Beneficiary actions – ‘Special Circumstances’

Source: Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd [2017] FCAFC 75

102. Where “special circumstances” exist, a beneficiary under a trust such as Grovan may bring proceedings that ordinarily should be brought by the trustee in his, her or its own right against a third party or other beneficiary on any cause of action, legal equitable or statutory, that the trustee has against that defendant. The beneficiary must join the trustee and the third party as defendants if such special circumstances exist: TAL Life Ltd v Shuetrim (2016) 91 NSWLR 439; [2016] NSWCA 68 (TAL) at [54] (Leeming JA with whom Beazley P and Emmett AJA agreed); Lidden v Composite Buyers Ltd (1996) 67 FCR 560 (Lidden) at 563-564 (Finn J); Ramage v Waclaw (1988) 12 NSWLR 84 (Ramage) at 91-93 (Powell J); Sharpe v San Paulo Railway Co (1873) LR 8 Ch App 597 at 609-610 (James LJ). See too: Heydon JD and Leeming MJ, Jacobs’Law of Trusts in Australia (7^th ed, Butterworths, 2006) at [2303].
103. In Alexander v Perpetual Trustees WA Ltd (2004) 216 CLR 109; [2004] HCA 7 (Alexander) at [55]-[56] Gleeson CJ, Gummow and Hayne JJ (and see also Callinan J at [163]-[164] with whom McHugh J agreed at [67]) said that one reason for the restriction – to where there are “specialcircumstances” of a beneficiary’s right to sue a third party directly on a cause of action that ought to be properly brought by a trustee – was to avoid the vexation of the third party by multiple suits. Their Honours approved what Powell J said in Ramage at 91-92, that the “special circumstances” were not confined to collusion between the trustee and the third party or the insolvency of the trustee. Their Honours went on to say that the general principle was to be found in the following passage from Scott on Trusts (4^th ed, 1989) Vol 4 at [282]:
     

     The interests of the beneficiaries of a trust are protected against a third person acting adversely to the trustee through proceedings brought against him by the trustee and not by the beneficiaries. As long as the trustee is ready and willing to take the proper proceedings against the third person, the beneficiaries cannot maintain a suit against him.

104. In Alexander, Gleeson CJ, Gummow and Hayne JJ (at [56]) and Callinan J (at [163]) referred, with apparent approval, (as did Leeming JA in TAL at [54]) to the advice of the Privy Council given by Lord Templeman in Hayim v Citibank NA [1987] AC 730 at 748, namely:
     

     [The] authorities demonstrate that a beneficiary has no cause of action against a third party save in special circumstances which embrace a failure, excusable or inexcusable, by the trustee in the performance of the duty owned by the trustees to the beneficiary to protect the trust estate or to protect the interests of the beneficiary in the trust estate.

     (Emphasis added.)

105. In Lidden (at 563-564) Finn J explained that the requirement for “special circumstances” should not be limited to claims that a trustee has against the third party for equitable relief, and that such action could also be brought by a beneficiary in respect of claims at common law or under statute. His Honour said:
     

     …it is not at all apparent to me why, today, we should insist on a multiplicity of suits – as the older equity rule, unmodified, would require – for the purpose of resolving a matter which gives rise to claims for other, as well as equitable, relief: cf Federal Court of Australia Act 1976 (Cth), s 22.

     The distinction between claims for equitable and for other relief has not commended itself to United States courts or text writers. Likewise it seems to have been ignored in observations made in Privy Council cases. So, for example, it is said in Scott and Fratcher, The Law of Trusts (4th ed), Vol 4, par 282.1:

     “If the trustee improperly refuses to bring an action against a third person who commits a tort with respect to the trust property, the beneficiaries can maintain a suit in equity against the trustee to compel him to do his duty and to bring the proper action against the third person. In the earlier law this was all that the beneficiaries could do. It was later held, however, that the whole controversy can be settled in a single suit, and in order to avoid multiplicity of suits the beneficiaries were permitted to join the third person as a co-defendant with the trustee, thus avoiding the necessity of two suits, one in equity by the beneficiaries against the trustee and another at law by the trustee against the third person. In such a proceeding the trustee is a necessary party defendant if he can be subjected to the jurisdiction of the court.”

     To illustrate this approach, this time in a contractual setting, the authors refer to observations of Lord Wright in the Privy Council in Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70 at 79:

     “a party to a contract can constitute himself a trustee for a third party of a right under the contract and thus confer such rights enforceable in equity on the third party. The trustee then can take steps to enforce performance to the beneficiary by the other contracting party as in the case of other equitable rights. The action should be in the name of the trustee; if, however, he refuses to sue, the beneficiary can sue, joining the trustee as a defendant.”

     I should add that to like effect in my view are the comments of the Privy Council in Hayim v Citibank NA [1987] AC 730 at 748, though the relief there sought was equitable. See also G G Bogert, G T Bogert and W K Stevens, The Law of Trusts and Trustees (Revised 2nd ed, 1977), par 869 where the subject is considered at length.

     In the absence of any compelling reason in a Judicature Act system to limit the right of a beneficiary to claim equitable relief alone, in light of the approach taken in the authorities I have referred to, and given the undesirability of adhering to an approach which promotes multiplicity of suits, I am prepared to hold that, provided the other – the “exceptional” or “special” circumstances – requirement of the rule is met, it is not necessary in a Judicature Act system that the relief be equitable or equitable alone that is sought by the beneficiary instituting proceedings for a trust.