Gloucestershire, Sovereign Trustees and other entities was negotiated among the same parties including Mr Fuller and Mr Wilkinson.  Whatever steps were taken to ensure that the Chinook Trust became entitled to receive the $US3,000,000 were taken by Mr Fuller and Mr Wilkinson with or without Mr Cook and Mr Somes.

69                  Accordingly whichever possibility one accepts the result is that the assets that were formerly held on the terms of the Chinook Trust (or, at least one third of those assets) became as and from 15 October 1986 held by St Helier upon trust for beneficiaries other than Mr Fuller.

70                  It is true that, except as stated earlier, St Helier thereafter acted in accordance with Mr Fuller’s wishes.  There was nothing in the provisions of the Vilnius Trust deed which in any way referred to a memorandum of wishes.  On the face of that trust deed, St Helier was legally entitled to disregard Mr Fuller’s wishes.  No doubt there was an understanding between St Helier and Mr Fuller that it would in fact heed those wishes and comply with them, at least so long as it would not be in breach of trust in so doing.  The concept of a memorandum of wishes is not unusual in tax havens such as the Channel Islands.  It may be that a court in equity might, having regard to the circumstances in which a trust such as the present comes into existence, compel the trustee to act in accordance with such a memorandum.  It may, in an appropriate case, be the situation that a person who has the power to nominate his or her wishes could be held to have a power of appointment, particularly if that person could nominate who the beneficiaries of the trust might be, including himself or herself.  It may be that such a power of appointment might be held to be property of the bankrupt and vest in the trustee in bankruptcy.  These questions do not arise here.  Any such argument was eschewed by senior counsel for Mr Wily.  It is accordingly not necessary to seek to address it.

71                  For these reasons I am of the view that the debt owed by the Wilkinsons was not held by St Helier upon a bare trust for Mr Fuller.  I would accordingly dismiss the application and order Mr Wily to pay the costs of the Wilkinsons.  Mr Fuller was unrepresented.  He made no attempt to have the proceedings dismissed against him until the hearing and in these circumstances there should, in my view, be no order made in respect of any costs he may have incurred.

Associate:

Dated:              27 October 2000