TNB 878 Pty Limited – Brunskill Family Trust

1. [1]

   By Summons filed on 23 December 2021, TNB 878 Pty Ltd (the Trustee) in its capacity as trustee of the Brunskill Family Trust seeks advice pursuant to s 63 of the Trustee Act 1925 (NSW) (“Trustee Act”) and also an order pursuant to s 81 of the Trustee Act.

2. [2]

   In relation to the s 63 application, an advice of counsel has been provided to the court. In relation to the s 81 application, detailed submissions have been provided.

3. [3]

   These matters came on for hearing before me on 22 February 2022. Having heard argument I made certain orders. I indicated I would give detailed reasons in due course, these are they. The questions in respect of which judicial advice has been sought are contained in prayers 2 and 3 of the Summons.

4. [4]

   The proceedings have been provoked by amendments to the Land Tax Act 1956 (NSW) (“Land Tax Act”) and the Duties Act 1997 (NSW) (“Duties Act”) which impose surcharges to the extent that a “foreign person” may be a beneficiary of a trust where the trust holds residential property.

5. [5]

   Section 5D of the Land Tax Act charges surcharge land tax with respect to discretionary trusts. Subsections 5D (1) to (5) of the Land Tax Act provides as follows:

6. [6]

   The term “foreign person” for the purposes of the Land Tax Act is defined in s 104J of the Duties Act as “a person who is a foreign person within the meaning of the Foreign Acquisitions and Takeovers Act 1975 of the Commonwealth, as modified by this section”.

7. [7]

   Importantly, surcharge land tax is not charged if no beneficiary (including a potential beneficiary) is (or can potentially be) a “foreign person”.

8. [8]

   Pursuant to Prayers 2 and 3 of the Summons, the Trustee seeks advice pursuant to s 63 of the Trustee Act as to the following questions, being:

   1. (1)

      whether the Trustee has the power to vary the terms of the Trust Estate (“Question 1”)?

   2. (2)

      whether the Trustee is not justified in disclaiming and/or surrendering its powers to appoint income and/or capital to any beneficiary of the Trust Estate whilst the beneficiary is a “foreign person” as that term is defined for the purposes of the Land Tax Act and the Duties Act (“Question 2”).

The terms of the Trust Deed

1. [9]

   Clause 3 of the Trust Deed contains the trusts with respect to income. Clauses 3A and 4 of the Trust Deed contains the trusts for capital.

2. [10]

   Paragraph 3(a)(i) of the Trust Deed provides for the power to appoint the net income:

3. [11]

   The “beneficiaries” are contained in the First Schedule of the Trust Deed, which provides as follows:

4. [12]

   The takers-in-default of appointment with respect to the income is dealt with in paragraphs 3(1)(iii) and (iv) of the Trust Deed. Broadly, it is only the “beneficiaries” as provided in the First Schedule (whether nominated or not) that may benefit.

5. [13]

   The trusts for capital are contained in clauses 3A and 4 of the Trust Deed. Clause 3A of the Trust Deed contains the power to appoint capital (at any time), with the objects being the “beneficiaries” as provided for in the First Schedule of the Trust Deed.

6. [14]

   Clause 4 of the Trust Deed provided for the takers-in-default of appointment as at the “Distribution Date”, being the “beneficiaries” identified in the First Schedule, taking in equal shares. If there are no such beneficiaries, then the “Trustee shall hold the Trust Fund absolutely for the person or persons who under the laws of the State of New South Wales would have been entitled to the estate of the said THOMAS NORMAN BRUNSKILL”.

7. [15]

   Clause 3 of the Trust Deed contains the trusts with respect to income. Clauses 3A and 4 of the Trust Deed contains the trusts for capital.

8. [16]

   Paragraph 3(a)(i) of the Trust Deed provides for the power to appoint the net income:

9. [17]

   The “beneficiaries” are contained in the First Schedule of the Trust Deed, which provides as follows:

10. [18]

    The takers-in default of appointment with respect of the income is dealt with in paragraphs 3(a)(iii) and (iv) of the Trust Deed. Broadly, it is only the “beneficiaries” as provided in the First Schedule (whether nominated or not) that may benefit.

11. [19]

    The trusts for capital are contained in 3A and 4 of the Trust Deed. Clause 3A of the Trust Deed contains the power to appoint capital (at any time), with the objects being the “beneficiaries” as provided for in the First Schedule of the Trust Deed.

12. [20]

    Clause 4 of the Trust Deed provides for the takers-in-default of appointment as at the “Distribution Date”, being the “beneficiaries” identified in the First Schedule, talking in equal shares. If there are no such beneficiaries, then the “…Trustee shall hold the Trust Fund absolutely for the person or persons who under the laws of the State of New South Wales would have been entitled to the estate of the said THOMAS NORMAN BRUNSKILL”.

13. [21]

    Given the powers to appoint income and capital and the takers-in-default of appointment, including that the “beneficiaries” being wide (including the grandchildren, including those unborn) of Thomas Norman Brunskill, I consider that the objects of the power to appoint income and capital is both wide and open. Given the “potential beneficiary” test in the Land Tax Act, without any limitations such that “foreign persons” cannot benefit, the Trust Estate will be subject to the land tax surcharge.

Question 1 - Prayer 2 of the Summons

1. [22]

   The first question is whether the Trustee has the power to vary the terms of the Trust Estate.

2. [23]

   Although there is no clause dealing with “proper law” of the Trust Deed as the Trustee is registered in New South Wales it would seem uncontroversial that the proper law of the Trust Estate is that of New South Wales.

3. [24]

   It is not open to a Trustee to amend or vary a Deed such as this without unless the terms of the trust or some legislation expressly permits it; Dion Investments at [48], per Barrett JA.

4. [25]

   His Honour thought there were 4 ways in which the terms of a trust might be varied:

   1. (1)

      first, if there is a reserve power contained in the trust terms (Dion Investments at [44] and [45] at 763).

   2. (2)

      secondly, “principle of equity may countenance variation of the terms of the trust with the unanimous consent of the beneficiaries if all are in being, sui juris and absolutely entitled” (Dion Investments at 763-764 at [46])

   3. (3)

      thirdly, legislation (Dion Investments at 764 at [46]); and

   4. (4)

      finally, very limited powers of the Court to sanction the departure from the terms of the trust where some circumstance of emergency in the course of administration needs to be resolved in the interests of preserving trust property (Dion Investments at 764 at [47]).

5. [26]

   As there is no reserve power to amend the Trust Deed and no available alternative mechanism, the answer to the question posed in prayer 2 of the Summons, is “no”.

6. [27]

   In addition, I should add that the discretionary nature of the Trust Estate (and the fact that there are no beneficiaries who are absolutely entitled), the principles in Saunders v Vautier (1841) 41 ER 482 are not available to vary the terms of the Trust Estate.

7. [28]

   It follows that Trustee does not have the power to vary the Trust Deed.

Question 2 - Prayer 3 of the Summons

1. [29]

   Prayer 3 poses the question of whether the Trustee is justified in disclaiming and/or surrendering its powers to appoint income and /or capital to any beneficiary of the Trust Estate whilst the beneficiary is a “foreign person” as that term is defined for the purposes of the Land Tax Act and the Duties Act.

2. [30]

   Of relevance is s 28 of the Conveyancing Act 1919 (NSW) (which provides (“Conveyancing Act”) as follows:

3. [31]

   The question therefore is whether the powers contained in the Trust Deed (which are sought to be released), being the powers to appoint income and/or capital, are powers which are coupled with a duty.

4. [32]

   Buckley J in Re Wills’ Trust Deeds [1964] Ch 219 at 227-229 (“Wills’ Trust Deeds”) distinguished between:

   1. (1)

      “beneficial powers” - where the donor intended to allow for a donee to confer a benefit on the donee; and

   2. (2)

      “vicarious powers” – where the donor intended that the donee would, in exercising the power, act on the donor’s behalf to achieve the desired ends, in respect the donor has reposed its confidence in the donee.

5. [33]

   Buckley J considered that a vicarious power “would not inappropriately be called a power coupled with a duty or coupled with a trust, or a power in the nature of a trust” (Wills’ Trust Deeds at 228).

6. [34]

   Further, at 228 in Wills’ Trust Deeds, Buckley J considered that:

7. [35]

   As a result, relevant in determining whether the Trustee has a power coupled with a duty (for the purposes of s 28 of the Conveyancing Act), is determining whether the Trustee can benefit under the terms of the Trust Deed.

8. [36]

   In this regard, I note that the Trustee is not a “beneficiary” as determined by the First Schedule of the Trust Deed. As a result, and pursuant to the analysis of Buckley J in Wills’ Trust Deeds, I consider that the Trustee has a power which is coupled with a duty.

9. [37]

   In this case the Trustee has a positive obligation to preserve the trust property.

10. [38]

    A power coupled with a duty is a term referring to a power which it would be a breach of trust to release, as well as one to which a duty attaches. As a result, I consider that the Trustee cannot disclaim and/or surrender the power to appoint income and/or capital to a beneficiary of the Trust Estate.

11. [39]

    Furthermore, s 28 of the Conveyancing Act refers to powers, and not trusts. If a “Beneficiary” meets the definition of “foreign person”, then even if the powers could be released (pursuant to s 28 of the Conveyancing Act), it does not necessarily follow that the trusts could be surrendered or released.

12. [40]

    As a result, I consider the answer to the question posed in Prayer 3 of the Summons is “yes”, being that the Trustee would not be justified in disclaiming and/or surrendering its powers to appoint income and/or capital to any beneficiary of the Trust Estate whilst that beneficiary is a “foreign person”.

Section 81 of the Trustee Act

1. [41]

   As a result of the answers above prayer 4 of the Summons filed on 23 December 2021 seeks an order pursuant to s 81 of the Trustee Act permitting the Trustee to release all of the trusts and powers (referable to the Trust Estate) such that any beneficiary of the Trust Estate that is a “foreign person” as that term is defined in the Duties Act and the Land Tax Act is not a beneficiary whilst they are a “foreign person”.

2. [42]

   Relief pursuant to s 81 of the Trustee Act is sought for the following reasons.

3. [43]

   First, the effect of the State Revenue Legislation Further Amendment Act 2020 (NSW) (‘Amending Act’), which received assent on 24 June 2020, which amended:

   1. (1)

      the Duties Act;

   2. (2)

      the Land Tax Act; and

   3. (3)

      the Land Tax Management Act 1956 (NSW).

4. [44]

   The Amending Act provides for exemptions from refunds of surcharge purchaser duty and surcharge land tax payable in respect of residential land held by the trustee of a discretionary trust, if the trust prevents a foreign person from being a beneficiary of the trust.

5. [45]

   At [11] of the Brunskill Affidavit (and see Annexure “J”), Mr Brunskill deposes to the advice of a firm of accountants known as Enhance Financial Partners outlines the liability that will be imposed on the Trustee of the Trust Estate if the “amendments” to the terms of the Trust Estate are not made. It will be an annual liability of (at this stage) 2% of the taxable value of the land (which is residential property) held subject to the Trust Estate. In particular, there will be a charge of approximately $14,250 each year.

6. [46]

   Secondly, there is no power to vary contained in the Trust Deed.

7. [47]

   Thirdly (and finally), s 28 of the Conveyancing Act cannot be used to disclaim the trusts contained in the Trust Deed.

8. [48]

   As a result, the Trustee is seeking an order pursuant to s 81 of the Trustee Act which will allow a release/surrender.

9. [49]

   Subsection 81(1) of the Trustee Act provides as follows:

10. [50]

    Relevantly for current purposes, ss 81(1) of the Trustee Act provides as follows:

    1. (1)

       where in the management and administration of any property vested in the trustee;

    2. (2)

       any surrender, release or transaction;

    3. (3)

       is in the opinion of the Court expedient;

    4. (4)

       the surrender, release or transaction cannot be effected by reason of absence of any power vested in the trustee by either:

11. [51]

    Subsection 81(2) of the Trustee Act provides as follows:

12. [52]

    That is ss 81(2) of the Trustee Act provides (and amongst other things) that the power conferred on the Court (pursuant to ss 81(1) of the Trustee Act):

    1. (1)

       deems to empower the Court to authorise a trustee to do or abstain from doing an act which otherwise be a breach of trust; and

    2. (2)

       such act (or abstention) to which the Court empowers the trustee may be an alteration (whether by extension or otherwise) of the trusts or powers conferred on the trustees by the trust instrument or by law.

13. [53]

    Importantly, and as will be discussed later in these submissions, the express terms of:

    1. (1)

       ss 81(1) of the Trustee Act allows an order effect an “adjustment of the respective rights of the beneficiaries”; and

    2. (2)

       ss 81(2) of the Trustee Act permit an “alteration” (which must be a variation) of the “trusts or powers conferred on the trustees” pursuant to the trust instrument or by law.

14. [54]

    There are two New South Wales Court of Appeal decisions of relevance, being that of Beazley P and Barrett and Gleeson JJA in Dion Investments and that of Bathurst CJ, Beazley P and White JA in Cisera v Cisera Holdings Pty Ltd [2018] NSWCA 286 (“Cisera Holdings”). An issue in Cisera Holdings was whether Dion Investments was correctly decided ([9] in Cisera Holdings), to which it was held that Dion Investments was correctly decided ([67] in Cisera Holdings).

15. [55]

    Furthermore, the Court of Appeal in Cisera Holdings applied Dion Investments. As a result, these submissions demonstrate that the order sought pursuant to Prayer 5 of the Summons is consistent with the reasoning in Dion Investments, as well as the High Court’s decision in Riddle v Riddle (1952) 85 CLR 202 (“Riddle v Riddle”) and the Full Court’s decision in Ku-ring-gai Municipal Council v The Attorney-General (1954) 55 SR (NSW) 65 (Roper CJ in Eq, Brereton and Maguire JJ) (“Ku-ring-gai Municipal Council Case”).

16. [56]

    In neither Dion Investments, nor in Cisera Holdings were the express terms discussed dealt with by the Court of Appeal (but were noted by the Full Court in the Ku-ring-gai Municipal Council Case). They were discussed (and indeed, the difference between s 81 of the Trustee Act and s 57 of the Trustee Act 1925 (UK) (‘UK Act’) in Riddle v Riddle and Ku-ring-gai Municipal Council. It was noted that at [34] in Cisera Holdings, White JA did observe (but did not analyse) that s 57(1) of the Trustee Act 1925 (UK) “did not include the words found in s 81(1)(a) of the New South Wales Act “including adjustment of the respective rights of the beneficiaries”” and s 57 of the Trustee Act 1925 (UK) “did not include a provision to the effect of s 81(2) of the New South Wales Act”.

17. [57]

    Indeed, in the publication by Denis SK Ong, Trusts Law In Australia (5th ed, 2018, Federation Press) at pages 337–341, Ong concludes that section 81 of the Trustee Act is in fact a power to “alter trusts in any manner whatsoever, provided that such alteration is effected expediently in the management or administration of trust property” (Ong at p 341). Further, at 341 in Ong, the author concludes as follows:

18. [58]

    Ong was published prior to the Court of Appeal’s decision in Cisera Holdings. However, it was published after (and discussed) the NSW Court of Appeal’s decision in Dion Investments, being the decision of which was followed in both the decision of Justice Parker in Cisera v Cisera Holdings Pty Ltd [2017] NSWSC 960 (“Cisera”) and the Court of Appeal’s decision in Cisera Holdings.

19. [59]

    An issue that arises in these proceedings is what the scope of ss 81(1) and 81(2) of the Trustee Act in fact is, and what the words an “adjustment of the respective rights of the beneficiaries” and “alteration” of the “trusts or powers conferred on the trustees”, allow and whether those words (chosen and used by the legislature) in fact allow for an alteration of trusts.

20. [60]

    Furthermore, s 81 of the Trustee Act is beneficial legislation. It ought to be construed beneficially.

21. [61]

    In Re Dion Investments Pty Ltd [2020] NSWSC 1661 at [34]-[43], I considered the application of s 81 of the Trustee Act in circumstances similar to the application now before the Court. Indeed, in Re Dion Investments Pty Ltd [2020] NSWSC 1661 the trustees sought orders pursuant to s 81, being the power to surrender/release trusts and powers to the extent that a “foreign person” may benefit under the trust concerned, being a “direct abstention from the doing of an act, namely the alteration of the trusts and powers such that a “foreign person” will not be able to benefit from the Trust Estate (s 81(2))” (at 36) and see also [42] to [43] in Re Dion Investments Pty Ltd [2020] NSWSC 1661.

22. [62]

    I came to the view there that:

23. [63]

    I am satisfied that this matter is entirely analogous with circumstances in Dion Investments. See also Budumu Pty Ltd [2021] NSWSC 522 and Cecil Investments Pty Ltd [2021] NSWSC 211.

24. [64]

    The wording of s 81 of the Trustee Act provides that:

    1. (1)

       the Court may confer a power on the trustees, either generally or in any particular instance (paragraph 81(1)(a) of the Trustee Act);

    2. (2)

       the power may be subject to provisions and conditions, “including adjustments of the respective rights of the beneficiaries, as the Court may think fit” (paragraph 81(1)(a) of the Trustee Act); and

    3. (3)

       the Court is deemed to be empowered “where it is satisfied that an alteration whether by extension or otherwise of the trusts or powers conferred on the trustees by the instrument, if any, creating the trust, or by law is expedient” (ss 81(2) of the Trustee Act); and

    4. (4)

       the authorisation may be permitted notwithstanding that, without the authorisation by the Court, the act (or omission) would otherwise be a breach of trust (ss 81(2) of the Trustee Act).

25. [65]

    Austin J in Arakella Pty Ltd v Pattern (2004) 60 NSWLR 334 (“Arakella v Pattern”) considered at [81] that ss 81(1) of the Trustee Act imposed two conditions upon the exercise by the Court of its jurisdiction to make an order conferring power on to trustees to enter into a transaction, being:

26. [66]

    It is submitted that once the “jurisdictional bar” is satisfied, then the Court’s discretion is confined only by the subject matter, scope and purpose of the legislation (Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 per Gummow A-CJ, Kirby, Hayne and Heydon JJ at 90 [59] and Kiefel J at 128 [196]).

27. [67]

    Pursuant to prayer 4 of the Summons, the Trustee seeks a “direct” abstention of doing an act, being the alteration of the trusts and powers such that a “foreign person” will not be able to benefit from the Trust Estate. An abstention from doing an act is specifically provided for in ss 81(2) of the Trustee Act, which uses the words “authorise the trustees to do or abstain from doing any act or thing” (the chapeau in ss 81(2) of the Trustee Act).

28. [68]

    The “release” or “surrender” sought by the Trustee are contemplated “transactions” (dealings) outlined in ss 81(1) of the Trustee Act.

29. [69]

    That is, the Trustee is seeking a “direct” surrender/release of the trusts and powers, being dealings specifically provided for in ss. 81(1) of the Trustee Act. Further, the surrender and / or release is in the management or administration of property vested in the Trustee.

30. [70]

    I should observe that whilst Barrett JA at 774-5 ([100]) in Dion Investments did observe that an order under s 81 of the Trustee Act cannot permit the Court to empower the trustee to amend the trust instrument or the terms of the trust Barrett JA at 773-4 ([96]) cited with approval the observation by Farwell J in In re Mair [1935] Ch 562 at 565, by observing that:

31. [71]

    In particular, Barrett JA in Dion Investments held regarding s 81 of the Trustee Act:

    1. (1)

       it allows the Court to confer “power(s)” upon the trustee, which themselves must meet the scope of the “transactions” contemplated in ss 81(1);

    2. (2)

       if the order (and the resultant power(s)) are granted, the sole and direct source of the “power(s)” is in the orders (at 774 [97] Dion Investments);

    3. (3)

       there must be an absence of the “powers” sought;

    4. (4)

       the “power(s)” granted by the order:

32. [72]

    That is, an order under s 81 may confer powers, which either coexist, or if inconsistent override, the “terms of the trust”. The dealing permitted by an order pursuant to s 81 of the Trustee Act is “taken as though” it had been “inserted in the trust instrument as an overriding power” (per Barrett JA at [96] in Dion Investments).

33. [73]

    It is submitted that the relief sought in Prayer 4 of the Summons if granted would be a direct conferral of the authority to “surrender” or “release” trusts and powers, within the scope of s 81 of the Trustee Act (provided that the expediency test is satisfied).

34. [74]

    I accept that the evidence indicates that “proposed transaction” will have the benefits of reducing the annual land tax change on the Trustee with respect to residential property held subject to the Trust Estate. At this stage, that would amount to an annual charge of approximately $14,250 per annum.

35. [75]

    The existence of a taxation advantage is not a bar to the conferral of the power pursuant to s 81 of the Trustee Act. To the contrary, the existence of a tax advantage may, in itself, form the basis of expediency in the management and administration of trust property for the purposes of s 81 of the Trustee Act. For example:

    1. (1)

       In Re Sykes (1971) 1 NSWLR 597 at 602, Helsham J (as his Honour then was) observed that “the powers conferred on the Court by s 81 should not be withheld merely because their exercise is sought to enable the avoidance of a revenue impost”.

    2. (2)

       Campbell J, in Stein v Sybmore at [55], observed that “[a]s well, the minimisation of the capital gains tax and stamp duty on the trust property provides a separate basis upon which the conferring of the power is expedient”.

    3. (3)

       Biscoe AJ in Application of NSFT Pty Ltd [2010] NSWSC 380 at [20], considered that “modernisation of the trust deed [pursuant to s 94 of the Trusts Act 1973 (Qld)] … with consequential tax benefits, is expedient in the management or administration of the property vested in the trustee”.

    4. (4)

       White J (as his Honour then was) in Barry v Borlas Pty Ltd [2012] NSWSC 831 at [22]–[23] agreed with Campbell J in Stein v Sybmore, that the scope of s 81 of the Trustee Act includes preserving trust property and making it financially productive “which included planning to minimise the impact of tax and duty on the trust property”.

    5. (5)

       Stevenson J in Soo v Soo [2016] NSWSC 1666 at [6] observed that:

36. [76]

    The above observations are consistent with the Court of Appeal’s observations in Kearns v Hill (1990) 21 NSWLR 107, when considering the context of family discretionary trusts.

37. [77]

    In Dion Investments, the Distribution Powers were held to be expedient in the management or administration of the property vested in the trustee (Dion Investments at 777 [114]), particularly given the evidence of the potential taxation savings based on advice of KPMG ([19] to [25] in Dion Investments).

38. [78]

    That is, expediency is found in the tax advantages that arise upon the surrender or release being approved by the Court pursuant to s 81 of the Trustee Act.

39. [79]

    In this case the relief sought is quite specific and it relates to a particular “surrender” and/or “releases” with respect to the trusts and powers.

40. [80]

    I am satisfied that the relief sought in Prayer 4 of the Summons, being a release and/or surrender of the trusts and powers which as contained in the terms of the Trust Estate, such that any beneficiary that is a “foreign person” as that term is defined in the Duties Act, the Land Tax Management Act 1956 (NSW) and/or the Land Tax Act cannot benefit under the terms of the Trust Estate whilst they are a “foreign person”.

41. [81]

    The relief falls within the scope of the power of the Court in s 81 of the Trustee Act, as it:

    1. (1)

       is an issue in the management or administration of property vested in the Trustee (ss 81(1) of the Trustee Act);

    2. (2)

       is a release or surrender (ss 81(1) of the Trustee Act);

    3. (3)

       is given the tax savings, expedient (ss 81(1) of the Trustee Act);

    4. (4)

       cannot be effected by reason of absence of power (in the trust instrument or at law) (ss 81(1) of the Trustee Act);

    5. (5)

       may adjust the respective rights of beneficiaries (paragraph 81(1)(a) of the Trustee Act); and

    6. (6)

       may be an alteration whether by extension or otherwise of the trusts or powers (ss 81(2) of the Trustee Act).

42. [82]

    I am satisfied that the matter is relevantly “on-all-fours” with that before the Court in Re Dion Investments Pty Ltd [2020] NSWSC 1661, Budumu Pty Ltd [2021] NSWSC 522, Casibond Pty Ltd: In the matter of the George Tsivis Family Trust [2021] NSWSC 320 and Cecil Investments Pty Ltd [2021] NSWSC 211, as the same considerations apply with respect to the application of s 81 of the Trustee Act.