Cisera v Cisera Holdings Pty Ltd

1. [1]

   This is an application under the Trustee Act 1925 (NSW), s 81. That section relevantly provides:

2. [2]

   The trust in question is a discretionary trust known as the Cisera Family Trust. The Trust was established for the benefit of the late Clelia Cisera (née Barp) and members of her family. I will refer to her and the members of her family, without disrespect, by their first names.

3. [3]

   Clelia was born in October 1925 and died in December 2002. The first plaintiff, Mario Cisera, was her husband. He was born in July 1927 and is 90 years old. Mario and Clelia married in 1955. The second plaintiff, John Cisera, is their son. He was born in September 1958 and is therefore 58 years old.

4. [4]

   The Trust was constituted by Deed of Trust dated 23 August 1974 between a company called WP Nominees Pty Ltd as Settlor and “Barp Nominees Pty Ltd” as Trustee. Counsel for the plaintiffs suggested, based on its name, that the Settlor company was probably associated with the firm of solicitors known as “William Patterson”, who were involved in establishing the Trust. Although there is no evidence to confirm this, it is plausible. The evidence shows that a company called Barp Nominees Pty Ltd (“Barp Nominees”) was incorporated and acted as Trustee of the Trust, but in fact the incorporation did not happen until October 1974, more than two months after the Trust Deed was executed. Presumably any actions required between August and October 1974 were taken by the promoters of Barp Nominees and were later adopted when, after incorporation, it began to act as Trustee.

5. [5]

   Barp Nominees retired and was replaced by the defendant as Trustee of the Trust in May 2015.

6. [6]

   As is conventional for a discretionary family trust of this type, the Trust was constituted with a nominal settlement sum ($50) which was to be augmented by any other funds received by the Trustee. The assets of the Trust are defined in the Trust Deed as the “Trust Fund”.

7. [7]

   Clause 2 of the Trust Deed provides:

8. [8]

   Clause 3 provides:

9. [9]

   The “Terminal Date” is defined as:

10. [10]

    The “Beneficial Class” is defined as:

11. [11]

    The gift over of corpus for the purposes of cl 3 is:

12. [12]

    Clause 4 deals with the distribution of the income of the Trust prior to vesting. Clause 5 confers a power on the Trustee to apply the Trust Fund for the maintenance, education, advancement or benefit of any member of the Beneficial Class. It is not necessary to go into those provisions in any detail for present purposes.

13. [13]

    The Trust’s assets consist primarily of interests in commercial property held for investment. Mario and John are, and have for many years, been principally responsible for managing the Trust’s activities. The assets of the Trust are said to be worth approximately $16 million.

14. [14]

    John married his wife, Crystal, in February 2006, when he was 48 years old. They have two children, born in August 2008 and November 2010. They do not intend to have more children.

15. [15]

    The effect of cl 3 is that the assets of the Trust will vest in the beneficiaries on 1 January 2024 at the latest. As at that date, John’s children will be 15 and 13 years old. Mario and John are concerned at the possibility of the trust property vesting in John’s children at that time. There are two aspects of their concern. The first is that Mario and John believe at that time the children will be too young and it would not be desirable for them to come into such a large amount of money. The second is that the vesting of any assets will result in a very substantial capital gains tax liability (estimated at present as approximately $3.4 million). Mario and John say that they recognise that capital gains tax will eventually have to be paid, but in their view it would be desirable if its incidence were delayed until the children were older when (as they believe) the liability will be more easily dealt with. Crystal supports these views.

16. [16]

    In these circumstances, the plaintiffs seek to have the Court make orders which would, in effect, allow the Trustee to extend the vesting date of the Trust. The form of the orders is discussed in more detail at [43]-[46] below.

17. [17]

    These proceedings were commenced by Summons filed in September 2016. The plaintiffs recognise that the recent decision of the Court of Appeal in Re Dion Investments Pty Ltd (2014) 87 NSWLR 753 may be an obstacle to the grant of the orders which they seek. They sought to have these proceedings referred directly to the Court of Appeal for decision. However, that application was refused: Cisera v Cisera Holdings Pty Ltd [2016] NSWCA 319. The proceedings have come before me for decision at first instance in the ordinary way, following which the plaintiffs may exercise such appeal rights as they consider appropriate.

18. [18]

    In the meantime, the plaintiffs have amended the Summons so as to join the second defendant, who is an accountant experienced in taxation matters, to act as contradictor in the proceedings.

19. [19]

    The decision in Dion Investments is binding on me and the plaintiffs accept, of course, that this is so. However, they argue that the decision does not directly foreclose their application. In particular, they argue that the binding effect of Dion Investments is limited and that I should not extend it. In order to evaluate these submissions, I will proceed to consider the statutory context and the course of authority under s 81, including the authorities on which the plaintiffs rely and the decision of Dion Investments itself. I will then consider the plaintiffs’ application against this background.

Statutory context and course of authority

1. [20]

   Section 81 is modelled on the Law of Property Act 1922 (UK), s 123 (which later became the Trustee Act 1925 (UK), s 57). Before the enactment of that provision, courts of equity had developed an inherent jurisdiction to sanction otherwise unauthorised transactions by trustees. The inherent jurisdiction was described by Austin J in Arakella Pty Ltd v Paton (2004) 60 NSWLR 334 at [93]-[96]. In summary:

2. [21]

   In Re Downshire Settled Estates [1953] Ch 218, the English Court of Appeal considered an application under s 57 to vary the terms of a trust by way of a scheme of arrangement to alter the interests of infant beneficiaries and unborn persons, in order to avoid the impact of death duties. The Court of Appeal’s decision was the subject of a further appeal to the House of Lords in Chapman v Chapman [1954] AC 429.

3. [22]

   The decisions are discussed in more detail in Arakella v Paton at [97]-[100]. For present purposes, it is enough to note that the application failed both in the Court of Appeal and in the House of Lords on the grounds that s 57 did not permit the variation in the beneficiaries’ interests which was sought; and that legislation was subsequently introduced in other jurisdictions to give the courts power to vary trusts, but no such legislation was enacted in New South Wales.

4. [23]

   This does not mean that the Court has no power under s 81 to vary beneficial interests at all. Section 81(1) expressly confers power to do so by way of provision or condition in the order made. The statutory language and the New South Wales cases on the subject are analysed in Arakella v Paton at [101]-[111]. Austin J concluded at [112]:

5. [24]

   Before Dion Investments, there were a number of first instance decisions in this Court which sanctioned amendments to the terms of the trust under s 81. The case most on point for present purposes is Stein v Sybmore Holdings Pty Ltd [2006] NSWSC 1004, a judgment of Campbell J (as his Honour then was).

6. [25]

   That case concerned a discretionary family trust which had been established in 1978. As in this case, the vesting date was defined as the earliest of three dates: first, a fixed date specified in the trust deed (23 December 2007); second, a date specified by reference to a royal lives clause; and third, such earlier date as might be fixed by the trustee. The trust deed also gave the trustee power, with the consent of a person nominated in the trust deed, to vary “all or any of the powers or provisions herein declared concerning the Trust Fund with the exception of the Vesting Day”.

7. [26]

   The person nominated in the trust deed, Mr Stein, was the family patriarch and was still alive. He made an application to empower the trustee to extend the vesting date (despite the exception in the power of amendment) to 2058. The basis for the application was a wish to avoid (or at least defer) the capital gains tax and stamp duty liabilities which would otherwise fall on the assets upon vesting.

8. [27]

   The application was successful. Campbell J at [30]-[36] rejected a proposition stated in Jacobs’ Law of Trusts in Australia (7th ed 2006 at 373 [1706] fn (47)) that s 81 “gives no power to alter the beneficial interest of beneficiaries”. He pointed out that sometimes s 81 could be used in a way that altered beneficial interests. His Honour concluded that the fact that the vesting date would be altered was not fatal to the application.

9. [28]

   His Honour then turned to the elements of s 81. He said:

10. [29]

    His Honour then considered whether it was “expedient” to make the orders sought. His Honour said:

11. [30]

    The judgment of the Court of Appeal in Dion Investments was given by Barrett JA, with whom Beazley P and Gleeson JA agreed. The aspect of the application in question was to “modernise the trust deed” by entering into a deed between the trustee and the nominator so as to add to the trust instrument a “provision empowering the trustee, with the consent of any appointor (there apparently being none), to revoke add to or vary all or any of the trusts, terms and conditions of the deed and to declare, revoke, and vary new trusts concerning the trust fund or any part of it, subject to provisos against infringement of the rule against perpetuities and interference with amounts already set aside for beneficiaries” (at [26]). This aspect of the application had been refused by the trial judge, and his decision was upheld by the Court of Appeal.

12. [31]

    Barrett JA considered cases from New South Wales, Victoria, Queensland and elsewhere including the decision in Stein v Sybmore and the previous decisions referred to by Campbell J at [45] (quoted at [28] above) in support of the proposition that “transaction” in s 81(1) includes making an amendment to the trust instrument. His Honour said:

13. [32]

    His Honour referred to the trustee’s role in administering a trust:

14. [33]

    His Honour referred to cases in which the trustee had been given powers to amend the trust instrument and said:

15. [34]

    His Honour continued:

16. [35]

    The Court of Appeal’s decision has been referred to on a number of occasions in subsequent decisions at first instance in New South Wales and elsewhere. Three of those decisions involved an application to vary the vesting date of a trust.

17. [36]

    Andtrust v Andreatta [2015] NSWSC 38 concerned a discretionary family trust which had been established in 1976. The vesting date was “relevantly” a fixed period of forty years (I assume from the use of the word “relevantly” in the judgment that there was another date, presumably determined by reference to a royal lives clause, as in this case and some of the other cases referred to in this judgment). The trust deed combined an express power for the trustee to vary “the trusts”. The trustee sought a declaration that its power of variation included extending the vesting date; or, alternatively an order under s 81 empowering it to extend the vesting date. McDougall J said at [8]:

18. [37]

    This was, however, obiter, as the application succeeded on the basis of the express power of variation.

19. [38]

    Paloto Pty Ltd v Herro [2015] NSWSC 445 concerned a discretionary family trust which had been established in 1965. The vesting date was the earlier of a fixed period of fifty years or twenty-one years after the death of the last survivor among the descendants of King George VI. The trustee was concerned at the liabilities which would be incurred by way of capital gains tax and stamp duty upon vesting at the expiry of the fifty year period (2015) and applied for an order empowering it to extend the vesting date up to 2045.

20. [39]

    Darke J rejected the application. The application was put on the basis of the inherent jurisdiction, rather than s 81. His Honour refused to treat the imposition of capital gains tax after the trust had been settled as an “emergency” for relevant purposes. The decision is therefore not directly in point. However, at [23] his Honour observed that the taxation consequences for beneficiaries upon vesting were not “themselves concerned with the management or administration of trust property” and quoted [94] from Dion Investments (quoted at [32] above) concerning the distinction between variation of the terms of trust and the management or administration of trust property.

21. [40]

    Bull v Boreas Pty Ltd [2015] NSWSC 761 concerned a discretionary family trust which had been established in 1970. The circumstances of the case and the nature of the application were the same as those in Andtrust v Andreatta; the applicants relied on both s 81 and an express right to vary the terms of the trust in the trust deed. Rein J upheld the application on the latter basis. At [5] his Honour accepted that the decision in Dion Investments was an obstacle to the application succeeding on the s 81 basis and expressed his agreement with the decision, but the application was not pressed on that basis in any event.

Plaintiffs’ application

1. [41]

   The plaintiffs’ application focused on the definition of the vesting date (or “Terminal Date” which is the term used) in the Trust Deed. It will be recalled that the date is the earliest of three dates, the first being the 20th anniversary of the date of death of the last survivor of the descendants of King George V living as at the date of the Deed (I will refer to this as the “royal lives date” and the period of time until that date as the “royal lives period”); the second being the fixed date of 1 January 2024; and the third being such date as the Trustee might determine as a matter of discretion.

2. [42]

   The parties were content for me to take judicial notice, by means of Wikipedia searches, of the identity and dates of birth of the descendants of King George V who were living in August 1974. According to those searches, seventeen great-grandchildren and one great-great-grandchild of King George V had been born by August 1974. The oldest was born in November 1948, and the youngest in October 1973. All of them are still alive. It is as certain as anything can be that the last surviving member of this class will live into the 2040s at least. Thus the royal lives period will extend until the 2060s at least; that is, forty years or more after the latest vesting date as the Trust Deed currently stands.

3. [43]

   The plaintiffs formulated the order they sought in a number of ways. The plaintiffs’ preferred position (but one which they apparently considered was inconsistent with Dion Investments) was formulated as an order that:

4. [44]

   The substitution of the word “latest” for the word “first” in the definition would create a problem with the third alternative in the definition. Read literally, it would allow the Trustee to extend the date of the Trust indefinitely, although that could not be effective because of the rule against perpetuities. One possible way of dealing with this is shown in the wording just quoted: namely that the third alternative should be deleted. This seems quite inconsistent with the terms of the Deed as they stand which expressly give the Trustee power to bring the vesting date forward, and there does not seem to be any good reason for dispensing with that power. Other formulations of the order sought would have the effect of selecting the later of the first two dates mentioned, namely the royal lives date and the fixed date, which would make the vesting date the royal lives date for practical purposes (unless brought forward).

5. [45]

   The plaintiffs presented alternative formulations of the orders which, counsel contend, are open despite the decision in Dion Investments and are supported by prior authority, particularly Stein v Sybmore. Rather than providing that the Trustee be empowered and authorised to manage and administer the Trust Property “on the basis that the Trust Deed is amended so that the word ‘latest’ is substituted for ‘first’” (as at [43] above), the alternative formulations were that the Trustee be empowered and authorised:

6. [46]

   I do not to perceive any difference in substance between these different formulations. The effect of each of them would be that the Court would permit the Trustee to administer the Trust as if the vesting date were the latest of the three dates mentioned or the later of the first two, rather than the earliest as the Trust Deed provides.

7. [47]

   The Summons also contained the conventional plea for such further or other form of order as the Court might think fit. Counsel for the plaintiffs did not, however, propound any further alternative order.

8. [48]

   All of this relief was sought under s 81(1). No relief was sought under s 81(2). Accordingly I do not need to consider whether s 81(2) is relevantly any wider than s 81(1).

9. [49]

   Counsel for the plaintiffs accepted, of course, that Dion Investments is binding authority for the proposition that the addition of a power of amendment to a trust deed is not a “transaction” which can be authorised under s 81(1). However, counsel submitted that the decision had no wider binding effect.

10. [50]

    I do not agree with this. In the first place, I think the difference between the orders sought in Dion Investments (an order empowering the trustee to vary the trust) and the formulation of the orders sought in the present case is purely semantic. In effect, the orders in the present case seek to have the Trustee empowered to treat the Trust Deed as having been amended. If the Court were to grant power in these terms, the Court would in substance be empowering the Trustee to amend the Trust Deed. The reasoning in Dion Investments forecloses that possibility, at least in a case of this type.

11. [51]

    Counsel for the plaintiffs submitted that the decision in Dion Investments was directed only to the scope of permissible transactions, and did not affect the authority of Stein v Sybmore insofar as Campbell J held that it was in the management or administration of the trust there in question to extend the vesting date. Again, I cannot agree. The observations at [94] about the trustee’s duty to administer the trust as the trustee finds it are of general significance. At [98] the Court of Appeal also picked up and applied the reasoning from Downshire that the section must be interpreted in the light of the limitations in the inherent jurisdiction which pre-existed its enactment. As a consequence, the scope of what may be considered expedient “in the management or administration” of trusts is more limited than was thought before. The conclusion at [100] was that s 81 did not permit the Court to empower the trustee to amend the trust instrument “or the terms of the trust”.

12. [52]

    For these reasons, and consistently with McDougall J, Darke J and Rein J, I think that the reasoning and decision in Dion Investments requires this application to be refused. However, out of deference to the arguments presented and in case I am wrong in this view, I will consider the arguments presented by the plaintiffs in more detail.

13. [53]

    There are two requirements of s 81 which need to be considered. First, the Court’s power depends upon the identification of a possible “sale, lease, mortgage, surrender, release, or disposition, or [a] purchase, investment, acquisition, expenditure, or transaction” which can be the subject of an order. For convenience I will refer to each item in this list as a “dealing”. The second requirement is that the dealing must, “in the management or administration of” the trust property, be “expedient”.

14. [54]

    The list of dealings in s 81(1) in fact consists of two sub-lists. First there is “sale, lease, mortgage, surrender, release, or disposition”. In this sub-list “disposition” is the widest term. It was not suggested in the present case that the power sought was a power to make a “disposition”. The other sub-list is “purchase, investment, acquisition, expenditure, or transaction”. Again, the last term, “transaction”, is the widest one. Counsel for the plaintiffs relied on this term for the purposes of the application.

15. [55]

    In “Trusts – an Australian perspective” [2010] NSWJSchol 10 at [114], White J, writing extra-judicially, suggested that it would be natural to construe the term “transaction” eiusdem generis with the other dealings listed. I respectfully agree. His Honour noted that the course of authority was otherwise, but the decision in Dion Investments frees the Court from the constraints of that authority.

16. [56]

    The common characteristic of all of the dealings listed with “transaction” is that they involve an exchange (whether of money, property, services or promises) between the trustee and someone else. In my opinion, that too is the natural meaning of the term “transaction”. It is something bilateral. I do not think that can be said of the extension of the vesting date of a trust which is, if anything, unilateral rather than bilateral.

17. [57]

    Stein v Sybmore is also distinguishable. In that case, the trustee had an express power to amend the trust deed. Even if the exercise of such a power is a “transaction”, there is no equivalent power in the Trust Deed in this case.

18. [58]

    If the vesting date were extended in accordance with the application, then dealings with the trust property of the type listed in s 81(1) would take place after the former vesting date. In that indirect sense, the Court would be authorising those dealings. But is this sufficient to bring such an extension with the scope of s 81(1)?

19. [59]

    Re Strang (1941) 41 SR (NSW) 114 concerned a testamentary trust where the trustees’ powers of investment were limited in trustee securities, which were fixed interest, low yield securities. An application was made under s 81 for the Court to confer a general power on the trustees to invest in shares in a specified group of publicly listed companies on the ground that this would better protect the capital and income of the trust against the effects of inflation. The application was rejected. Jordan CJ, speaking for the Full Court, said at 118-9:

20. [60]

    Re Strang was considered by the High Court in Riddle v Riddle (1952) 85 CLR 202 where a similar application had been made and refused. The idea that there needed to be something special about the circumstances of the trust in question did not find favour with any of the members of the Court. Dixon J said at 215:

21. [61]

    The idea that the section could not be used to give a general power to invest in particular list companies, on the other hand, produced a division of opinion. Kitto J, with whom Fullagar J agreed, said at 233:

22. [62]

    A majority of three (Dixon, Williams and Webb JJ) rejected this view. For Dixon J, the fact that s 81(1) permitted the Court to confer power on the trustees “either generally or in any particular instance” appears to have been decisive. His Honour said at 214:

23. [63]

    Williams J, while accepting that the order sought in terms of particular companies was appropriate, said at 220:

24. [64]

    Webb J said at 226:

25. [65]

    Although both Dixon J and Williams J pointed to the width of the Court’s power under Trustee Act, s 81, the context of the decision must be taken into account. The question before the Court was a narrow one. It was simply whether a power of investment could be given in general terms (but relating to securities of particular companies) or had to be limited to concrete proposed investments. The majority Justices accepted that an order under s 81 did not need to be so limited. But none of them went to the extreme of saying that the Court’s power extended to a complete delegation of the selection of investments to the trustees.

26. [66]

    In my opinion, any “transactions” authorised by the orders sought would be authorised in such remote and broad terms as to fall outside the scope of s 81(1). In the language of Williams J, the Court could not be said to be approving, even “generally”, the transactions in question.

27. [67]

    In this regard, subsection 81(3) is also important. If an order is to be made under s 81(1), it must be the type of order which can later be rescinded or modified. It is hard to see how the orders sought by the plaintiffs could meaningfully be rescinded if the Court considered after 1 January 2024 that the continuation of the Trust was no longer expedient. For practical purposes the change to the Trust would be permanent.

28. [68]

    It follows, in my opinion, that the orders sought go beyond the authorisation, either individually or generally, of “transactions” for the purposes of s 81.

Expedient in the management or administration of the trust property

1. [69]

   Section 81(1) is concerned with powers. It presupposes that powers of management and administration of the trust property will have been conferred on the trustee by the trust instrument, or by statute, or both. The purpose of the provision is to expand those powers by allowing the Court to make an ad hoc addition to the powers the trustee otherwise has.

2. [70]

   Part 2 Division 2 of the Trustee Act contains a number of provisions which confer powers on trustees in certain circumstances or in the absence of contrary provision in the trust deed. These include powers of investment, ancillary powers to participate in schemes of arrangement, powers to sell, mortgage and lease property and so forth. In my opinion, it is reasonable to suppose that these are the sort of powers which the legislature was contemplating when it enacted s 81(1). It is a characteristic of such powers that it is a matter for judgment of the trustee as to whether, and to what extent, the trustee chooses to exercise the power. The exercise of the power remains subject to the overarching duties of the trustee to act in the beneficiaries’ interests. Section 81(1) does not empower the Court to vary or dispense with those duties. In my opinion, the conferral of further ad hoc power on the trustee would not naturally encompass a power to treat the beneficiaries’ interests, or the trustee’s obligations towards the beneficiaries, as having been varied.

3. [71]

   I think the same conclusion flows from the requirement in s 81(1) that the proposed transaction(s) be “expedient” “in the management or administration” of the trust property. The management and administration of the trust property is not an end in itself: Macedonian Orthodox Community Church St Petka Incorporated v Metropolitan Petar [2013] NSWCA 223 at [129]. The expediency of any particular step in the management or administration of the trust property must be judged by reference to some external objective. That is implicit in the word “expedient” itself. It is defined in the Macquarie Dictionary as “tending to promote some proposed or desired object”. In my opinion, to empower a trustee to do what is “expedient” by reference to such an external objective does not extend to altering the objective itself.

4. [72]

   In Arakella v Paton Austin J was asked to sanction a scheme for the conversion of a unit trust operating a stationery and office supply business into a company operating the same business, with the unit holders becoming shareholders. His Honour saw the application as being “very much in the management and administration of the trustee’s business”. He said at [117]:

5. [73]

   In the light of the decision in Dion Investments, I question whether the termination of the interests of beneficiaries in a trust could properly be seen as being expedient “in the management or administration of the trust” in the relevant sense. The effect of such a step is that the management and administration of the trust ceases and the beneficial interests in the trust property are terminated. I find some difficulty in seeing how this can be seen as an expedient pursuit of the objectives of the trust, merely because the beneficial interests are replaced with shareholdings which might be thought to be commercially equivalent. I note that White J, in the article to which I have referred, appears to have had some doubt about this also: see at [114] and [117].

6. [74]

   I respectfully agree with the remarks of Campbell J in Stein v Sybmore at [53] (quoted at [29] above) that for the purpose of determining the trust’s objectives it may be possible to disregard some of the terms of the trust as being merely mechanical ones. I also agree that a discretionary family trust may have more flexible and wider objectives than a simple non-discretionary trust. However, I think that the objectives must still be found in the terms of the trust. In particular, in the light of Dion Investments at [94] (quoted at [32] above) I think the terms creating the beneficial interests under the trust must usually, if not invariably, be part of the definition of those objectives. In determining what is “expedient” the Court must ultimately use as its touchstone the intentions of the Settlor, and is not entitled to substitute its own ideas even if it thinks those would have been better. I think that Campbell J’s remarks in Stein v Sybmore at [52] concerning objectives outside the scope of the trust instrument must now be read down accordingly.

7. [75]

   At the time the Trust Deed was executed, Clelia was 49 years old. Mario was 47. John was still a schoolboy, aged 15. In his affidavit in these proceedings, Mario said that he was not closely involved with the establishment of the Trust and, to the extent that he could remember, the impetus for establishment of the Trust came from Clelia’s sister; a similar trust was established for Clelia’s sister’s family at the same time and the two trusts together were used as the vehicle for management of a residential apartment property which had been owned by Clelia’s parents. Mario did not remember reading the Trust Deed or even being shown a copy of it. He said that had he been asked about the vesting date being 1 January 2024 he would have argued against it and sought a vesting date which was as long as possible. Coming so long after the relevant events, and given its self-serving nature, I would be reluctant to act on this evidence, but in any event Mario’s own account shows that it was not his intention which mattered. To the extent that any member of the family’s intention would have been relevant, it would have been Clelia’s. She was the nominator and the initial assets of the Trust came from her family. There was no evidence before the Court concerning any intention she may have had about the circumstances which now exist. In any event, in Segelov v Ernst & Young Services Pty Ltd (2015) 89 NSWLR 431 the Court of Appeal made it clear that a trust instrument is to be construed in the same objective fashion as a contract, and the subjective intentions of the parties to such an instrument are irrelevant.

8. [76]

   Accordingly, the Court is thrown back on the terms of the Trust Deed itself, as interpreted in the light of the objective circumstances which existed, or might reasonably have been foreseen, as at the date of the Trust Deed.

9. [77]

   As in Stein v Sybmore, counsel for the plaintiffs disclaimed any contention that it would be open to the Court to alter the vesting date in the Trust Deed by means of rectification. Nonetheless, he suggested that there was something strange about the selection of the vesting date (subject to the exercise of the Trustee’s power to bring it forward) as the earlier of the royal lives date and the fixed date of 1 January 2024, rather than the later.

10. [78]

    In my opinion, this overlooks the fact that the Perpetuities Act 1984 (NSW), which modernised the rule against perpetuities, had not been enacted when the Trust Deed was drawn up. At that time, it was not open to suspend the vesting of a trust interest by reference to any fixed period which exceeded twenty-one years. To achieve a longer suspension required reference to a life or lives in being (plus, if desired, up to a further twenty-one years thereafter).

11. [79]

    If the intention had been for the vesting date to be deferred for as long as possible, the royal lives period would have been used on its own. In my opinion, it is clear that the royal lives period was not intended to define the maximum period before the vesting of the beneficiaries’ interests. It was there as a backstop so as to ensure, with as much certainty as was possible, that it would be the fixed fifty year period which would determine the vesting date (unless the Trustee should exercise its discretion to bring the date forward). Seen in this way, the fifty year period was not an accident or an irrelevancy; rather, it represented the maximum period of time which those who drafted the Trust Deed actually wished to elapse before the vesting date.

12. [80]

    The definition of the Beneficial Class in the Trust Deed included a first generation (Clelia, Mario and any other spouse Clelia might have) and a second generation (John and any spouse he might have) who were, as between themselves, to share equally unless the Trustee exercised its discretion to the contrary. But it did not provide in the same way for the third generation. John’s children would only become members of the Beneficial Class on his death. There was no provision for the third generation to participate alongside the second generation as there was between the second and first generations, and there was no provision for any spouses of John’s children. Nor was there any provision at all for John’s grandchildren or remoter descendants.

13. [81]

    In my opinion, this is entirely consistent with the selection of 1 January 2024 as the latest vesting date for the Trust. As at that date, Mario and John would (if they lived so long) be 96 and 65 years old respectively. John has had children relatively late in life; looking forward from 1974 he might reasonably have been expected to have adult children, and grandchildren, by 2024. If it had been contemplated that the Trust would extend beyond that date, one would expect to see provision made in the Trust Deed for them to participate as beneficiaries alongside John.

14. [82]

    Counsel for the plaintiffs suggested that there could be discerned a desire to ensure that assets of the family should continue to be accumulated from generation to generation. No doubt most, if not all, of those who establish family trusts of this type would wish to keep the assets in a flexible structure of this type (and to defer the incidence of taxation on vesting) indefinitely. However, the rule against perpetuities does not permit this to happen. At some point or other the beneficial interests in the capital of the Trust must vest. It may be said that the period of time adopted in the Trust Deed of fifty years was arbitrary; but any other date consistent with the rule against perpetuities would have been equally arbitrary.

15. [83]

    In my opinion, the deferral of the vesting of the assets of the Trust for another forty years or so cannot be seen to be an expedient step in the management or administration of the Trust in accordance with the objectives which may be discerned from the Trust Deed.

16. [84]

    There are in my view two further points which show that the proposal put forward by the plaintiffs is not, in any event, “expedient”.

17. [85]

    For this purpose, the case for the plaintiffs seems to me to depend upon the concern expressed by Mario and John about the possibility of the trust assets vesting in the children when they will not be the right age to make proper use of those assets. I do not think that the concerns expressed about the incidence of taxation adds to the plaintiffs’ case. There was no evidence before the Court of what the tax consequences would actually be upon vesting of the assets in 2024. The Court is therefore not in a position to make a meaningful comparison between the tax consequences of the assets vesting as at that date compared with other dates. Of course there will be a capital gains tax liability, but such a liability must inevitably be incurred at the point of vesting. In my opinion, it is not enough to say that the longer the vesting is delayed, the more readily the liability will be borne. Even if that is true as a generality, the Court has no way of assessing whether it is likely to be true of the assets that are the subject of this Trust.

18. [86]

    The first point concerning expediency arises out of the decision of the Full Court in Ku-Ring-Gai Municipal Council v Attorney-General (1954) 55 SR (NSW) 65. The facts of the case are summarised in Arakella v Paton at [104]. The Council owned land used as a golf course. The land actually owned by the Council only covered fourteen holes and the other four holes were on land leased by the Council, the lease of which was expiring. The Council wished to use adjoining recreational land, of which it was trustee, to build four replacement holes for the golf course. The trust instrument prohibited games from being played on the land on Sundays. The Full Court said at 74:

19. [87]

    In Stein v Sybmore, Campbell J said, concerning the Ku-Ring-Gai Municipal Council decision:

20. [88]

    Counsel for the plaintiffs contended, when I pressed him, that the decision in Dion Investments had affected the authority of the Ku-Ring-Gai Municipal Council case. However, the contention was not developed and, sitting at first instance, I do not think I should act on it. Like Campbell J, I therefore accept that there is a requirement in s 81 that a “question” has arisen in the management or administration of the trust.

21. [89]

    For my part, though, I do not think that the Full Court was imposing some sort of additional requirement by a process of construction or implication. It seems to me that the need for some such question is inherent in the word “expedient”. In my opinion, the word connotes some practical reason why the grant of power should be made at the time it is asked for. It will usually (perhaps, given sufficient ingenuity, always) be possible to point to powers which a trustee does not have and which the trustee might, in some future circumstances, be able to use to advantage in administering the trust. But although it might in theory be desirable for the trustee to be given such powers against the possibility that those circumstances will occur, that cannot be a proper basis for an order being made under s 81. If it were, the Court would be swamped with applications for the grant of further powers against the possibility of hypothetical future events. In my opinion, there must be a question, in the sense of a problem of some immediacy, before the conferral of a power under s 81 can be said to be “expedient”.

22. [90]

    In the present case, I think it is difficult to identify any such immediate issue or problem. The concern about the trust assets vesting in the children is at the moment purely hypothetical. If John survives until 1 January 2024, no assets will vest in the children at all. If the concern is that John may die before then (and, fortunately, there is no reason to think that he will), the Trustee has power to advance the vesting date. As John and Crystal do not intend to have any further children, there would be nothing to stop the Trustee from causing the assets to vest in them now. They could then bring the Trust to an end under the “rule” in Saunders v Vautier and make trust or testamentary arrangements for the assets to pass to their children at a time when they consider the children will be best placed to take advantage of them.

23. [91]

    The second point concerning expediency is that, as has been seen, the wording of the Trust Deed is ill-adapted to meet the needs, in an ongoing way, of the generation consisting of John’s children and their spouses and of succeeding generations. Yet if the vesting date is postponed for another forty years or so as the application seeks, then the limitations in the Trust Deed are likely to become increasingly troublesome as John’s children grow up and have children of their own. The “solution” being proffered would only create further problems of its own.

Conclusions and orders

1. [92]

   I have concluded that the plaintiffs’ application does not meet the requirements of s 81 and must be refused.

2. [93]

   I was informed that arrangements have been made for the second defendant’s costs to be paid and I do not need to make any order about that. However, I will receive submissions from the parties should any order be sought for costs out of the assets of the Trust.

3. [94]

   The orders of the Court are: