Re Dion Investments Pty Limited

By summons filed on 29 September 2020 the plaintiff, Dion Investments Pty Ltd (‘the Trustee’) in its capacity as trustee of the Dion Family Trust (‘the Trust Estate’) sought advice with respect to three questions pursuant to s 63 of the Trustee Act 1925 (NSW) (‘the Trustee Act’):

The Trustee also sought an order pursuant to s 81 of the Trustee Act, namely that the Trustee surrenders and/or releases all trusts and/or powers such that any beneficiary of the Trust that is a “foreign person” as that term is defined in the Land Tax Act and the Duties Act is not a beneficiary whilst they are “foreign persons”.

The terms of the Trust Estate are contained in a deed dated 10 August 1973 (‘the Trust Deed’) as amended by two deeds and orders of the Court pursuant to s 81 of the Trustee Act, being those made by Young AJ in Re Dion Investments Pty Ltd [2013] NSWSC 1941 (‘First Instance’) and Beazley P and Barrett and Gleeson JJA in Re Dion Investments Pty Ltd [2014] NSWCA 367; (2014) 87 NSWLR 753 (‘Dion Investments’).

The Trustee relied upon two affidavits of Mr Leslie Wayne Dion sworn 24 September 2020 and 2 October 2020 and two affidavits of Ms Amy Harper sworn 29 September 2020 and 6 October 2020.

Mr Barlin of counsel provided a written opinion to the court in relation to the questions posed and an outline of written submissions with respect to the application of s 81 of the Trustee Act.

The hearing was conducted before me on 27 October 2020. On that date I agreed with the answers proposed by Mr Barlin, answering the first question negatively, the second question positively, and question 3(a) positively, and made the s 81 order sought by the Trustee. However I indicated that I would provide my reasons later. These are they.

The proceedings arise as a result of amendments to the Land Tax Act and the Duties Act which impose surcharges to the extent that a “foreign person” may be, but not necessarily is, a beneficiary of a trust where the trust holds residential property.

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

Section 5D of the Land Tax Act relevantly provides:

For the purposes of the Land Tax Act “foreign person” is defined in s 104J of the Duties Act to mean “…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…”

The definition of “beneficiary” in clause 2 of the Trust Deed is effectively an open class in that it names certain people as well as their “issue” and therefore at present it is possible for beneficiaries under the Trust Deed to meet the definition of “a foreign person”.

On the advice of KPMG 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 will be imposed on the Trustee of the Trust.

The first question concerns whether the Trustee would be justified in disclaiming or surrendering its powers to appoint income and/or capital to any beneficiary of the Trust Estate while the beneficiary is a “foreign person”. I answered this question negatively for the following reasons.

First the Trust Deed does not give the Trustee power to revoke any trusts or powers, and while there is a power to revoke trusts in clause 15 of the Trust Deed, that power is reposed in named persons (not including the Trustee).

Second s 28 of the Conveyancing Act 1919 (NSW) (‘Conveyancing Act’) provides that:

However the Trustee’s power to appoint income and/or capital is in my view properly characterised as a “power coupled with a duty”.

In Re Wills’ Trust Deeds [1964] Ch 219 (‘Re Wills’’) Buckley J distinguished between “beneficial powers” (where the power is given to the donee with the intention that the donee may exercise it on the donee’s own behalf, although not necessarily for his own benefit) and “vicarious powers” (where the donor intended the donee would in exercising the power act on the donor’s behalf to achieve the end desired by the donor). Buckley J considered that the latter “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” (228).

Clauses 4 and 5 of the Trust Deed relevantly provide:

In Re Wills’ Buckley J also stated:

Further, in Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587 Warner J classified powers (or in his Honour’s words “fiduciary discretions”) into four categories (see 1613-1614):

Warner J considered that category 1 powers could be released. His Honour stated that category 2 powers could not be released, and although it was not clearly stated, seemed to accept that powers and discretions of the kind falling within categories 3 and 4 could not be released.

Here, the Trustee cannot meet the definition of “Bencificiary” and therefore cannot benefit under the terms of the Trust Deed. Further the Trustee has an obligation to preserve the trust property such that Warner J’s category 1 cannot apply.

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. Accordingly in my view the Trustee cannot disclaim or surrender the power to appoint income and/or capital to a beneficiary of the Trust Estate.

Finally s 28 of the Conveyancing Act refers to powers not trusts. Thus even is the Trustee’s powers could be released pursuant to s 28 it does not necessarily follow that the trusts could be surrendered or released.

The second question is whether the Trustee would be justified in not exercising its powers to appoint and/or distribute property pursuant to the trusts with respect to any beneficiaries that are “foreign persons” and who disclaim their interests.

I consider the answer to be yes on the basis that the current beneficiaries (who have legal incapacity) could disclaim their interests in the event that they satisfied the definition of “foreign persons” (see, e.g., Federal Commissioner of Taxation (Cth) v Vegners (1989) 89 ATC 5274; Vegners v Commissioner of Taxation (Cth) (1991) 91 ATC 213; Federal Commissioner of Taxation v Ramsden [2005] FCAFC 39).

However as I have stated the class of beneficiary is open and includes “issue”. Therefore even if current beneficiaries were to disclaim their interest that would not satisfy the requirements of s 5D of the Land Tax Act as a “foreign person” may still become a beneficiary.

The third question is a matter of construction of clause 15 of the Trust Deed which as I have noted contains a power to “revoke all or any of the trusts hereby declared”.

That power is reposed in certain named people, all of whom have died.

The issue is whether the power devolves, in particular to the legal representative of the last survivor of the donees, Leslie Frank Dion.

The answer it seems depends upon whether the power is annexed to an office (which may be determined by asking whether the power would have been conferred on the donees “but for their office” (see Crawford v Forshaw [1891] 2 CH 261 at 266)) or whether the power attaches to the named individuals only (see G Thomas, Thomas on Powers (Oxford University Press, 2nd ed, 2012) at [7.86]).

On the terms of the clause, which refers to “Thomas Dion, Edward Dion, Charles Dion, Ernest Sidney Dion, Leslie Frank Dion or any of them”, I consider that the power is donated those specific people, and not a class of persons or persons virtute officii.

Therefore in my view the power contained in clause 15 of the Trust Deed was relinquished upon the death of Leslie Frank Dion and questions 3 (b) and (c) do not apply.

Section 81 of the Trustee Act relevantly provides:

Accordingly before an order can be made pursuant to s 81 three criteria must be satisfied (Re Grant (as trustee for the Grant Family Testamentary Trust) [2013] 1603; (2013) 10 ASTLR 149 (‘Re Grant’) at [32]; see also Arakella Pty Ltd v Pattern (2004) 60 NSWLR 334 at [81]). There needs to be a “proposed dealing”, being a “sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure, or transaction”. The dealing must be in the Court’s opinion “expedient”. And the dealing must be incapable of being effected because of an absence of power.

The Trustee sought an order that the Trustee surrenders and/or releases all trusts and/or powers such that any beneficiary of the Trust that is a “foreign person is not a beneficiary whilst the meet that definition in the Land Tax Act and the Duties Act. That is the Trustee seeks a direct abstention from the doing of 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 (s 81(2)).

I have already concluded that the Trustee has no power to vary the trust in the manner sought and the Trustee cannot pursuant to s 28 of the Conveyancing Act surrender or release the power to appoint and the trusts with respect to the income and capital of the Trust Estate.

In relation to expediency, the question is whether the dealing would be “expedient” “in the management or administration of property vested in the trustee” [emphasis added] (Ku-ring-gai Municipal Council v The Attorney General (1954) 55 SR (NSW) 65 (‘Ku-ring-gai Municipal Council’) at 75; Riddle v Riddle (1952) 85 CLR 202 (‘Riddle v Riddle’) at 220), notwithstanding that it may alter the trusts or adjust a beneficiary’s rights (ss 81(1)(a), 81(2)), although to what extent is somewhat unclear.

In Cameron v Jeffress [2014] NSWSC 702 the Court sanctioned a material departure from the terms of the Will, namely the destruction of an (indefeasible) fixed entitlement to income created by the trusts in the Will, by giving the trustee the power to accumulate income which caused the trusts of income to be subject to an event of defeasibility, and by giving the trustee a power to pay the capital to persons not entitled to the capital pursuant to the will, and so arguably caused there to be a material change (and even destruction) of beneficial interest(s) created by the testator in the will. The Court of Appeal in Dion Investments at [114] approved the approach taken by Hammershlag J in Cameron v Jeffress.

It seems that in this sense s 81 of the Trustee Act is broader than s 57 of the Trustee Act 1925 (UK) (see also Ku-ring-gai Municipal Council at 73-74; Riddle v Riddle at 220; cf Cisera v Cisera Holdings Pty Ltd [2017] NSWSC 960 at [20]-[22]- [70]-[73]).

The existence of a tax advantage can form the basis of expediency in the management and administration of trust property for the purposes of s 81 of the Trustee Act (see, e.g., Re Sykes (deceased) [1974] 1 NSWLR 597 at 602; Stein v Sybmore Holdings Pty Ltd [2006] NSWSC 1004 at [55]; Barry v Borlas Pty Ltd [2012] NSWSC 831 at [22]-[23]; Soo v Soo [2016] NSWSC 1666 at [6]) and the evidence in this case indicates that the release or surrender will have the benefit of reducing the annual land tax charge on the Trustee with respect to the residential property held subject to the Trustee Estate. At this stage, the land tax amounts to an annual charge of over $100,000. The land tax assessment date is 31 December 2020. I consider in these circumstances that the release and/or surrender sought would be expedient in the management or administration of the residential property held by the Trustee, notwithstanding that the order would adjust or even destroy the rights of some (potential) beneficiaries to the extent that they meet the definition of a “foreign person”.

Those criteria having been satisfied, the Court is empowered to “by order confer upon the trustees… the necessary power for the purpose” (s 81(1)(a)). It has been held that while such an order does not empower the Trustee to “amend the trust instrument or terms of the trust” the Court may “grant specific powers related to the management and administration of the trust property, being powers that coexist with (and, to the extent of inconsistency, override) those conferred by the trust instrument or by law” (Dion Investments at [100], held to be correctly decided in Cisera v Cisera Holdings Pty Ltd [2018] NSWCA 286 at [67]).

The Trustee in this case sought an order for a “direct” conferral of a power to release and/or surrender any trusts and powers (referable to the Trust Estate) which may benefit a “foreign person” (see Dion Investments at [109]), as opposed to an order amending the terms of the Trust Deed. I determined that the order should be made, particularly having regard to the expediency that would be achieved in this case.