Anloma Pty Ltd (A.C.N. 001 327 448) as Trustee for the Sourry Family Trust

1. [1]

   HER HONOUR: In this matter, Anloma Pty Ltd (the Trustee) as Trustee of the Sourry Family Trust seeks judicial advice under section 63 of the Trustee Act 1925 (NSW). Section 63(1) of the Act provides:

2. [2]

   As Kiefel J observed in Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 at [196]:

3. [3]

   Or as Lindsay J expressed it in Re Estate Late Chow Cho-Poon; Application for judicial advice [2013] NSWSC 844 at [182]:

4. [4]

   The Trustee seeks advice with respect to the interpretation of the trust deed and in respect of the management and administration of the trust, in particular, the power of the Trustee to amend the terms of the trust deed to change the beneficiaries, and the efficacy of past amendments. The Trustee also seeks, in the alternative, relief under section 81 of the Act. I have not found it necessary to consider the alternative application.

5. [5]

   Those affected by the judicial advice are aware of this application and consent to advice being sought. The Court has been provided with a comprehensive opinion by the Trustee’s counsel consistently with the process described by Lindsay J in Re Estate Late Chow Cho-Poon at [113]:

6. [6]

   In order to achieve the speed and efficiency referred to by Lindsay J, counsel’s advice should address only the questions which are squarely confronting the trustee rather than questions of a more hypothetical nature. The court has a discretion whether to provide judicial advice, which is confined only by the subject matter, scope and purpose of the legislation: Macedonian Orthodox Diocese of Australia and New Zealand at [58]. I have not found it necessary to examine each of the possibilities and permutations in counsel’s advice, nor to answer all of the questions put to me. In summary, I advise that:

FACTS

1. [7]

   Andrew Sourry was a pharmacist. He and his wife Lois Sourry had one child, Marika Sourry.

2. [8]

   In 1969, Incaflame Pty Ltd was incorporated. Andrew and Lois Sourry were directors and Lois Sourry was the secretary of the company. Incaflame had two ordinary shares. Andrew and Lois Sourry held one share each.

Establishment of the trust

1. [9]

   On 24 November 1975, Anloma was incorporated. Eric Maunder, Ian Duffield, Bernard O’Donoghue and Andrew Coroneo were appointed directors. Annette Rodriguez and Bernard O’Donoghue were appointed secretaries. Bernard O’Donoghue was Andrew Sourry’s accountant. Anloma had two ordinary shares, which were allotted to Eric Maunder and Ian Duffield. The directors resolved to affix the company’s seal to a Deed of Discretionary Trust (Trust Deed) between Donald Mayes and the company, and did so.

2. [10]

   Under the Trust Deed, Donald Mayes was the settlor and Andrew Sourry was the appointor. Anloma was appointed Trustee of the Trust Fund. The distribution date under the Trust Deed was:

3. [11]

   Clause 1(c) of the Trust Deed provides:

4. [12]

   The Schedule listed the following beneficiaries:

5. [13]

   Clause 6 of the Trust Deed contained the powers of the Trustee, including a power in Clause 6(iv) to amend the Trust Deed. This power will be considered in detail below.

6. [14]

   The directors of Anloma resolved to acquire various property from Andrew and Lois Sourry and also from Incaflame. The property comprised real estate in Marrickville, Matcham and Gosford as well as shares, debentures and life insurance policies. The directors of Anloma resolved to borrow moneys from and lend monies to Andrew and Lois Sourry and Incaflame and to borrow monies from third parties as well. As I understand it, the only assets of Incaflame over time were the loans which it made to Anloma, and Incaflame’s only income was interest on those loans.

7. [15]

   In 1976, Anloma’s directors became Bernard O’Donoghue and Andrew Coroneo only, and Bernard O’Donoghue its only secretary. Anloma’s shares were transferred to Bernard O’Donoghue and Andrew Coroneo. In 1979, Anloma made its first distributions to beneficiaries, being to Andrew, Lois and Marika Sourry.

8. [16]

   In 1981, Marika Sourry married Roman Leibrandt. In 1982, they had a son, Julian Leibrandt. In 1982, Andrew Sourry became a director of Anloma. In 1983, Anloma made a distribution to its beneficiaries Andrew and Lois Sourry and to Marika and Julian Leibrandt. In 1984, Marika and Roman Leibrandt had another son, Tristan Leibrandt. In 1985, Anloma made a distribution to its beneficiaries Andrew and Lois Sourry and Marika, Julian and Tristan Leibrandt. In 1987, Lois Sourry died. Marika Leibrandt became a director, secretary and the beneficial owner of one share in Incaflame. Marika Leibrandt also became a director and secretary of Anloma.

First variation of trust deed

1. [17]

   In 1988, Anloma sought finance from Westpac Banking Corporation to buy an investment property. In June 1988, the bank advised that the Trust Deed was deficient in several respects, including that it did not contain the power to mortgage trust assets. The bank proffered various draft clauses for Anloma’s consideration.

2. [18]

   On 29 July 1988, Andrew Sourry and Marika Leibrandt executed a Deed of Variation of Trust, amending the Trust Deed in accordance with each of the concerns expressed by the bank. In addition, the schedule of beneficiaries was amended to remove Lois Sourry, change Marika’s name to her married name, and add two additional charitable objects being to establish an environmental school in Gosford and a scholarship for Gosford City Orchestra. Relevantly, the following beneficiary was deleted,

3. [19]

   From 1989 on, Anloma continued to make distributions. In 1989 and 1990, distributions totalling $57,441 were made to the Estate of Lois Sourry, which does not appear to have been correct in light of the removal of Lois Sourry as a beneficiary on 29 July 1988. As these payments were made some 28 years ago, I do not think it is necessary, or possible for that matter, for the Trustee to seek to recover these payments: s 47(1)(c) Limitations Act 1969 (NSW).

Second variation of trust deed

1. [20]

   In 1998, Andrew Sourry sent his solicitor, Anthony Cordato, various notes and articles about changes in tax laws and asked that the Trust Deed be amended to address these changes, including by adding a corporate beneficiary. On 11 May 1998, Andrew Sourry and Marika Leibrandt executed a Second Deed of Variation of Trust prepared by Mr Cordato. Amongst other things, the Second Deed of Variation of Trust added a power to re-characterise “income” as “capital” and vice versa and a power to separately identify and pay different receipts to particular beneficiaries. The deed also amended the beneficiaries as follows:

2. [21]

   Incaflame was a company of which Andrew Sourry and Marika Leibrandt were members and directors. As such, it was now a beneficiary of the Sourry Family Trust. Thereafter, Anloma made distributions to Incaflame in the financial years ended 30 June 1998, 30 June 1999 and 30 June 2000 totalling $274,889.31.

3. [22]

   In June 2002, Bernard O’Donoghue ceased to be a director and secretary of Anloma and died later that year. In October 2002, Andrew Sourry sought legal advice as to why Bernard O’Donoghue and Andrew Coroneo were the shareholders of Anloma, and whether the shares could now be transferred to Andrew Sourry and Marika Leibrandt with a consequential change in officeholders. Mr Sourry was advised that there was no reason why he could not now become the sole shareholder of Anloma if he wished, or that he and his daughter could become shareholders “subject to the family law matters referred to above”. The considerations which may explain the initial shareholders were expounded upon in the advice as follows:

4. [23]

   In December 2002, Mr Sourry’s solicitor instructed Mr Sourry’s accountant accordingly:

5. [24]

   In December 2002, Andrew Sourry also made a Will leaving his Estate to Marika Leibrandt and providing,

6. [25]

   In March 2003, Andrew Sourry and Marika Leibrandt resolved, as directors of Anloma, to appoint Roman Leibrandt as an alternate director, and that Andrew Coroneo and Bernard O’Donoghue’s shares in the company be transferred to Andrew Sourry and Marika Leibrandt respectively. Andrew Coroneo resigned as a director. Until his appointment as an alternate director, Roman Leibrandt had had no involvement in the Sourry Family Trust.

7. [26]

   On 30 June 2004, Andrew Sourry and Marika Leibrandt resolved, as directors of Anloma, to make distributions to beneficiaries including $26,505 to Roman Leibrandt. Assuming that the variations were valid, Roman Leibrandt was not a beneficiary under the Trust Deed as it then stood, having been deleted from the schedule of beneficiaries in 1988. The minutes of meeting were signed by Andrew Sourry. The same thing happened on 30 June 2005, 30 June 2006, 30 June 2007 and 30 June 2008, with further distributions made to Roman Leibrandt on each occasion. It is important to note that Andrew Sourry approved these distributions, as did Marika Leibrandt.

8. [27]

   In November 2008, an annual return was lodged for Anloma with the Australian Securities and Investments Commission (ASIC). Curiously, the shareholders of Anloma were reported to be Andrew Sourry and Bernard O’Donoghue. It would appear that the transfer of Bernard O’Donoghue’s share to Marika Leibrandt in 2003 had not been registered by Anloma’s accountant, O’Donoghue Services Pty Ltd.

9. [28]

   On 30 June 2009, Andrew Sourry, Marika Leibrandt and Patrick O’Donoghue met. Patrick O’Donoghue was the son of Bernard O’Donoghue and also an accountant. It was resolved that Anloma would make distributions to beneficiaries including $118,676 to Roman Leibrandt. Again, Roman Leibrandt was not a beneficiary under the Trust Deed and had not been for 21 years.

10. [29]

    In September 2009, a Change to Company Details form was lodged for Anloma with ASIC. Compounding the error in the annual return lodged in November 2008, a change of director from Bernard O’Donoghue (who wasn’t a director) to Patrick O’Donoghue, as well as a change of shareholder from Bernard O’Donoghue (who wasn’t a shareholder) to Patrick O’Donoghue, was recorded. Whilst the details in respect of the officeholders were corrected in an annual return was lodged for Anloma with ASIC in November 2010, the incorrect shareholding remained.

11. [30]

    On 30 June 2010, Anloma made a distribution to beneficiaries including $86,794.95 plus 55% of the income of the Sourry Family Trust to Roman Leibrandt. Again, Roman Leibrandt was not a beneficiary under the Trust Deed as it then stood.

12. [31]

    On 7 December 2010, Andrew Sourry died. Marika Leibrandt, Roman Leibrandt and Patrick O’Donoghue met. It was resolved that Andrew Sourry’s share in Anloma would be sold to Marika Leibrandt, and Marika Leibrandt’s share would be sold to Roman Leibrandt. As a consequence, Marika and Roman Leibrandt were now the directors and shareholders of Anloma.

13. [32]

    In March 2011, probate was granted in respect of Andrew Sourry’s Estate, following which:

14. [33]

    On 30 June 2011, Anloma made a distribution to beneficiaries including $408,823.02 to Roman Leibrandt. On 30 November 2011, Anloma made a further distribution to the corporate beneficiary, Incaflame, of $206,949.20.

15. [34]

    On 12 June 2012, Marika Leibrandt, Roman Leibrandt and Patrick O’Donoghue met. It was resolved that Marika Leibrandt would receive 45% of the Trust Fund Income for the year (presumably the year ending 30 June 2012) and Roman Leibrandt would receive 55% of the Trust Fund Income. The minutes of the meeting of Anloma stated:

16. [35]

    This statement was repeated in the minutes of Anloma in 2013, 2014 and 2015 and was wrong. It did not record the beneficiaries under the Trust Deed as originally executed or as a consequence of the 1988 or 1998 variations, but a unique amalgam.

17. [36]

    For completeness, in 2013 and 2014, Anloma resolved to distribute the income of the Sourry Family Trust to Marika and Roman Leibrandt in the proportions of 48:52. In 2015, Anloma resolved to distribute the income of the Sourry Family Trust to Marika Leibrandt (37%), Roman Leibrandt (38%), Julian Leibrandt (13%) and Julian’s wife Lee Leibrandt (12%). I was told that Anloma’s accountant, O’Donoghue Services, recommended the distribution to Lee Leibrandt. By reason of the second variation of the trust deed, the spouses of Marika Leibrandt’s children were not beneficiaries.

18. [37]

    In 2016, Anloma resolved to distribute the income of the Sourry Family Trust to Marika Leibrandt alone.

Third variation of trust deed

1. [38]

   It was not until May 2017 that Adam King, a director of O’Donoghue King, informed Marika and Roman Leibrandt that the Trust Deed did not permit the distribution to Roman Leibrandt and Lee Leibrandt. Searches were made in bank deposit boxes and at Andrew Sourry’s former home for any documents varying the Trust Deed to permit such distributions.

2. [39]

   On 30 June 2017, Marika and Roman Leibrandt as directors of Anloma executed a Deed Poll. The Recitals to the Deed Poll referred to the “purported” amendments to the Trust Deed in 1988 and 1998, noted the Trustee’s power in Clause 6(iv) to amend the Trust Deed, noted that the Trustee had formed the view that the amendments to the beneficiaries in 1988 and 1998 affected beneficial interests and was therefore prohibited by Clause 6(iv) and invalid ab initio, but if the Trustee was wrong, then the Trustee wished to amend the Trust Deed to include Roman Leibrandt as a beneficiary. Clause 2 of the Deed Poll then provided:

3. [40]

   On 30 June 2017, Marika and Roman Leibrandt as directors of Anloma also resolved to allocate trust income for that financial year. The minutes record:

4. [41]

   On 30 May 2018, these proceedings were commenced. Notice of the proceedings has been given to Tristan, Julian and Lee Leibrandt.

5. [42]

   In total, $481,838.51 has been distributed to Incaflame, $1,705,696.32 has been distributed to Roman Leibrandt. Only one distribution was made to Lee Leibrandt, being 12% of the income of the Trust Fund in the 2015 year.

WERE THE CHANGES TO THE BENEFICIARIES VALID?

1. [43]

   The initial group of questions in respect of which judicial advice is sought concern the power of the Trustee to amend the Trust Deed and whether the change of beneficiaries in the first, second and third variations was valid. The power to amend is contained in Clause 6(iv) of the Trust Deed, which provides:

Does power to amend including changing beneficiaries?

1. [44]

   I was asked whether the power to “alter, revoke or add to any of the provisions” of the Trust Deed extends to adding or removing beneficiaries. In Kearns v Hill (1990) 21 NSWLR 107, the Court of Appeal considered a similar clause which provided,

2. [45]

   His Honour Meagher JA, (with whom Mahoney and Clarke JJA agreed) considered that the power was extensive enough to remove or add a new class of beneficiaries, noting the power of variation extended not only to powers but also to “any provision”. At 110:

3. [46]

   His Honour further noted two features of the trust deed which are apposite here, at 109:

4. [47]

   More recently in Mercanti v Mercanti (2016) 50 WAR 495; [2016] WASCA 206, Clause 28 of the Trust Deed in that case provided:

5. [48]

   The Court of Appeal of the Supreme Court of Western Australia held that the power to vary extended to the variation of the holder of the positions of appointor / guardian. Buss P noted at [80]-[82]:

6. [49]

   The President concluded at [145] that “the trusts terms and conditions hereinbefore contained” referred to:

7. [50]

   Consistently with these authorities, I consider that the power to vary the Trust Deed in Clause 6(iv) should be interpreted expansively and includes adding or removing beneficiaries. Such a change to the Trust Deed is clearly encompassed within the plain terms of the Clause 6(iv) and there is no other indication in the Clause or the Trust Deed that the power to vary the Trust Deed should be otherwise read down or restricted in some way.

The provisos to the power to amend

1. [51]

   The Trustee’s power to amend the Trust Deed is subject to two provisos which, for ease of reference, are as follows:

2. [52]

   The first proviso is not relevant as the Trustee did not, by the first, second or third variations, vary the terms of the Trust Deed to allow for payments to the Settlor or the Trustee. The second proviso is relevant if changing the beneficiaries “affects the beneficial interests in the Trust Fund”. The “beneficial interests in the Trust Fund” are simply the equitable interests of a beneficiary in the trust property as distinguished from the legal interest of the Trustee: Jowitt’s Dictionary of English Law, 4th ed., Thomson Reuters (2015). The beneficial interest entitles the beneficiary to enjoy their interest in accordance with the terms of the trust instrument and to enforce the trust: Australian Law Dictionary, 2nd ed., Oxford University Press (2015). It is necessary, therefore, to examine the Trust Deed to ascertain the precise nature of the beneficiaries’ interests in the Sourry Family Trust.

3. [53]

   As far as the capital of the Trust Fund is concerned, Clause 3 of the Trust Deed provides that the Trustee may pay the capital on the distribution date as follows:

4. [54]

   Read literally, Clause 3 has the result that the beneficiaries’ right to the capital on the distribution date depends upon all of the beneficiaries being alive at the distribution. However, this cannot have been the intention of the parties in circumstances where the appointer, Andrew Sourry, was in his 50s when the Sourry Family Trust was established and the distribution date was likely some 50 years later. Further, some of the beneficiaries had yet to come into existence but may be thought likely to in the ensuing 50 years, in particular, Marika Sourry’s spouse, children and grandchildren. Rather, I consider that Clause 3 gives the Trustee the power to pay or “appoint” capital on the distribution date, with the potential objects of the power being the beneficiaries then living.

5. [55]

   Whilst Clause 3 provides that, on the distribution date, the Trust Fund is to be held for all of the beneficiaries then living as tenants in common, the clause does not provide that the beneficiaries are to receive the Trust Fund as tenants in common in equal shares but rather that the proportions are to be determined by the Trustee and, further, the Trustee may determine that the Trust Fund be distributed to one of the beneficiaries only. That is, the entitlement of the beneficiaries to the Trust Fund on the distribution date is subject to the exercise of the Trustee’s power to appoint the Trust Fund. Clause 3 does not provide who is entitled to the Trust Fund in the event that the Trustee does not exercise its power. That is, Clause 3 does not provide for a taker in default of appointment by the Trustee.

6. [56]

   Clause 6(i) of the Trust Deed gives the Trustee a power to pay capital to beneficiaries before the distribution date as follows:

7. [57]

   In respect of the income of the Trust Fund, Clause 4 of the Trust Deed provides that the Trustee may pay the income of the Trust Fund each year as follows:

8. [58]

   By Clause 4, the Trustee has power to appoint part or all of the income to the beneficiaries of the Trust and, in Clause 4(2), to accumulate income for infant beneficiaries with such accumulated income not forming part of the capital of the Trust Fund, but held on trust for the infant. Clause 4 does not provide for a taker in default of appointment by the Trustee. Indeed, the Trust Deed is silent as to what happens to the income of the Trust Fund if it is not paid by 30 June each year. As Clause 4 and Clause 6(i) of the Trust Deed confer powers on the Trustee rather than establish trusts, and the Trustee is not obliged to exercise these powers, then in the event that the Trustee does not exercise these powers, the income must be an accretion to the capital of the Trust Fund.

9. [59]

   Clause 5(n) of the Trust Deed gives the Trustee power to re-characterise income as capital and vice versa, as follows:

10. [60]

    Clause 6(iii) of the Trust Deed gives the Trustee the power to pay income or capital to another trust under which some or all of the beneficiaries are also beneficiaries. Again, this clause gives the Trustee the power to appoint capital or income to another trust, but does not require the Trustee to do so and does not state what will happen if the Trustee does not exercise this power.

11. [61]

    Having regard to these clauses, it can be seen that the beneficiaries of the Trust may receive capital and income. The Trustee is not obliged to pay capital or income to any particular beneficiary, and may pay capital or income to one beneficiary only. There is no provision that, in the event that the Trustee does not exercise its power to pay income or capital, a beneficiary is entitled to the income or capital. That is, the Trust Deed does not provide for a taker in default of appointment by the Trustee.

12. [62]

    The interests of beneficiaries under such provisions were examined by Campbell J (as his Honour then was) in Stein v Sybmore Holdings [2006] NSWSC 1004. The Court of Appeal has not followed this case in respect of his Honour’s application of section 81 of the Trustee Act (see Re Dion Investments Pty Ltd (2014) 87 NSWLR 753 and Cisera v Cisera Holdings Pty Ltd [2018] NSWCA 286), but his Honour’s analysis of the property rights of beneficiaries under the trust deed remains good law. In Stein v Sybmore Holdings, Mr Stein established a trust. The Specified Beneficiaries were inter alia Mr Stein, his wife, children and grandchildren. Mr Stein’s children, Tanya and Ian, were also Residual Beneficiaries. The trust deed provided for the nomination of Primary and Secondary Beneficiaries, but none had been nominated.

13. [63]

    Clause 3 of the Trust Deed concerned the payment of income to the beneficiaries. Clause 3(a) of the Trust Deed provided that the Trustee could pay income to the Primary or Second Beneficiaries. Clause 3(b) provided that the Trustees could, instead of paying income to the Primary or Second Beneficiaries, accumulate the income. Clause 3(c) provides that, in the event that the Trustees neither paid nor accumulated the income, then “the Trustee shall stand possessed of such income upon trust for the Residuary Beneficiaries and if more than one in equal shares”. His Honour explained the interest which the Residuary Beneficiaries had in the trusts for income at [25]: (emphasis added, citations omitted)

14. [64]

    Further, Clause 6 provided for the payment of capital on the Vesting Day as follows:

15. [65]

    His Honour explained the interest which the Residuary Beneficiaries had in the trusts for capital at [26] (emphasis added):

16. [66]

    As such, although Mr and Mrs Stein and their children were all potential objects of the Trustee’s power of appointment of income and capital, at [27]:

17. [67]

    That is, a taker in default of appointment has a present interest in trust property which is:

18. [68]

    Applying the approach in Stein v Sybmore Holdings here, as the Trust Deed provides for objects of the power to appoint income and capital but does not provide for a taker in default of appointment, the beneficiaries do not have any rights of property in the income or capital. Any amendment to the Trust Deed which introduces new objects of the power to appoint does not “affect the beneficial interests in the Trust Fund”. By adding beneficiaries, there are additional competitors for the Trustee’s appointment of income or capital. By removing beneficiaries, there is less competition. But this does not change the nature of the beneficiaries’ rights or interests under the Trust Deed. Rather, as Lord Wilberforce explained in Gartside v Inland Revenue Commissioners [1968] AC 553 at 617, the beneficiary under a discretionary trust has a right to be considered as a potential recipient of a benefit by the Trustees and a right to have their interest protected by a court of equity. The authorities gathered by Buss P in Mercanti v Mercanti at [96] are apposite:

19. [69]

    As, in my view, changing the beneficiaries does not “affect the beneficial interests in the Trust Fund”, I consider that amending the Trust Deed to add or delete beneficiaries in the Schedule is not subject to the second proviso of Clause 6(iv) and it need not be further examined. I note that prayers 1, 2 and 3 of the summons merge the chapeau of the second proviso with its content and present composite questions. I consider that the application of the second proviso should be approached differently. As changing the beneficiaries does not “affect the beneficial interests in the Trust Fund” (the chapeau), it is not necessary to consider the remainder of the second proviso and I do not propose to answer the composite questions as they do not arise given the way I have construed the clause.

20. [70]

    I was asked whether the Trust Deed contains an implication of a gift to the beneficiaries, that is, whether an “implied trust” arises in default of appointment as explained in Perpetual Trustee Co Ltd v Tindal (1940) 63 CLR 232. That case concerned interests under a life insurance policy made under the Life, Fire and Marine Insurance Act 1902 (NSW), made by Mr Tindal for the benefit of his wife and four children. At the time of judgment, the wife and three of the children had died. The Act meant that this otherwise contractual relationship was transformed into a trust with the named persons as objects. The policy was payable:

21. [71]

    Mrs Tindal predeceased Mr Tindal, by which time the son Charles had also died. The meaning of the “failing which” subclause had to be considered. At first instance, Nicholas CJ in Eq held that the words created an implied gift to those children who survived both Mr and Mrs Tindal, which was the only surviving son Arthur. On appeal Latham CJ explained the general principle in respect of an implied trust in the absence of a taker in default of appointment, at 239:

22. [72]

    In the nineteenth century, certain authorities raised this principle to the status of a presumption (Ford and Lee: The Law of Trusts, looseleaf, Thomson Reuters at [5.7270]). Whilst Perpetual Trustee Co Ltd v Tindal continued an old line of English authorities, and it may be accepted that it formed part of the law of Australia at that time, Ford and Lee proceeds on the basis that the decision may have been surpassed by new conceptions of trust powers in McPhail v Doulton [1971] AC 424. The term “implied trust” is now used more often to mean a resulting trust (see Heydon & Leeming Jacobs’ Law of Trusts in Australia, 8th ed., LexisNexis Butterworths at [12-01]).

23. [73]

    Perpetual Trustee Co Ltd v Tindal has been followed in respect of “implied trusts” in Re Annandale [1986] 1 Qd R 353. I consider the better view is that it is a matter of construction rather than a presumption: Re Weekes’ Settlement [1897] 1 Ch 289; Lutheran Church of Australia South Australia District Inc v Farmers’ Co-op Executors and Trustees Ltd (1970) 121 CLR 628 per Barwick CJ. Indeed, in Perpetual Trustee Co Ltd v Tindal, Dixon J emphasised the importance of ascertaining the intention of the settlor when determining whether an implied trust arose. At 261:

24. [74]

    Like contracts, ascertaining the intention of the settlor is done by objectively construing the trust deed rather than ascertaining the subjective intention of the settlor by extrinsic evidence: Segelov v Ernst & Young Services Pty Ltd (2015) 89 NSWLR 431; Byrnes v Kendle (2011) 243 CLR 253; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2009) 240 CLR 45. Having regard to Clause 3 and the Trust Deed as a whole, it seems to me that the intention of the settlor was that the Trust Fund would be distributed on the distribution date amongst a class of persons who met the definition of beneficiary as at the distribution date. A person fulfilled this description by reason of two matters:

25. [75]

    In the event that the Trustee did not exercise its power of appointment on the distribution date, then I consider that the settlor intended that the beneficiaries who fulfilled these two criteria would not be disappointed by reason only of the Trustee’s failure to exercise the power of appointment and all eligible beneficiaries would take in default of appointment in equal shares.

26. [76]

    Such an implied trust will only arise in the future and only then if two things happen: first, there is more than one beneficiary as at the distribution date and, second, the Trustee does not exercise its power under Clause 3. I do not think that the possibility that an implied trust may arise at the distribution date transforms the rights of current beneficiaries into any rights of property in the Trust Fund. Nor does it impede the Trustee’s ability in Clause 6(iv) to “alter, revoke or add” any provisions of the Trust Deed including the beneficiaries listed in the Schedule.

27. [77]

    Were it otherwise, a charity listed in the Schedule in 1975 could not be deleted and another charity added because the original charity might be a taker in default of appointment under an implied trust on the distribution date in 50 years’ time. It cannot have been the intention of the settlor, in my view, that all beneficiaries added at any time since the inception of the Trust Fund would be the object of the Trustee’s decision to appoint capital at the distribution date. The same intention in my view pertained to adding or deleting spouses of the Sourry family and its descendants. The “family law matters” averted to correspondence in 2002 are common reasons why family trusts are established and modified from time to time: to endeavour to preserve the assets of a family for the benefit of that family alone notwithstanding marital misfortunes which may befall its members.

28. [78]

    As such, the existence of any takers in default of appointment under an implied trust which may arise on the distribution date does not have the result that current beneficiaries are takers in default of appointment. Current beneficiaries do not have any rights of property in the Trust Fund. Any amendment to the Trust Deed which introduces new objects of the power to appoint does not “affect the beneficial interests in the Trust Fund” and amending the Trust Deed to add or delete beneficiaries in the Schedule is not subject to the second proviso. As such, I consider that the changes to the beneficiaries made in the first, second and third variations of the Trust Deed were validly made pursuant to Clause 6(iv) of the Trust Deed, and the Trustee is justified in managing and administering the Trust Fund in accordance with the Trust Deed as so varied.

CAN THE TRUSTEE AMEND THE TRUST DEED FURTHER TO ADD SPOUSES AS BENEFICIARIES?

1. [79]

   It follows that adding beneficiaries will not “affect the beneficial interests in the Trust Fund”. The second proviso in Clause 6(iv) of the Trust Deed does not apply to such a variation. The Trustees may amend the Trust Deed to add the spouses of current beneficiaries as beneficiaries as well.

2. [80]

   It was suggested that the power to amend may be limited by varying the definition of “beneficiaries” to include any spouses of natural persons who are beneficiaries, but only for the purposes of those persons being objects of the power to appoint income or capital and not for those persons being takers in default of appointment. As I consider that any implied trust may only arise for takers in default on the distribution date and not before, I do not think these limitations are necessary.

SHOULD THE TRUSTEE RECOVER DISTRIBUTIONS MADE TO NON-BENEFICIARIES?

1. [81]

   The Trustee has distributed income and capital to persons who did not meet the definition of “beneficiary”. This is a breach of trust. An action by the Trustee to recover distributions made to Roman Leibrandt in 2004, 2005 and 2006 is now out of time: section 47(1)(c), Limitations Act 1969 (NSW). Recovery of subsequent distributions to Roman Leibrandt, and the only distribution to Lee Leibrandt, are not out of time and the Trustee would, ordinarily, be obliged to recover the trust funds.

2. [82]

   All of the current beneficiaries are aware of these distributions. No claim or complaint has been made against the Trustee. In particular, Tristan Leibrandt and Julian Leibrandt have been provided with the summons, amended summons, statement of facts, Trust Deed and variations. They were asked to indicate whether they consented to the application for judicial advice, and in particular the advice that the Trustee is justified in not seeking to recover any past distributions made to Roman Leibrandt and Lee Leibrandt. It was noted that they may wish to obtain independent legal and / or financial advice before they indicated their attitude. Each consented to the application for judicial advice, although none specifically referred to this aspect of it.

3. [83]

   The Trustee operates the Trust Fund for the benefit of the beneficiaries. If the beneficiaries are aware of the breach of trust and are content for the Trustee not to seek to recover distributions made to Roman Leibrandt or Lee Leibrandt, then the Trustee is justified in not seeking to recover those monies. As matters presently stand, however, the beneficiaries have not released the Trustee in respect of any claims they have, nor formally excused the breach. Those to whom a fiduciary duty is owed may ratify or excuse a breach after the event if they are given sufficient information: Bamford v Bamford [1970] Ch 212; Winthrop Investments Ltd v Winns Ltd [1975] NSWLR 666; Parkinson, The Principles of Equity, 2nd ed., Lawbook Co. (2003) at [1077]. It is a defence to a breach of trust that the breach was subsequently excused. The beneficiary must have full knowledge of the facts and of what exactly they are doing and the legal effect thereof and must not be subject to undue influence. As Lord Westbury LC said in Farrant v Blanchford (1863) 46 ER 42 at 46-7:

4. [84]

   Where beneficiaries with full knowledge of a breach of trust take no steps to obtain relief for breach of trust, their delay may itself amount to acquiescence in the breach which may be a defence to any such claim: Jacobs’ Law of Trusts at [22-33].

5. [85]

   The Trustee is justified in not seeking to recover these distributions as the beneficiaries have indicated they are agreeable to this course. However, I do not consider that the beneficiaries have formally excused the breach of trust or have released the Trustee in respect of it, and thus remain entitled to bring an action for breach of trust if they so wish.

WERE OTHER CHANGES TO THE TRUST DEED VALID?

1. [86]

   As earlier mentioned, the Second Deed of Variation of Trust added a power to re-characterise “income” as “capital” and vice versa and a power to separately identify and pay different receipts to particular beneficiaries, that is, the ability to stream distribution. In particular, Clause 4(3) was added as follows (emphasis added):

2. [87]

   Clause 4(3) is a taker in default of appointment provision in respect of income. However, the takers in default of appointment are the “… beneficiaries to whom the income of the Trust Fund of that year has been applied …”. There needs to be an appointment of income to which the remaining unapplied income will follow. As such, Clause 4(3) still does not give the beneficiaries a vested but defeasible interest in the income of the Trust Fund or confer any rights of property in the assets of the Trust Fund. The addition of Clause 4(3) does not, therefore, affect the beneficial interests in the Trust Fund and the second proviso of Clause 6(iv) does not apply. The amendment was valid.

3. [88]

   As earlier mentioned, the power in Clause 5(n) of the Trust Deed cannot be used to re-characterise capital as income (if the amounts are properly characterised as capital) and vice versa. However, the second variation of the Trust Deed does seek to re-characterise “income” as including that defined in the Income Tax Assessment Act (which would include capital gains), or otherwise in the Trustee’s discretion. Clause 4(9) was added as follows:

4. [89]

   There may be a difference between the beneficiaries as to income and as to capital, as Incaflame and any like corporate beneficiaries are not eligible to receive capital on the distribution date. But Clause 4(9) does not provide for a taker in default of appointment in respect of income or capital, but rather for the Trustee to characterise income as capital. Overall, Clause 4 as amended by the second variation still does not give the beneficiaries a vested but defeasible interest in the income or capital of the Trust Fund or confer any rights of property in the assets of the Trust Fund. The amendments to Clause 4 do not, therefore, affect the beneficial interests in the Trust Fund and the second proviso of Clause 6(iv) does not apply. The amendments were valid.

CAN THE TRUSTEE CHANGE THE DISTRIBUTION DATE?

1. [90]

   The Trustee wishes to amend the Trust Deed to delete paragraph 1(b)(i) of the Trust Deed, that is, the distribution date being potentially on 24 November 2025. If the amendment is made, then the Trust Fund will vest, not on 24 November 2025, but on the earlier of:

2. [91]

   There are two things to consider here. First, whether the amendment is within the scope of the power contained in Clause 6(iv) of the Trust Deed; and, second, whether the amendment is prohibited by the rule against perpetuities.

3. [92]

   As to the first matter, an extension of a vesting date may affect a beneficial interest. Returning to Stein v Sybmore Holdings, Campbell J noted that an extension of the vesting date would have that result in the trust deed before him which, it will be recalled, provided that the children were takers in default of appointment. At [28]:

4. [93]

   Here, unlike the situation in Stein v Sybmore Holdings, there are no takers in default save, potentially, takers in default of appointment of capital on the distribution date under an implied trust arising at that date. The fact that one of three potential distribution dates is to be deleted does not, in my view, affect the beneficial interests in the trust. Indeed, a deletion of paragraph 1(b)(i) of the Trust Deed will not necessarily mean that there will be an extension past 24 November 2025, as the trust may determine prior to that date under Clause 1(b)(iii) of the Trust Deed (as it is unlikely to determine prior to 2025 under Clause 1(b)(ii)). As a result, I consider that a deletion of paragraph 1(b)(i) of the Trust Deed does not affect the beneficial interests in the trust and the second proviso to Clause 6(iv) of the Trust Deed does not apply.

5. [94]

   As to the second matter, the common law rule against perpetuities was reformed by the introduction of the Perpetuities Act 1984 (NSW). However, the Act does not apply to the Sourry Family Trust as the trust was created in 1975 and the Act only applies to a settlement that takes effect before 31 October 1984: section 4(1) of the Act. The common law rule against perpetuities applies here, under which the perpetuity period for the trust is a human life (or lives) in being at the date of the establishment of the trust plus 21 years: see Congregational Union of NSW v Thistlethwayte (1952) 87 CLR 375 and Air Jamaica Ltd v Charlton [1999] 1 WLR 1399 (PC) in respect of common law rule and Shead Real Estate Pty Ltd (in the matter of EA & F Shead (Chatswood) Trust) [2018] NSWSC 614 (Emmett AJA at [25]) in respect of a similar royal lineage clause. The rule is and will continue to be satisfied with the limitation contained in paragraph 1(b)(ii) of the Trust Deed.

6. [95]

   Having considered these matters, in my view the Trustee may amend the distribution date as proposed.

CAN THE TRUSTEE APPOINT INCOME AND CAPITAL TO ANOTHER TRUST?

1. [96]

   As mentioned earlier, Clause 6(iii) of the Trust Deed gives the Trustee the power to pay income or capital to another trust under which some or all of the beneficiaries are also beneficiaries, as follows:

2. [97]

   The Trustee seeks advice as to whether it can appoint income or capital of the Trust Fund to another trust estate, of which any of the current “beneficiaries” are also beneficiaries under this power. Given that this what Clause 6(iii) says, the answer is yes, provided that the recipient trust estate vests earlier than the Trust Fund such that the rule against perpetuities is not infringed.

3. [98]

   The rule against perpetuities may be breached if there is a transfer of trust property from the Trust Fund to another trust and the perpetuities period of the recipient trust estate is longer, or may be longer, than that of the Trust Fund. This was explained by Viscount Radcliffe (with whom Lords Hodson, Jenkins and Devlin agreed, and with whom Lord Reid agreed on this point) in Re Pilkinton’s Will Trusts [1964] AC 612 at 642:

4. [99]

   At general law, the question as to whether a contingent interest satisfies the rule against perpetuities must be decided at the time of its purported creation (Harris v King (1936) 56 CLR 177 at 185 per Dixon J). The harshness of the general law rule has been ameliorated by the Perpetuities Act. Whilst the Trust Fund is not subject to the Act, an appointment of income and / or capital to another trust would itself be an “interest created under a settlement” under section 7 of the Act and therefore be subject to the Act. Section 8 allows for a period of waiting in which to ascertain whether a contingent interest which would have infringed the common law rule will, or will not, in fact vest within the perpetuity period. This is called the “wait and see” rule: Nemesis Australia Pty Ltd v Commissioner of Taxation.

5. [100]

   In order to ensure that the rule against perpetuities is not infringed, I consider that any recipient trust’s vesting period must be (say) a day shorter than the distribution date of the Trust Fund, or 80 years, whichever occurs first. In this event, the certainty of the proposed settlement can be determined without resort to section 8.

6. [101]

   Pursuant to section 63 of the Trustee Act 1925 (NSW), the Court advises that Anloma Pty Ltd in its capacity as Trustee of the Sourry Family Trust is justified in:

   1. (1)

      managing and administering the Trust Fund pursuant to the terms of the Trust Deed as amended by the Deed of Variation of Trust made on 29 July 1988;

   2. (2)

      managing and administering the Trust Fund pursuant to the terms of the Trust Deed as amended by the Second Deed of Variation of Trust made on 11 May 1998;

   3. (3)

      managing and administering the Trust Fund pursuant to the terms of the Trust Deed as amended by the Deed Poll dated 30 June 2017, and in particular, on the basis that Roman Leibrandt is a “beneficiary” as that term is defined in Clause 1(c) and the Schedule of the Trust Deed;

   4. (4)

      not seeking to recover any distributions made from the Trust Fund to either of:

   5. (5)

      exercising the power contained in Clause 6(iv) of the Trust Deed to vary the definition of “beneficiaries” to include any spouses of natural persons who are “beneficiaries” as that term is defined in Clause 1(c) and the Schedule of the Trust Deed;

   6. (6)

      appointing income and / or capital of the Trust Fund to another trust estate (Transferee Trust) pursuant to Clause 6(iii) of the Trust Deed provided that:

   7. (7)

      exercising the power contained in Clause 6(iv) of the Trust Deed to delete Clause 1(b)(i) of the Trust Deed.