Cisera v Cisera

1. [1]

   Before the Court is an application concerning a family trust. The Court is asked to exercise its powers under Division 3A of Part 3 of the Trustee Act 1925 (“the Act” or “the NSW Act”). Division 3A, which was only relatively recently enacted, gives the Court power to approve, on behalf of specified categories of persons, and in certain circumstances, arrangements to vary trusts.

2. [2]

   The trust in question was established in 1974. It is a discretionary trust which is about to reach its vesting date. The variations sought in the application are to extend the vesting date by another 30 years and to include a new generation of beneficiaries.

3. [3]

   The present application follows an earlier application to the Court, filed in 2016, for similar relief with respect to the same trust. At that time, Division 3A did not exist. The application was made under s 81 of the Act, which empowers the Court – where the Court considers that the making of specified dispositions of trust property, or the entry into specified transactions by the trustee, would be expedient in the administration of the trust property, but the trustee lacks power to do so – to confer the necessary power on the trustee. The Court may, in a proper case, sanction what would otherwise be a breach of trust, or make consequential adjustments to the beneficiaries’ entitlements.

4. [4]

   In terms, the power granted to the Court is a power to confer specified powers on the trustees. But the 2016 application sought the Court’s sanction for an arrangement under which the trustee was empowered to act as if the trust deed had been varied in certain respects. As a matter of substance, the application sought to have the Court sanction variations in the terms of the trust.

5. [5]

   The application was dealt with by the Court (constituted, coincidently, by me) in July 2017: Cisera v Cisera Holdings Pty Ltd [2017] NSWSC 960 (“section 81 application judgment”). It was dismissed. An appeal was dismissed by the Court of Appeal in November 2018: Cisera v Cisera Holdings Pty Ltd (2018) 98 NSWLR 747 (“section 81 appeal judgment”). This judgment assumes familiarity with those earlier judgments.

Background and procedural history

1. [6]

   I will refer to the trust the subject of these proceedings as the Cisera Trust. The Trust is a discretionary trust for members of the family of the late Clelia Cisera. For convenience, and without intending any disrespect, I will refer to the members of the family by their given names.

2. [7]

   Clelia Cisera (nee Barp) (“Clelia”) was born in October 1925. In 1955, she married Mario Natale Cisera (“Mario”) who was born in July 1927. Together, they had one child, John Anthony Cisera (“John”), who was born in September 1958.

3. [8]

   The Trust was established by a deed of trust dated 23 August 1974 (“Trust Deed”). The settlor was WP Nominees Pty Limited. This appears to have been a company associated with the firm of solicitors which was involved in establishing the trust. There is no evidence as to whether the company is still in existence.

4. [9]

   The terms of the Trust Deed are summarised, and relevant provisions quoted, in the section 81 application judgment at [6]-[13]. For the purposes of the present judgment, they may be summarised as follows.

5. [10]

   The Trust Deed was in conventional form. The settlement sum was nominal ($50), but the Deed contemplated that, following the establishment of the Trust, monies or other assets might be contributed to the Trust Fund and held under the terms of the Trust, and that is what happened.

6. [11]

   The Trust Fund was to be held until the “Terminal Date”, at which point it would be distributed among members of a class of persons defined as the “Beneficial Class”. The distribution was to take place in accordance with the Trustee’s discretion (to be exercised not more than twelve months before the Terminal Date: see further at [152] below), or, in default, equally among the members of the Class. Annual trust income derived prior to the Terminal Date was likewise to be distributed at the Trustee’s discretion among the members of the Class, or equally if the Trustee failed to exercise its discretion.

7. [12]

   The Trust Deed defined the Terminal Date as being the earlier of a date determined in accordance with a royal lives clause, or 1 January 2024 (with the Trustee having a discretionary power to bring the Terminal Date forward). As explained in the section 81 application judgment at [41]-[42] and [79], given the length of the royal lives period, the Terminal Date was, for practical purposes, certain to be the fixed date of 1 January 2024 (unless terminated earlier by the Trustee): a period, presumably deliberately selected, of 49 years and 3.5 months.

8. [13]

   The Beneficial Class consisted of Clelia and John, and any spouse of either of them. In the event that John died before the Terminal Date, any children of his would become members of the Class in his place. In the event that none of these persons survived to the Terminal Date, there was a gift over in favour of Clelia’s sister, Giselda Sandrin (“Giselda”), and any children she might have. If any such child were to die before the Terminal Date, then that child’s children (if any) would receive his or her share.

9. [14]

   The Trust Deed did not provide for what was to happen to the income and corpus of the Trust if both the Beneficial Class and the gift over in favour of Giselda and her children or grandchildren were to fail. In those circumstances there would have been a resulting trust in favour of the settlor, WP Nominees Pty Limited.

10. [15]

    In an affidavit sworn for the purposes of these proceedings, John set out some of the background to the establishment of the Trust, and subsequent events which have led to the present application. Some of what he said was hearsay, but for the purposes of this judgment, none of it appears to be controversial.

11. [16]

    According to John, the Trust came to be formed as a result of a concern, primarily held by Giselda, about succession planning within her and Clelia’s family. Their parents, Giovanni and Gilda Barp, had in the 1950s acquired a residential apartment building at William Street in Double Bay in Sydney’s Eastern suburbs. The building contained 12 units and was apparently held (at least principally) for investment purposes. Following Giovanni’s death, Gilda had become the sole proprietor of the Double Bay property and her health appears to have been failing by 1974. Giselda consulted solicitors and the result was the establishment of two discretionary trusts, one of those trusts being the Cisera Trust and the other a trust in similar form for Giselda, which I will refer to as the Sandrin Trust.

12. [17]

    The Trustee of both trusts was a company named Barp Nominees Pty Limited (“BNPL”). That company was controlled and managed by Clelia and Giselda, or others nominated by them.

13. [18]

    According to John, it had initially been planned that following the establishment of the two trusts, the Double Bay property would be transferred to BNPL as Trustee. But Gilda died before this could be put in effect, and the property passed to Clelia and Giselda as joint tenants in equal shares. It was eventually transferred to BNPL in September 1976. Thereafter, BNPL held it as to half for the Cisera Trust, and, as to the other half, for the Sandrin Trust.

14. [19]

    The building continued to be managed by Clelia, Giselda, and members of their family for another 20 years. Eventually, it was sold in May 1996. Later that year, BNPL bought, apparently by way of replacement, a property in Castlereagh Street in the CBD of Sydney and a half share of another property in Elizabeth Street Surry Hills. The Castlereagh Street property was held by BNPL as to half for the Cisera Trust, and as to half for the Sandrin Trust. So too was BNPL’s half share of the Elizabeth Street property. The other half share of that property was purchased by a separate Cisera family company, Clemar Pty Limited (“Clemar”).

15. [20]

    Clelia died in December 2002 at the age of 77. In February 2006, John married his wife Sang Hee Shin (“Crystal”). He was then aged 47 and she was aged 29, having been born in March 1976.

16. [21]

    Together John and Crystal have had two children. They are Ryan Bada Cisera (“Ryan”), who was born in August 2008; and Ruby Sarang Cisera (“Ruby”), who was born in November 2010.

17. [22]

    According to John, he learned in about 2012 that the Terminal Date of the Trust would be 1 January 2024. This was as a result of a conversation with Mario, which followed a meeting between Mario, an accountant and a solicitor. According to John, Mario told him, “There will be big problems”. The evidence does not go into any detail about what these problems were, but, as will be seen, the fair inference is that it was a prospective liability for Capital Gains Tax on the properties held on behalf of the Trust, when the Trust vested.

18. [23]

    After dealing with unrelated business matters, John and Mario began working on the “issues” with the Cisera Trust in 2014. According to John, their first step was to establish a separate Trustee for the Cisera Trust. To this end, a new company controlled by Mario and John, named Cisera Holdings Pty Limited (“CHPL”) was incorporated in April 2015. In May, it replaced BNPL as Trustee of the Cisera Trust. BNPL continued as Trustee of the Sandrin Trust, which thereafter passed out of the picture.

19. [24]

    Mario is still alive today at the age of 96. But his health has apparently deteriorated. He lives in a nursing home and John manages his affairs under an enduring power of attorney.

20. [25]

    Ryan (who is now 15) and Ruby (who is now 13) are both at secondary school. They live with John (who is now aged 65) and Crystal (who is now 47) in Sydney.

21. [26]

    As already noted, the Trust Deed provided for a gift over in favour of Giselda’s family, if none of Clelia’s family survived until the Terminal Date. It seems that Giselda had a single daughter, Norma Mary Gilda Swift (previously Zaro) (“Norma”). Norma was born in September 1948, which would make her 75. It appears that she is still alive – as of 1 August she was still a director of BNPL. There is no evidence that Giselda is still alive (although that must be doubtful by this point – she would be 96).

22. [27]

    The Trustee remains CHPL. It seems that John is now primarily responsible for the administration of the Trust.

23. [28]

    The primary assets of the Trust are the interests in the Castlereagh Street and Elizabeth Street properties described above. Valuations of these properties are in evidence, dated 7 September this year. Based on these valuations, the Trust’s interest in the Castlereagh Street property is worth $1.7 million, and its interest in the Elizabeth Street property is worth $5.1 million.

24. [29]

    Currently, the annual income of the Trust is being distributed to John. Mario’s living expenses are funded out of Clemar. John has income from other sources, and Crystal also has income of her own (described by John as “modest”). According to John, this other income is sufficient to cover John and Crystal’s own living expenses. The income from the Trust thus helps to fund their wider family expenses, a significant part of which are private school fees for Ryan and Ruby. Those fees amount to around $50,000 a year.

25. [30]

    In the 2020, 2021 and 2022 financial years, the income of the Trust was $120,000, $45,000 and $65,000, respectively. After tax, this would have been sufficient to cover the school fees in 2020 but not the two later years. There was no evidence about how much income John received from other sources, or as to the level of the other family expenditure.

26. [31]

    As already noted, the Court of Appeal decision closing off the section 81 application to extend the Terminal Date was delivered in November 2018. The leading judgment was given by White JA. In the course of his judgment, his Honour pointed to the failure of the New South Wales Parliament to adopt variation of trust legislation which had been adopted in other jurisdictions (as described below) and suggested the question was ripe for Parliamentary consideration (at [68]-[72]).

27. [32]

    It seems that his Honour’s suggestion was taken up by the New South Wales Law Society which lobbied for the enactment of legislation in accordance with his Honour’s suggestion. Parliament responded with the enactment of Division 3A. The legislation took effect at the end of September 2020.

28. [33]

    The present proceedings were commenced at the end of August this year. An application was promptly made for expedition, which I granted, although there was no evidence to explain the delay in bringing the application following the enactment of Division 3A.

29. [34]

    There have been some interlocutory twists and turns in the proceedings. As I describe in more detail below, questions arose about who the proper parties were to the proceedings, and they were reconstituted by the filing of an Amended Summons. There was a further amendment which altered the form of the relief sought, and further evidence was filed in the course of the proceedings. The application has proceeded to trial as quickly as has been possible in the circumstances.

30. [35]

    Among the changes made after the institution of the proceedings was the appointment of an independent solicitor, Ms Susan O’Rourke, to represent the interests of Ryan and Ruby, both of whom are under 18. Eventually, they were joined as defendants in the proceedings with Ms O’Rourke acting as their tutor, as well as their solicitor.

31. [36]

    Another step which was taken only after the proceedings were instituted was to execute a deed of arrangement setting out in formal terms the arrangement which the Court was asked to approve. There were actually two versions of this deed, the second of which was executed on 14 November. Although it has been signed by all of the parties who are over 18, the deed, in accordance with its provisions, will not come into effect unless it is approved by the Court, on behalf of the defendants, as a result of this application.

32. [37]

    The hearing took place before me on 17 November. By that stage, the plaintiffs were John, Crystal, Mario and CHPL. Counsel for the plaintiffs presented the application. Ms O’Rourke appeared for Ryan and Ruby as the defendants. She supported the application but did not add to the case presented by counsel appearing for the plaintiffs. No argument was presented in opposition to the application. I will return to this point below.

Application for approval

1. [38]

   The deed of family arrangement dated 14 November, which is the subject of the present application, provides for the variation of the original 1974 Trust Deed.

2. [39]

   The only amendments which require mention are those to the Terminal Date and the Beneficial Class.

3. [40]

   The fixed component in the definition of the Terminal Date is changed from 1 January 2024 to 23 August 2054, being 80 years from the date of the original Trust Deed. As I explained in the section 81 application judgment (at [42]), the number of descendants of King George V alive as at the date of settlement in 1974 was large, including some who were then quite young. Even with the extension of the fixed period to 80 years, it remains very likely to be exceeded by the royal lives period, with the result that the Terminal Date will be extended by over 30 years (unless brought forward by the Trustee). Even if all of the remaining descendants of George V who were alive in 1974 were to die tomorrow, the Terminal Date would still be extended by 20 years.

4. [41]

   The Beneficial Class is expanded to give John’s children, grandchildren and remoter issue immediate and direct membership. This replaces the existing contingent membership which is limited to John’s children and arises only upon John’s death.

5. [42]

   The gift over to Giselda and Norma or Norma’s children has not been altered. Because the gift over does not extend to Norma’s grandchildren and remoter issue, the extension of the Terminal Date creates an increased (but still remote) risk that, if the Beneficial Class fails, the gift over may then also fail, with a resulting trust in favour of the settlor company (if it still exists).

6. [43]

   Division 3A of Part 3 of the Act is titled “Power of Court to vary trusts”. The Division consists of sections 86A, 86B and 86C, which relevantly provide:

7. [44]

   As White JA noted in the passage referred to at [31] above, legislation providing for the variation of trusts was first enacted in the United Kingdom in 1958: Variation of Trusts Act 1958 (UK). I will refer to this enactment as the “UK Act”. The only operative provision, s 1, relevantly provides:

8. [45]

   The UK Act was introduced in response to the decision of the House of Lords in Chapman v Chapman [1954] AC 429. That case concerned family settlements which had been made in 1944 and 1950. The settlements had since been adversely affected by subsequent changes to revenue laws. Some of the beneficiaries were sui juris, but others were still minors. The sui juris beneficiaries agreed to a variation of the settlements which would have overcome the adverse taxation consequences from the revenue law changes. An application was then made for the Chancery Division to sanction the variation on behalf of the minor beneficiaries. That application was rejected, and its rejection was upheld by the House of Lords.

9. [46]

   The Court of Chancery had always had power to sanction departures from the terms of the trust in some circumstances, where such departures were in the interests of the beneficiaries. The House of Lords identified four such situations. One was where a proposed transaction was plainly beneficial, but the trustees lacked power to enter into it (this exception was later codified in s 57 of the Trustee Act 1925 (UK), which was the forerunner of section 81 of the NSW Act).

10. [47]

    It was argued that these exceptions were only illustrations of a wider principle that the Court had power to sanction a variation whenever it was in the interests of the beneficiaries to do so. That proposition was emphatically rejected by the House of Lords. The House held that there was no power to sanction the variation of the terms of a trust merely because that was thought to be in the interests of the beneficiaries. The exceptions which had been recognised were narrow and did not apply in the circumstances of the case.

11. [48]

    It seems that the decision came as a surprise to some in the profession, and overturned a more liberal practice which had grown up in the Chancery Division. Lord Oaksey, who only reluctantly concurred, stated:

12. [49]

    The issue was referred to a Law Reform Committee chaired by Lord Justice Jenkins which produced a report (“Court’s Power to Sanction Variation of Trusts”, 1957, Cmnd 310) recommending the enactment of what became the UK Act.

13. [50]

    With the enactment of Division 3A in New South Wales, all Australian states now have variation of trusts legislation. All enactments, with the possible exception of South Australia, appear to have been influenced by the UK Act. But some align more closely with that Act than others.

14. [51]

    Victoria adopted s 1(1) of the UK Act, in full, in 1962 (Trustee Act 1958 (Vic), s 63A(1)). It now differs in one respect (“minority” substituted for “infancy”).

15. [52]

    Western Australia passed legislation in the same year (Trustees Act 1962 (WA), s 90). Instead of the benefit precondition in s 1(1) of the UK Act, it contains a “no detriment” precondition, which involves a consideration of “all benefits that may accrue” to the person “directly or indirectly in consequence of the arrangement” (s 90(2)). It also empowers the court to approve arrangements on behalf of “any … unknown person” (s 90(1)(c)).

16. [53]

    Queensland included a provision when it passed its Trusts Act 1973 (QLD) (s 95). The key difference between s 95 and s 1(1) of the UK Act is that it does not require the court to find that the arrangement is for the benefit of “an unascertained person whose entitlement is dependent on a future event which the court is satisfied is unlikely to occur” before approving on their behalf (s 95(1A)(a)).

17. [54]

    The South Australian provision (Trustee Act 1936 (SA), s 59C) was introduced in 1980. It is not framed in terms of court approval of an arrangement on behalf of specified persons. Despite its title, “Power of Court to authorise variations of trust”, the Supreme Court is expressly empowered (s 59C(1)), “on the application of a trustee, or of any person who has a vested, future, or contingent interest in property held on trust”, to:

18. [55]

    Subsection (3) sets out matters that the Court must be satisfied of before exercising its powers under the section. These are:

19. [56]

    The Tasmanian legislation (Variation of Trusts Act 1994 (Tas), Pt 3) is cast in quite different terms to the UK Act. It still allows the Court making an order, on behalf of specified persons, to approve an arrangement (see s 13). Like the UK Act, such arrangements include those “varying or revoking all or any of the trusts” (s 13(1)(a)) or “enlarging the powers of the trustees of managing or administering any property subject to the trusts” (s 13(1)(c)). But they also extend to those “resettling an interest under the trusts” (s 13(1)(b)) (cf the discussion of resettlement in the authorities cited below).

20. [57]

    The short title of the UK Act tended to suggest that the Court was itself being given power to make variations to the terms of trusts. Initially, that was the way the Act was understood: see Re Holt’s Settlement [1969] 1 Ch 100, where Megarry J, apparently with some reluctance, confirmed the then existing practice (see at 109F-110E, 113F-114A) of making orders which were expressed to vary the terms of the trust.

21. [58]

    Re Holt’s Settlement was decided on 5 December 1967. But only a few days later, the House of Lords delivered its decision in Inland Revenue Commissioners v Holmden [1968] AC 685. Lord Reid stated (at 701):

22. [59]

    Lord Reid’s statement of the law was quoted by the Victorian Court of Appeal in Perpetual Trustees Victoria Ltd v Barns (2012) 34 VR 387 without apparent disapproval (see at [18], [26]-[27]). There would seem to be no reason why it would not also apply to the NSW Act (in passing, I note that the WA, SA and Tasmanian Acts all make express provision – s 90(4) of the WA Act, s 59C(4) of the SA Act and s 15 of the Tasmanian Act – about the effect of an order of the Court, so the approach under those Acts may be different).

23. [60]

    The summons, as originally filed, named five plaintiffs. John, Crystal and Mario were the first three plaintiffs. Ryan and Ruby were named, in each case with John as their tutor, as the fourth and fifth plaintiffs. There was no named defendant. The affidavit in support of the application for expedition sought a half-day hearing in October or November, apparently on the basis that the relief would be unopposed.

24. [61]

    The summons, in its original form, sought an order directly varying the terms of the Trust Deed in the desired fashion. But when, on the first return date, I drew Holmden and Barns to counsel’s attention, he accepted that Lord Reid’s statement of the law would apply to the NSW Act. It would therefore be necessary to re-cast the application as one to approve, on behalf of the beneficiaries who could not give their consent, an arrangement effecting the relevant variations. Counsel also agreed that that arrangement should be recorded in a written agreement between the sui juris beneficiaries. In due course, the summons was amended so as to seek an order in that form.

25. [62]

    On the first return date, I was also concerned to know whether the proceedings would, or should, be brought on an inter partes basis. I made the point that, on the face of it, one would expect the proponent or proponents of the arrangement to be the plaintiffs and the persons whose consent was required, to the extent to which they were identifiable, to be the defendants. Most obviously that would include Ryan and Ruby. At the very least, I thought, those persons should be independently represented.

26. [63]

    The proceedings returned to Court for further directions on 29 September. Counsel for the plaintiffs mentioned the appearance of Ms O’Rourke, indicating that she acted for them as both tutor and solicitor. Although the evidence in support of the application was not complete, counsel indicated that Ms O’Rourke consented to the orders sought. I found it somewhat surprising that Ms O’Rourke should commit herself so early, but she has never varied from that course.

27. [64]

    Prior to the 29 September directions hearing, the plaintiffs submitted two proposed versions of an amended summons – one with the children as the sole plaintiffs, and the other with them as sole defendants. I remained of the view that the children should be named as defendants, and granted leave to the plaintiffs to amend on that basis. The amended summons also provided for CHPL, the Trustee, to be joined as the fourth plaintiff. I will return to this below.

28. [65]

    The matter returned to court on 13 October following the filing of further evidence. Counsel for the plaintiff urged me to fix a hearing date as soon as possible, in view of the fact that the 1 January date was impending. Having regard for the need to file further submissions and the availability of counsel, 17 November was identified as a suitable date. I had, however, read the accountant expert report which had been filed in support of the application and was concerned by it. I gathered from the report that what lay behind the application was a wish to avoid Capital Gains Tax (CGT) on vesting (although counsel suggested that this was not the “entire motivation” for it). I told counsel that I was not sure what effect the vesting would have for CGT purposes. I also asked whether, if a consequence of the application would be a substantial saving in tax, the Commissioner of Taxation should be made a contradictor (opposition was plainly not going to be coming from Ms O’Rourke).

29. [66]

    In response, counsel suggested that the real question on the application would be whether approval was in the best interests of the children. Counsel suggested that all I would need to be satisfied of, so far as taxation was concerned, was that there was nothing illegal or improper about the arrangement (although any tax saving would, counsel added, support his argument).

30. [67]

    Counsel urged me, especially given the lack of time before 1 January, to give him an opportunity to persuade me that the application should be granted on the existing material. I acceded to this request. But I did indicate to counsel that I might in the end conclude that I needed further assistance on the taxation issue, and that this might require a contradictor.

31. [68]

    Generally speaking, the variation of trusts legislation is recognised as remedial legislation which should not be given an unduly narrow construction. At least one limitation has however been identified. The authors of the most recent edition of Lewin on Trusts (L Tucker, N Le Poidevin, J Brightwell, 2020, 20th ed, Vol 2, Sweet & Maxwell) at [53-033] state (citation omitted):

32. [69]

    The limitation is expressed by the authors of the most recent edition of Jacobs’ Law of Trusts in Australia (J D Heydon, M J Leeming, 2016, 8th ed, LexisNexis Butterworths) at [17-07] in the following way:

33. [70]

    In advance of the hearing, I drew counsel’s attention to this doctrine. Counsel referred to some of the relevant authorities in his submissions. I will refer to those decisions, and some others, below. There may be some analogy with the distinction recognised in the law of contract between a variation and entry into a fresh contract (cf Tallerman and Company Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93) but in the time available I have not been able to investigate that line of authority.

34. [71]

    It is not unknown for deeds of trust to confer express powers of variation on the settlor or the Trustee. The authorities on such express powers of variation were, however, not the subject of submission before me, and I have not had time to explore them for myself. But one case, which, as we will see, was later referred to in the variation of trusts legislation authorities, is Re Dyer [1935] VLR 273, a decision of the Victorian Full Court.

35. [72]

    The case concerned a trust for a charitable purpose, namely, to establish and maintain a permanent orchestra for Victoria. The trust deed conferred a power of variation on the settlor for “all or any part of the trust and powers herein before declared”. The trust fund proved inadequate to establish the orchestra and the settlor purported to vary the terms of the trust, giving the income to certain named musical societies. It was held by Macfarlan J, at first instance, that the variations were ineffective, on the ground that they departed from the charitable purposes of the original gift. His Honour’s conclusion was upheld by the Full Court.

36. [73]

    Irvine CJ and Gavan Duffy J stated (at 287):

37. [74]

    Martin J stated (at 290-291):

38. [75]

    The cases on the limitation on the power of variation under the UK Act begin with the decision of Wilberforce J in Re T’s Settlement Trusts [1964] Ch 158. The case concerned a family settlement made in 1953. The settlement deed provided for a life interest in half of the trust fund in favour of the applicant, with the trust fund otherwise held for the applicant’s children on attaining the age of 21.

39. [76]

    The applicant had two children. The share of the elder child (a daughter) was due to vest in November 1963. In June of that year, the applicant made an application on the grounds that her daughter was “alarmingly immature and irresponsible as regards money”. The application sought the transfer of the trust fund to new trustees, to be held on protective trust for the daughter’s life, with a gift over to her issue. The trustees were to have extensive powers to advance the capital to the daughter when she attained specified ages.

40. [77]

    It was argued for the mother that the statutory power was very wide and could be exercised wherever “benefit” was shown. Wilberforce J responded (at 161) (citation omitted, emphasis added):

41. [78]

    His Lordship then referred to practical considerations (at 161):

42. [79]

    His Lordship continued (at 161-162, emphasis added):

43. [80]

    His Lordship recorded that after he indicated that this was his view, the parties submitted an alternative proposal for the deferral of the daughter’s right to capital. This was to be effected by an amendment to the existing trust deed whereby the vesting of the daughter’s interest was to be postponed to a specified date in the future (not revealed in the report) with the existing trustees having power to make advances in the meantime.

44. [81]

    His Lordship approved this variation. He stated (at 162-163):

45. [82]

    Re T’s Settlement Trusts was followed by Re Holt’s Settlement, (citation is given above). That case concerned a 1959 family settlement. The settlement provided for a trust giving a life interest to a Mrs Wilson and, subject to that life interest, for her children on attaining the age of 21. At the time of the settlement, Mrs Wilson was in her late twenties, with a child about two years old.

46. [83]

    By 1967, when the application was made, Mrs Wilson was about 35 years of age and had two further children, who had been born in 1960 and 1961. The arrangement for which she sought approval on the children’s behalf involved her surrendering her life interest in half of the trust income and, in return, the children’s interests being deferred so that their capital would vest at the age of 30, with half of the income to be accumulated until the children reached the age of 25 (or until 21 years from the date of approval of the order). Although the report does not say so, part of the concern was presumably a belief that it would be better for the children to come into their inheritance at a later time.

47. [84]

    The order which was sought was drafted in the form of a revocation of the existing trusts and the establishment of new ones with the altered terms. The point was taken that the arrangement involved a resettlement, in effect establishing new trusts in place of the old ones. This argument was rejected by Megarry J (at 117):

48. [85]

    Counsel referred to Re T’s Settlement Trusts. Counsel accepted that the question was one of substance and not form, but submitted that the form gave some indication of whether the changes truly represented a variation. His Lordship rejected this argument, reasoning (at 117-118, emphasis added):

49. [86]

    The next case is Re Ball’s Settlement Trusts [1968] 1 WLR 899. The case concerned a 1958 family settlement. Under the settlement, the settlor had a life interest with a testamentary power to appoint the capital of the trust in favour of his two sons, or the wives or children or grandchildren of those sons (but so that no more than half of the trust fund could be given to one family). In default of appointment, one half share in the trust was to pass to the sons, but if they predeceased the testator, to their issue.

50. [87]

    At the time of the application in 1968, the testator was still alive, but was 76 years old. The application was for an arrangement removing his life interest and the power of appointment, and replacing this by gifts of half of the trust property to each of his sons for life, with a remainder to their children.

51. [88]

    Megarry J quoted the passages from Re Dyer set out at [73]-[74] above, and said (at 905, emphasis added):

52. [89]

    He then stated (at 905):

53. [90]

    By way of further explanation, he continued (at 905):

54. [91]

    The next case is the judgment of Blackburne J in Wyndham v Egremont [2009] EWHC 2076 (Ch). The case concerned a settlement made within a titled family (the holders of the Baronies of Egremont and Leconfield) in favour of the heir to the titles (“George”). The settlement included the family’s ancestral home (Petworth House) which had descended along with the title for generations.

55. [92]

    The life of the settlement was limited by a vesting date calculated by reference to the lifetimes of the descendants of King George V living in May 1940, plus twenty years. The trust gave George a life interest in the property. If he was still alive on the vesting date, the property vested in him absolutely. Otherwise, he had a power of appointment among his children or remoter issue, or in default of exercise, his male heir. There was an ultimate provision, in the event of all of these trusts failing, for the property to vest in George (or most likely) his legal personal representative.

56. [93]

    At the time of the application in 2009, George was 26 and unmarried. The vesting date was “relatively imminent” (the likely date was not identified in the judgment, but some descendants of King George V born before May 1940 were still alive in 2009 – most obviously Queen Elizabeth II – and some are still alive).

57. [94]

    The arrangement which was the subject of the application involved what his Lordship called, with some understatement, “a very considerable” extension to the vesting date. A new vesting date was to be 21 years after the death of the last surviving descendant of King George V (and of an earlier Baron Leconfield) alive at the time of the making of the order (i.e. in 2009) – which would be virtually certain to result the trust continuing into the 22nd century. The gift in favour of George, if he survived to the vesting date (which would have been impossible anyway), was removed. His testamentary power of appointment was retained with some modification of the default provisions, which it is unnecessary to go into for present purposes. If George had no descendants or they died out before the vesting date, there was a gift over to George or his estate.

58. [95]

    The purposes of the arrangement were said to be twofold (see [9]). First, “in accordance with George’s wishes” to enable the continued attachment of “the ancestral estates at Petworth … to the two baronies”, so that they “devolve for as long as possible down the senior male line”. Second, to defer “very considerable tax charges” upon vesting, under the United Kingdom’s capital gains tax legislation, “which could only be met by the sale of a significant part of the ancestral lands as the major constituent of the Fund”.

59. [96]

    His Lordship referred to the “substratum” test stated by Megarry J, but commented (at [22]):

60. [97]

    His Lordship went on to refer to House of Lords authority in a revenue case (Roome v Edwards [1982] AC 279). The issue in that case was whether the exercise of a power of appointment under a settlement gave rise to a new settlement, separate from the main settlement, for the purposes of the relevant revenue legislation. Blackburne J quoted from the speech of Lord Wilberforce (with whom, Blackburne J noted, three of the other four Law Lords agreed) as follows:

61. [98]

    Blackburne J continued (at [24]):

62. [99]

    The final case is Wright v Gater [2012] 1 WLR 802, a November 2011 decision of Norris J. The case concerned a statutory trust in favour of a three-year-old child (Rory) arising from the deaths, intestate, of his paternal grandfather and then his father. The statutory trust was for Rory, contingently upon his attaining the age of 18 (or marrying). If the gift to Rory failed, there was a gift over to his father’s aunts and uncles (referred to as the “ultimate beneficiaries”) in the judgment.

63. [100]

    The application (initially) by the statutory administrators was for a scheme under which they were to hold the property for Rory until he reached the age of 30. If he failed to attain that age, they would have a power of appointment among his spouse or any of his children; in default, the administrators would have a power of appointment among the ultimate beneficiaries. The reason why this was proposed was that one of the administrators (Ellen, Rory’s mother) thought it undesirable that Rory should inherit a substantial sum of money as early as the age of 18.

64. [101]

    Norris J was not prepared to approve the application in this form for number of reasons. One of the reasons his Lordship gave (at [16]) was:

65. [102]

    His Lordship, however, approved a revised arrangement under which Rory was to receive the income at 18, 10% of the capital on attaining the age of 21, and the balance at the age of 25. Rather than the administrators having the power of appointment, Rory was to have a testamentary power of appointment on turning 18, which would come into play if he did not survive until the age of 25. His Lordship stated that he felt he could approve this revised scheme because it was a “variation and not a resettlement” (at [18]) but did not offer any further explanation for that conclusion.

66. [103]

    Despite academic questioning (see J W Harris, Variation of Trusts, 1975, Sweet & Maxwell at 63-68) the authorities to which I have referred show that the limitation on the term “variation” is well accepted under the UK Act. There is no reason to read equivalent Australian statutes, which include the NSW Act, any differently. The passage quoted above from Jacobs appears to proceed on that basis. The “substratum” test propounded by Megarry J in Re Ball’s Settlement Trusts has been quoted with apparent acceptance at first instance in Queensland (Re Blocksidge [1997] 1 Qd R 234 at 237). Counsel for the plaintiffs in the present case, having had the point drawn to his attention, likewise expressly accepted its existence. I will proceed on that basis.

67. [104]

    I think that the authorities to which I have referred establish the following propositions. First, the limitation is one that goes to jurisdiction in the sense that if the changes in question amount to more than a “variation” of the subject trust then the Court lacks power to approve the arrangement, no matter what its merits might be. Second, it is a matter of degree. The question is whether the changes are so extensive that the trust in its changed form no longer answers the description of a variation of the existing trust. Third, it is a matter of substance not form.

68. [105]

    To these propositions I would add a fourth: to say that the changes amount to a resettlement may be a useful aid to analysis, but it is not itself the test. Section 86A does not contain an express exclusion of a variation which amounts to a “resettlement”. The question is one of implicit statutory limitation on the term “variation”.

69. [106]

    I agree with Blackburne J that the “substratum” test may be somewhat question-begging. But the test appears to have been accepted in subsequent cases as a convenient shorthand for expressing the distinction between changes which fall within and outside the boundaries of “variation” in the sense used by the enactments in question.

70. [107]

    I would however point out that the test derives ultimately from a case (Re Dyer) involving changes to a charitable trust. In the law of charitable trusts, the distinction between the charitable purpose of the settlors, which is fundamental and unalterable, on the one hand, and other terms, particularly terms which are administrative in nature, which are not, is well recognised: see Macedonian Orthodox Community Church St Petka Incorporated v Metropolitan Petar [2013] NSWCA 223 at [129]. Private trusts, such as the present, are trusts for persons not purposes. It seems to me, therefore, that when the issue arises in the context of a private trust, the focus must be on changes to the persons benefited and the nature of the benefits provided to them.

71. [108]

    In my view, there are two factors of particular importance in the present case.

72. [109]

    The first is the time at which this application is being made. As in Re T’s Settlement Trusts, it comes at a point where the trust is at the end of its 50-year design life; the trust property is about to vest as an absolute interest, and the proposal involves a rededication of the trust property for the next thirty years such as an absolute owner would make. Indeed, as appears below, it seems that it is only because of the hope of avoiding the adverse taxation consequences of such a vesting that the application has been made now, rather than letting the trust vest and resettling the property in the desired terms.

73. [110]

    The second factor is the nature of the changes. As explained in the section 81 application judgment at [79]-[82], the existing terms of the trust were designed to provide benefits in the form of a stream of income which could be shared between family members falling within two generations of family members: Clelia’s (the first) and John’s (the second). It was designed to cover, in the ordinary course, the whole of the first generation’s lifetime, with the expectation that the trust assets would, on vesting, benefit the second generation. True it is that the Trust Deed provided that if John were to die leaving children those children could take his place in the Beneficial Class. But there was no facility for John’s generation and his children’s generation to benefit alongside each other, as was contemplated for Clelia’s generation and John’s. In that sense, the benefit from the trust can be seen to have been intended to straddle the first and second generations, but not the third.

74. [111]

    As events have turned out, it is precisely the inability of the third generation to benefit alongside the second which has led to the proposed changes to the definition of the beneficial class. John wishes, once Ryan and Ruby become adults, to be able to make distributions of income to them as and when they require that income. Even if the Terminal Date were extended, that could not happen, under the terms of the existing trust, as long as John remained alive. This feature of the trust would be even more obvious if, as might have been expected, John had married and had children at an earlier age and those children were now in their twenties or thirties.

75. [112]

    The terms now proposed will allow Ryan and Ruby, and in due course their children, to benefit alongside John and Crystal. Mario, of course, remains a member of the Beneficial Class. But taking into account what is likely to happen (Megarry J in Re Ball’s Settlement Trusts at 95) and looking at the trust income over a 30-year period, it is unlikely that he will benefit in any substantial way. Instead, the income, taken over the 30-year extended life of the trust, will benefit the second generation and the third generation (Ryan and Ruby and any spouses they may have). Probably, as has happened between the first and second generations, the third generation will benefit more as time goes on, and will be in the driver’s seat when vesting takes place. Indeed, as the extended Terminal Date approaches, a fourth generation (the children of Ryan and Ruby) may come into the picture. In effect, the trust will be one straddling the second and third generations, with the possibility of the fourth generation coming in at the end.

76. [113]

    I think a contrast with the facts of Re Ball’s Settlements Trusts is instructive. The changes effectively involved a transfer of the life interest from the first generation (the settlor) to his sons (the second generation), with a remainder to their issue (the third generation). But as Megarry J pointed out in the passage quoted at [90] above, the altered specification of the second and third generation’s interests lay within the settlor’s testamentary power of appointment. No doubt that is what led his Lordship to characterise the changes as ones of detail rather than substance.

77. [114]

    In his oral submissions, counsel characterised the arrangement in the present case as one “to vary the current trust in a relatively discrete and minor way” which did not “change the substratum nor, indeed, very much else”. Counsel relied in particular on the judgment of Blackburne J in Wyndham. But I do not think that that decision has great weight in the present context.

78. [115]

    There appears to be a recognition in the English authorities that where the trust involves an asset of a special character, such as a historic home, that may affect the characterisation of the nature or “substratum” of the trust: see Lewin on Trusts at [53-059]. Against that background, the decision in Wyndham may have been influenced by a perception that the “substratum” of the trust involved maintaining the family connection with Petworth. But that could hardly be a factor in the present case.

79. [116]

    If that feature does not explain the decision, then I do not find his Lordship’s reasoning persuasive in the present context.

80. [117]

    In the first place, I do not think the test stated in Roome is particularly apposite. The question here is whether changes made to the terms of a trust cross the boundary between variation and resettlement, not whether the appointment of property under an existing trust deed involves the creation of a new and separate trust; and I find it hard to see why the opinion of a “reasonable businessman” or a “reasonable layman” should be the touchstone.

81. [118]

    Secondly, the critical change in my view was the elimination of the absolute interest which George was likely to receive upon the vesting of the trust. The practical effect of that change, coupled with the extension of the vesting date into the next century, was to transfer the benefit of the corpus from George to one or more of his descendants in several generations’ time. With respect, I find it difficult to characterise those changes as leaving the subsisting trusts “largely unaltered”. But if that was a fair characterisation, because George’s testamentary power of appointment was preserved, and the decision can therefore be seen as consistent with Re Ball’s Settlement Trusts, I have already explained why I consider that the present case, which does not have that feature, is different.

82. [119]

    In the course of argument, counsel also referred to the decision of the Supreme Court of Victoria in Re Perenna Nominees Pty Ltd (2022) 66 VR 246. That was a case involving the variation of discretionary trusts in a somewhat similar factual context. But the “substratum” issue was not raised, and it is therefore unnecessary to go into the facts for the purpose of precise comparison with the facts of the present case. Nor was the issue considered in Thomas Hare Investments Ltd v Hare (2012) 34 VR 656 or Re Plator Nominees [2012] VSC 284, to which counsel referred in his submissions.

83. [120]

    For these reasons, on the argument which I have received, I am not satisfied that the changes which would be effected by the deed of family arrangement are properly described as a “variation” of the existing trust, as that term is understood in this area of the law.

84. [121]

    As a result, I consider that I am unable to approve the application in its current form. But I propose to comment on some further features of the case.

85. [122]

    In its final form, the relief sought in the summons was:

86. [123]

    Seeking relief in this form is consistent with the statement of the law by Lord Reid in Holmden. In terms, approval was sought on behalf of all children or potential children of John, as potential replacements for him in the Beneficial Class should he die before the Terminal Date. But counsel’s submissions focussed largely on Ryan and Ruby. Counsel contended that they fell within s 86A(1)(a) (as possessors of an “interest” for the purposes of s 86A, but being unable to consent because they are minors) or s 86A(1)(b) (as only contingent possessors of an “interest” for the purposes of s 86A).

87. [124]

    According to counsel’s argument, it was unnecessary to decide whether Ryan and Ruby fell within s 86A(1)(a) or (b), so long as they fell within one or the other, and counsel did not address this issue in any greater detail in his submissions. But I think the issue deserves some further scrutiny.

88. [125]

    The present trust is one which Brereton JA described as a “modern discretionary trust” (Baba v Sheehan (2021) ACSR 462 at [4]). It involves the establishment, as a shell, of a discretionary trust structure having a lengthy lifespan, with the capital required for trading or investment operations later being provided by way of contribution from those behind the trust, or borrowing underwritten by them. This is quite different from the traditional family settlement upon which the UK Act seems to have been focussed.

89. [126]

    It might be asked whether the UK Act was intended to encompass such “modern discretionary trusts” at all. I say that because of its statutory history.

90. [127]

    The report of the Law Reform Committee which preceded the enactment of the UK Act did not recommend making any express general provision for discretionary trusts. But it did recommend provisions for protective trusts having a discretionary element (at [19]):

91. [128]

    The Committee’s view was implemented, as a matter of drafting, by giving express jurisdiction to the Court (in s 1(1)(d)) to grant approval on behalf of discretionary objects in whose favour an appointment of property or income might be made under a protective trust, where the interest of the principal beneficiary had not failed or determined. But there was a proviso (at the end of s 1(1)) that in doing so the Court was not obliged to satisfy itself that the arrangement was for their benefit.

92. [129]

    At first sight it may seem strange that s 1(1) includes a power to give approval on behalf of contingent discretionary objects of protective trusts, only to provide that such objects’ interests do not need to be given any weight. But that is explicable on the basis that approval on behalf of such persons was still required for the purposes of the rule in Saunders v Vautier (cf the discussion in Jacobs’ Law of Trusts in Australia at [23-15]).

93. [130]

    The Committee’s recommendations implied that discretionary objects of a protective trust, where the interest of the principal beneficiary had failed or determined (i.e. where the discretion had become exercisable), would have an “interest” for the purposes of subparagraphs (a) or (b). But where the discretion had not become exercisable, they were not to have such an “interest”. The position of such “contingent discretionary objects”, as I shall call them, was instead to be covered by the special provisions in subparagraph (d).

94. [131]

    But the Act did not address the position of discretionary objects of ordinary, non-protective, trusts such as the present. Where the discretion had become exercisable, such discretionary objects would have an “interest” for the purposes of subparagraphs (a) and (b), just as discretionary objects of protective trusts would where the discretion had become exercisable. But arguably there was no provision for contingent discretionary objects, because subparagraph (d) was confined to protective trusts. On that view, it might be said that there was a lacuna, in that the Court could not approve arrangements on the behalf of such contingent discretionary objects.

95. [132]

    Considering the question under the NSW Act creates further complexities. The NSW Act picks up the structure of the UK Act, and there is nothing to indicate that the question of discretionary objects’ interests was considered at all when it was enacted. Another possible source of complexity is an unexplained difference between subparagraph (b) of the NSW Act and the corresponding UK subparagraph. The question of how to construe that subparagraph may, therefore, be one on which UK (and other) authorities are of limited assistance. That question may also have a bearing on the construction of subparagraph (a).

96. [133]

    Seemingly different approaches to the construction of subparagraphs (a) and (b) appear in two of the three cases decided under the NSW Act (compare Campbell v Campbell [2022] NSWSC 554 at [204] with In the Application of Nyasa No 19 Pty Ltd [2023] NSWSC 578 at [27]-[29]). But in none of the cases were the problems to which I have referred raised for consideration.

97. [134]

    In the present case, Ryan and Ruby are not currently members of the Beneficial Class, but would become members if John were to die before the Terminal Date. They therefore appear to be contingent discretionary objects of a non-protective trust. As such they might fall within the potential lacuna identified above. But this potential issue was not identified in argument. As I do not propose to accede to the application in its current state, I merely note the issue, and other questions as to the application of subparagraphs (a) and (b), for possible later consideration.

98. [135]

    The possibility of approval being required on behalf of other persons also emerged during the course of the application. In particular, I raised for counsel’s consideration the gift over in favour of Norma (and Giselda if she is still alive) which would be triggered if the entire Beneficial Class were to fail before the Terminal Date. Norma is not party to the deed of family arrangement and no application has been made for approval of that arrangement on her behalf. Although her interest in the Trust depends upon a contingency even more remote than that of Ryan and Ruby, it is not different in kind. And her interest does not depend upon the exercise of discretion, as theirs does.

99. [136]

    Again, it is not necessary to make a final decision. Perpetual Trustees v Barns (cited at [59] above) stands for the proposition that failure to obtain approval from other persons having an interest in the trust is not a reason for refusing relief in relation to the persons for whom approval is sought, if such approval would otherwise be warranted (at [33]-[35]). Norma’s interest may create a practical problem for the proponents (or the Trustee), but again that can be left for further consideration by them.

100. [137]

     If, contrary to the view I have expressed, I was satisfied that the arrangement was one to “vary” the Trust, then, in order to approve the arrangement on behalf of a person, I would need to be satisfied that the carrying out of the order (approving the arrangement on their behalf) would be for their benefit (see s 86B(1)). Even if so satisfied, the Court retains a discretion (as indicated by the words “may, if it thinks fit” in s 86A(1)).

101. [138]

     Affidavits of John and Crystal were filed along with the original summons. John gave the following reasons for the amendments:

102. [139]

     Crystal agreed with the reasons given by John. She referred to concerns about financial security (both for her and the children) and supporting aspirations of the children to undertake tertiary study (and it being more beneficial “to have a direct entitlement under the trust while John is alive”). She also emphasised John’s concerns about the children possibly obtaining control over a large sum of money, at a young age. Crystal expressed the view that:

103. [140]

     Elsewhere in her affidavit, Crystal set out her understanding of adverse tax consequences, in almost identical terms to John.

104. [141]

     Ms O’Rourke, in her affidavit of 14 November, gave evidence that she had formed the opinion that the relief sought was in the defendants’ best interests, for reasons including:

105. [142]

     At the hearing, despite counsel’s earlier characterisation of the case, taxation benefits came to occupy centre stage. Counsel read a further affidavit of John, which had been made shortly beforehand. In it, John stated that the estimated CGT upon sale of the Castlereagh Street and Elizabeth Street properties had been revised to around $4.6 million, based on valuation reports (which were in evidence). He annexed to his affidavit what he described as “updated calculations” which had been provided to him by the Trust’s accountant.

106. [143]

     In the calculations, the Trust’s interests in the Castlereagh Street and Elizabeth Street properties were valued at $1.71 million and $5.125 million, respectively (an aggregate value of $6.835 million). Taking into account the Trust’s cost bases resulted in capital gains for the Trust of $840,000 and (approximately) $4.41 million. Based on those figures, the estimated CGT liability of the Trust was $1.23 million.

107. [144]

     This figure is well below the $4.6 million figure in the affidavit. The difference, as the calculations make clear, is that the latter figure includes Clemar’s capital gain as well as the Trust’s. It is not easy to see why Clemar’s tax position is relevant, and this issue was not addressed by counsel in his submissions. Nevertheless, the Trust’s CGT liability is on any view a significant sum, and I will proceed on that basis.

108. [145]

     Counsel noted that the income of the Trust was currently being used, through distributions to John, to meet Ryan’s and Ruby’s school fees. The proposed arrangement would allow distributions to be made directly to Ryan and Ruby once they turned 18. Counsel submitted that the arrangement gave effect to what was already, in substance, occurring, except that it was occurring in a tax inefficient way.

109. [146]

     Counsel pointed out that an extension of the Trust’s vesting date would not eliminate the Trust’s CGT liability. That liability would only be “deferred” until 2054, when, if property prices continue to rise, the liability would likely be higher. Strictly speaking, that may be so, but there is no doubt that such a deferral would result in a tax saving in the here-and-now. Counsel himself argued that the extension was for the benefit of Ryan and Ruby because, by not having to pay CGT now, the Trust would have more assets and therefore more income to distribute to them in due course.

110. [147]

     Counsel squarely contended that a tax benefit of this character should weigh, and weigh heavily, in favour of the application. Counsel submitted that such an approach could be traced back to the report of the Law Reform Commission which preceded the enactment of the UK Act. Counsel relied in particular on the statement by McMillan J in Perenna (at [101]) that it “has been repeatedly affirmed that a Court should not hesitate to approve an arrangement to extend an arrangement for the extension of a trust’s vesting date merely because one of the purposes of the arrangement is to avoid, reduce or defer taxation consequences”.

111. [148]

     As McMillan J went on to point out, it of course remained necessary to demonstrate that the extension would actually result in the tax advantage claimed for it. In support of his contention that vesting would give rise to a CGT liability in the present case, counsel referred me to Division 104 of the Income Tax Assessment Act 1997 (Cth). That Division sets out a list of “capital gain tax events” affecting a “CGT asset” (which the Trust’s property interests, having been acquired after 1985, would be) and which trigger taxable gains for a specified party to the event. Counsel relied in particular on capital gains tax event E5, defined by s 104-75. This event occurs when a beneficiary becomes absolutely entitled to a CGT asset of a trust.

112. [149]

     So far so good; but this was only part of the enquiry: it remained necessary to show that the deed of family arrangement would not itself trigger a comparable CGT liability. Counsel asserted that it would not. But when I asked counsel if he had looked at the question, he replied:

113. [150]

     In the course of the final hearing, I also raised with counsel the question of stamp duty, or “duty” as it is now known (see Duties Act 1997). It seems that under the former English practice, the order made by the Court, which was then understood to effect the variation, was subject to stamp duty: see Re Holt’s Settlement at 113-114. I asked whether, by parity of reasoning, the deed of family arrangement, if it went into effect, would constitute a dutiable transaction. Counsel was not able to deal with this issue at the hearing and sought leave to put in a written submission.

114. [151]

     On 20 November I received that submission, which came from Ms Alyssa Antcliffe, of Antcliffe Scott, the solicitors for the plaintiffs. The memorandum characterised the variation sought in the present case as being “much less extensive” than those in Re Holt’s Settlement and as amounting to “minor variations”. The memorandum went on to argue that none of the potentially relevant provisions imposing duty were applicable. Ms Antcliffe also argued that, even if duty were levied on the deed of family arrangement, the amount of duty levied would be substantially less than the CGT payable on vesting.

115. [152]

     The possibility that a beneficiary may inherit the corpus of a trust at too young an age, which has been mentioned by John and Crystal as part of the motivation for the present application, has been recognised as a potentially relevant factor in a case of this kind, but the decision in Re T’s Settlement Trusts shows its limitations. In any event, it can hardly be significant in the present case. Ryan and Ruby will only inherit a share of the Trust if John dies before the Terminal Date. If he survives until then, the Trust will vest and John and Crystal will have complete freedom to resettle the assets of the Trust so that Ryan and Ruby will not receive the corpus until they have reached whatever age John and Crystal consider appropriate. If there had been any real concern about John’s survival to the Terminal Date, it could readily have been addressed by causing the Trust to vest while John was still alive (counsel suggested that this was not possible within twelve months of the Terminal Date – this does not undermine the point, but in any event, as I read the relevant clause of the Trust Deed, it clearly allowed (and allows) the Trustee to cause the Trust to vest within that period).

116. [153]

     A similar response may be made to the contention that it would be advantageous for tax-effective distributions to be made directly to Ryan and Ruby once they turn 18. That of course will not happen for a few years yet. But the important point is that it could readily be achieved by John and Crystal if the Trust is allowed to vest.

117. [154]

     As to the wider claim by John that the general intention behind the Trust was to act as a vehicle for building and sharing the family’s wealth over the long term, one might ask why, on Lord Reid’s statement of the law in Holmden, it would be relevant. But in Barns, the Victorian Court of Appeal stated (see at [36]) that such considerations should, at least in some cases, be taken into account. There is however no need to go into this any further. Such a claim could be made, at a general level, about any family trust. But as I explained in the section 81 application judgment at [79]-[82], reference to the actual drafting of the Trust Deed suggests that the Terminal Date of 1 January 2024 was deliberately selected. If anything, the intention behind the Deed would appear to be a factor counting against the application.

118. [155]

     For these reasons, it is quite understandable that counsel’s submissions at the hearing focussed almost exclusively on the question of tax benefit. It is plain that the real motivation for the application is to avoid the CGT which would otherwise accrue on vesting.

119. [156]

     The statement from Perenna upon which counsel relied, and which I have quoted above, refers to tax savings being “one of the purposes” of an arrangement meriting approval. If the issue were decisive, I would wish to consider the relevant authorities a little further, given that, in the present case, tax savings appear to be the central and dominant purpose of the proposed arrangement. But I am prepared to accept for the moment that if a tax advantage, in the form of avoidance of CGT, can be demonstrated, that would be a benefit to Ryan and Ruby which would, prima facie, justify approval on their behalf.

120. [157]

     It may be accepted that the vesting of the Trust on 1 January 2024 will give rise to a CGT liability of more than $1.3 million. But there will be no utility in approving the deed of arrangement if entry into it generates an equivalent tax liability. That is the real question which is posed by counsel’s argument.

121. [158]

     For my part, I do not think the answer to the question is self-evidently in the negative. As I have said, variation of trusts is not unknown. It seemed to me prima facie unlikely that a set of changes which in substance effected a complete resettlement of the trust property would escape the adverse taxation consequences of such a resettlement merely by being dressed up as a family arrangement between the parties.

122. [159]

     Of course, it is ultimately a question of interpretation of the relevant revenue statute. But it seems to me that the question required a comprehensive and considered answer. Without meaning to be critical, I do not think I have received that from counsel. There are numerous CGT events listed in Division 104, each one of which no doubt has its own associated body of interpretative authority. And then there may be anti-avoidance provisions. I am particularly concerned because it seems that counsel has been operating on the view that the changes effected by the arrangement are minor, with no effect on the “substratum” of the trust, and I do not, for reasons which I have given, subscribe to that view.

123. [160]

     So far as the question of duty is concerned, I accept that I have received a comprehensive submission from Mr Antcliffe, which addresses the relevant question. But again, Ms Antcliffe seems to have characterised the changes to the terms of the Trust differently from the way in which I have characterised them. And I have not heard any countervailing argument.

124. [161]

     As I explain below, I consider that a contradictor should be appointed if the application is to continue. In the absence of such a contradictor, I do not consider that I should reach any final view on the taxation issues which have arisen on the proceedings. At present, I am therefore not satisfied that the family arrangement, if approved, will result in any net tax benefit for Ryan and Ruby (assuming that that is the test).

125. [162]

     In Wright v Gater, Norris J commented on the procedure to be followed in an application of the present type. His Lordship stated (at [6]-[7]):

126. [163]

     The procedure followed in the present application has given rise to some similar considerations.

127. [164]

     In the first place, upon reflection, it seems to me that the Trustee should not have been joined as a plaintiff. The real plaintiffs were the three promoters of the scheme, namely John, Crystal and Mario (cf Re T’s Settlement Trusts at 160-161). Whether a trustee should ever take an active role in advancing such a scheme does not need to be decided, but I see no reason for CHPL to have done so in the present case. Generally, it seems to me preferable for a trustee to take a neutral position, if only to avoid the possibility of embarrassment or conflict so far as the incurring or assessment of costs is concerned. If, as I have suggested below, it may be necessary for CHPL to act as contradictor in the present case, that only reinforces the desirability of it remaining independent.

128. [165]

     Secondly, I agree with his Lordship that, in general, independent representation of the persons for whom approval is sought, and the retaining of independent counsel for that purpose, is a fundamental requirement. In the present case, it is not clear that the application, in its final form, was the subject of scrutiny by independent counsel acting for Ryan and Ruby. Ms O’Rourke did, by affidavit, provide reasons for her view that the arrangement, in its final form, was in her clients’ best interests. But her affidavit does not indicate that she briefed independent counsel to scrutinise the application, nor to appear at the hearing. Accordingly, there was no opportunity for such counsel to consider the points raised in final submissions which are developed in this judgment.

129. [166]

     There is a more important point still. In some cases, the appointment and participation of independent counsel may not be enough from the Court’s point of view. Even if independent counsel are retained, they may conclude that the application is in the financial interests of the party for whom they appear, in which case they would have no, or very limited, obligations to draw the Court’s attention to contrary factors. This is a critical distinction between the role of independent counsel and the role of a contradictor, who is obliged to advance any points which can reasonably be advanced against the application.

130. [167]

     In my view, the application requires a contradictor if I am to reach a final conclusion on it. The Court needs the benefit of an independent party who can evaluate the taxation arguments upon which the application depends and present submissions. There may also need to be further consideration, or reconsideration, of other points raised in this judgment. It is important that the contradictor should be equipped to test evidence, and to present contrary evidence, as well as to make submissions: cf Application of Walker Corporation Pty Ltd [2022] NSWSC 1609 at [132]-[133]. If the Commonwealth or State revenue authorities are prepared to act, they would be suitable. Otherwise, it should probably be CHPL (with independent solicitors and counsel).

Conclusions and orders

1. [168]

   I am not satisfied that the Court has power to approve the arrangement which is the subject of the application. Nor am I satisfied, only having heard from the plaintiffs on the question, that that arrangement would necessarily have the tax advantages claimed for it.

2. [169]

   I am open to further argument on either point, and on the other points which I have raised for possible further consideration. But I consider that any further argument should only take place once a contradictor has been appointed. I will therefore adjourn these proceedings for a short time to allow the plaintiffs to decide whether they wish to proceed with the application, and if so, what arrangements they propose to make for the appointment of a contradictor for the purposes of re-argument on the points which arise.

3. [170]

   The orders of the Court are:

   1. (1)

      Adjourn the proceedings for further directions to the Expedition List on 8 December 2023, or such other date as may be arranged with my Associate.