Application of Karla Marie Tate and Hyun Jong Chung

The plaintiffs, Karla Marie Tate and Hyun Jong Chung, trustees (“the Trustees”) of the Salisbury Family Trust (“the Trust”), seek the Court’s judicial opinion, advice or direction pursuant to Trustee Act 1925, s 63 as to the interpretation of the Deed, dated 11 April 1991 constituting the Trust. The principal named beneficiaries of the Trust are now deceased. But two persons taking under the wills of the deceased principal beneficiaries contend that the Trustees should now exercise their powers under the Deed to appoint a distribution date or to wind-up the Trust because it has no beneficiaries.

The Trustees seek the Court’s advice whether, using the power conferred by Deed clause 20, they would be justified in varying the Deed to substitute other persons (selected from a class of persons named in a Schedule to the Deed), as the principal beneficiaries.

In these reasons the Court concludes that the Trustees would be justified in exercising the power in the Deed, clause 20 that they seek to exercise if they are so minded and that it does confer the powers that the Trustees claim it confers. The precise questions for the Court’s advice require closer examination of the Deed and the correspondence between the parties.

The Trust, a discretionary trust, was created by the Deed on 11 April 1991, for the principal benefit of Mr Aneas William Salisbury and Mrs Beth Salisbury. Robert Ian Grant was the settlor of the Trust. John Russell Baird and Gillian Suzanne Baird, respectively a niece of Mr Salisbury and her husband, were the first trustees. As the contemporaneous correspondence shows, the Trust was set up under instructions to the firm of solicitors, Sly & Weigall. Mr and Mrs Salisbury are now both deceased.

Those original trustees have now changed. Mr John Russell Baird died on 14 October 2013 and was replaced as trustee by his daughter, Karla Marie Tate, the first plaintiff. The other original trustee, Gillian Suzanne Baird retired as trustee on 5 December 2014 and was replaced by the second plaintiff, Hyun Jong Chung. The replacement of the original trustees by the present trustees is uncontroversial.

As earlier indicated the primary beneficiaries under the Trust were Mr Aeneas William Salisbury and his wife. In a letter from Sly & Weigall of 22 April 1991 to the original trustees, Mr and Mrs Baird, the solicitors who set the Trust up explained to the trustees that the only transaction that it was proposed that they would enter into would be the purchase of a residence for Mr and Mrs Salisbury at Sanctuary Cove, after Mr Salisbury had sold his residence, which was then on the market. It was proposed that the proceeds of sale of Mr Salisbury’s existing residence would be used to fund the purchase of the Sanctuary Cove property.

An initial overview of the Deed is useful. The Deed recorded that the settlor settled the sum of $10 to be held by the trustees on the trusts set out in the Deed. The Deed identified and defined “Beneficiaries” and “Eligible Beneficiaries” differently. “Beneficiaries” as defined in the Second Schedule were entitled to have the annual trust income applied to them. In default of the application of the annual income to the “Beneficiaries”, one of the beneficiaries identified in the Fourth Schedule, namely Mrs Salisbury, was entitled to the income accrued in any accounting year. But upon trust distribution at the final defined “distribution date”, the “Eligible Beneficiaries” as defined, Mr and Mrs Salisbury, were entitled if they survived to that date to take the corpus of the Trust (“the Trust Fund”) at that time in the respective proportions of one as to one.

The proper construction of the Trust Deed is not difficult. It was well explained by Sly & Weigall in their letter of 22 April 1991 to Mr and Mrs Baird:

In more detail, the Deed first contains a number of relevant definitions. The “Trust Fund” is defined as the initial sum and other sums that the settlor or any other person may “give, transfer, make or cause to be invested in the trustee to be held upon the trusts” in accordance with the Deed. The “distribution date”, “Beneficiaries” and “Eligible Beneficiaries” were then defined as follows:

The Deed then defined “specified proportion” in relation to a beneficiary as follows:

The annual accounting period was defined for the purposes of the Deed coincided with ordinary fiscal years ending on 30 June.

Clause 2 of the Deed provided for the trustee to hold the Trust Fund on the trusts provided for in the Deed as follows:

Deed, clause 3 dealt with the trustee’s discretion to pay income to the Beneficiaries, as defined in each annual accounting period. And in default of an exercise of that discretion, clause 3 defined the default entitlement to annual income as belonging to Mrs Salisbury, who was named in the Fourth Schedule to the Deed, as follows:

The Deed, clause 4 also dealt with the entitlements to surplus income and the corpus of the trust upon distribution of the trust funds as follows:

Clause 5 of the Deed provides as follows:

The Deed then contained a number of other general provisions defining the powers of the trustees in relation to investment and of advancement. None of these are of present relevance. Although there are examples in the provisions of the Deed between clauses 5 and 19 of some drafting errors, such as the one in clause 14, which provides as follows:

The word “option” in that clause should obviously be “opinion”. This is one indication, of importance later in these reasons, in inferring that parts of this Deed may not have been fully and thoroughly proof-checked before execution.

The Deed, clause 18 prevents the trustees from conferring any benefit upon the settlor or upon the trustees themselves. Clause 19 contains the power of appointment of new trustees.

The principal matter for the Court’s advice concerns clause 20 which provides as follows:

The Deed also provided, in clause 22, for what should happen on a failure of either the capital or the income of the Trust Fund to vest under the Deed; it would be held on trust for the persons mentioned in the Seventh Schedule, namely Mr and Mrs Salisbury as follows:

Finally, the Second, Third, Fourth, Fifth, Sixth and Seventh Schedule to the Deed provides as follows:

In the final years of their lives Mr and Mrs Salisbury were cared for at their home at Sanctuary Cove by Thomas Carlos and Pacita Ramos. They were Mr and Mrs Salisbury’s carers for a long time, residing at the Sanctuary Cove home with them. Mr Salisbury died on 8 January 2012 and Mrs Salisbury on 11 September 2014. Thomas Carlos and Pacita Ramos were given legacies under the wills of, and shared in, the residuaries estates of both Mr and Mrs Salisbury.

After Mrs Salisbury’s death on 4 November 2014 a firm of solicitors Pathway Legal Pty Limited (“Pathway Legal”) wrote on behalf of Thomas Carlos and Pacita Ramos (hereinafter “the Claimants”) wrote to the solicitors then acting for the trust, Messrs Welsh & Welsh in the following terms:

Correspondence about the Claimants’ contentions passed between Pathway Legal for the Claimants, and Bird & Bird and Welch & Welch solicitors, for the Claimants, from November 2014 to March 2015, when these proceedings were commenced. The detail of this correspondence is not of present relevance.

The trustees took advice from Mr J.E. Thomson of counsel, whose opinion in the matter of 10 March 2015 has been provided to the Court. The Trustees commenced these proceedings by Summons dated 16 March 2015, which sought the following relief:

Before addressing the matters for judicial advice one issue about the text of clause 20 needs analysis.

Clause 20 appears to contain surplusage. The words immediately before the words “subject always”, namely the words “then living as an interest whether invested or contingent, or for any charitable objects” appear to have been included by mistake in the clause. The Courts are not infrequently required to construe instruments containing obvious errors. And the law has long developed mechanisms for so doing. There are many examples of what is encompassed within the latin maxim falsa demonstratio non nocet, which literally translated means “a mistaken expression will not vitiate” [the true effect of an instrument]: see RJA Morrison & HJ Goolden, Norton on Deeds, (2nd ed 1928, Wm. W. Gaunt & Sons) at 233 - 234. Citing authority, Norton states the following relevant propositions:

The principle is well explained by Lord Upjohn in Re Gulbenkian’s Settlement Trusts [1970] AC 508:

In my view in the proper construction of Deed, clause 20 the Court should ignore the words “then living has an interest whether invested or contingent, or for any charitable objects”.

The only asset comprising the Trust Fund, is a house property at the Anchorage Terrace in Sanctuary Cove, Queensland. This was the house where Mr and Mrs Salisbury resided, when they were alive, and were cared for by the Claimants. Mrs Salisbury continued to reside there following Mr Salisbury’s death under the care of the Claimants. After the death of Mrs Salisbury the Trustees have attempted to sell the house property. But two contracts for sale of this property have been terminated and the property currently remains listed for sale.

The Trust did not receive any income whilst Mr and Mrs Salisbury occupied the house property, as the whole corpus was tied up in the house, which they occupied. As a result, no income tax returns and no formal balance sheets have been prepared or lodged for the Trust to date. However the Court has been informed that the Trustees anticipate that as soon as the property is sold income will commence to be earned on the proceeds of sale.

Mr and Mrs Salisbury did not have any children. Mr Salisbury’s parents were deceased at the time of his death. Mr Salisbury had five siblings who at the time of these proceedings had survived as follows: Marie (deceased), Iris (deceased), Cynthina (deceased), Lorna (aged 94 and residing in the United States of America) and Neville (about 84 years of age and residing in Queensland).

Mr Salisbury had the following nieces and nephews all of whom are living at the time of these proceedings:

Neither Iris nor Neville had any children.

Clause 20 confers a broad power on the trustees to vary the provisions of the Deed provided that any variation of the objects should be in favour of persons referred to in the Fifth Schedule, then living. The clause does exactly what it says: it vests a wide power in the trustees to “vary the trust or provisions hereof in any matter whatsoever”, constrained only by the general law and by the requirement that objects must be confined to persons “then living” (namely, living at the time of the clause 20 variation of objects) referred to in the Fifth Schedule.

There are a number of persons “referred to in the Fifth Schedule” to the Deed who would qualify to become new Trust objects, as “Beneficiaries” or “Eligible Beneficiaries” in an instrument of variation. The primary Beneficiaries named in the Deed, Mr and Mrs Salisbury, do not now have living parents and they did not have any children: Fifth Schedule (1) and (2). But Mr and Mrs Salisbury have seven nieces and nephews now living: Fifth Schedule (3). It is perhaps improbable now that any entity would qualify under Fifth Schedule (4). But there may well be entities in existence that qualify under Fifth Schedule (5) and (6). But whether there are actually persons in the Fifth Schedule (4) - (6) categories is uncertain, and is not any part of this judicial advice to explore.

But the breadth of the power to amend, together with the reference in clause 20 to “variation of the objects” makes clear that clause 20 empowers the trustees to “vary”, meaning by adding or subtracting persons to or from, the Second Schedule (Beneficiaries), Third Schedule (Eligible Beneficiaries) and Fourth Schedule (named Beneficiaries to benefit from a share of unapplied income). The power to vary also extends to varying the respective proportionate entitlements of each Beneficiary as set out in the Third and Fourth Schedules, by varying the numbers against the name of each Beneficiary named in those schedules.

The words of clause 20 on their own are sufficient to infer these conclusions. But authority also supports the same conclusion. In Kearns & Anor v Hill & Ors (1990) 21 NSWLR 107 (“Kearns”) the Court of Appeal considered a clause similar to clause 20 which read “the trustee made by deed…vary or amend any of the provisions contained in this deed other than clause 2 or the vesting date”. The question for decision in Kearns was whether a purported amendment to include an additional class of beneficiaries within the definition of “beneficiaries” in clause 1 of that trust deed was a valid exercise of the power. The Court (Meagher JA, Mahoney and Clarke JJA agreeing) observed at 109:

And again Meagher JA continued at 110:

Thus it is open to the Trustees to vary the Deed to substitute any person from the Fifth Schedule as a Beneficiary named in the Second Schedule and therefore entitled to receive trust income, or named in the Fourth Schedule and therefore entitled to receive a proportion of income not otherwise applied to Beneficiaries.

But importantly for present purposes, clause 20 also allows the trustees to vary the Deed to substitute the names of persons within the Fifth Schedule for the Eligible Beneficiaries presently identified in the Deed’s Third Schedule (namely Mr and Mrs Salisbury) and in such proportions as the Trustees decide. This in turn has the effect that by reason of the operation of Deed, clauses 4 and 5 that the corpus, and any unallocated income, of the Trust Fund on the distribution date, is to be distributed to each of such Eligible Beneficiaries, so substituted, or their issue as may then be living.

If there is no living Eligible Beneficiary or issue on the distribution date, which would be the present position if the trust were not varied before the distribution date were reached, the effect of clause 22 read with the Seventh Schedule is that the Trust Fund will vest in such next of kin of Mr Salisbury ascertained at the date of his death as shall be living at the distribution date. The present questions do not require further examination of who may, or may not, qualify under the Seventh Schedule in the future, on this scenario.

As Mr Thomson’s careful advice points out, this construction of clause 20 is aided by a number of broader considerations in the Deed. There is no other reference in the body of the Deed to explain the presence and intended function of the Fifth Schedule in the scheme of the Deed. Every subcategory of person referred to in the Fifth Schedule is connected by a relationship with “any of the Beneficiaries named in the Deed” or similar words, indicating a specific connection to Mr and Mrs Salisbury and their interests. There is no other obvious purpose for including a list of possible “objects” in the Fifth Schedule other than to provide a resource for Beneficiary and Eligible Beneficiary substitution.

The first question for advice asked should therefore be answered in the affirmative.

The Claimants appear also to contend that the trustees should, or are required not to, appoint a “distribution date”. This seems to be what they mean by “winding up” the trust in their correspondence. The Trustees ask the Court in question (b) whether they would be entitled to refuse to treat Mrs Salisbury’s death as an occasion that requires the winding up of the trust or the payment of any part of the Trust Fund to her legal representative to form part of her estate, under which the Claimants would benefit.

Pathway Legal in their letter of 12 December 2014 contend that the Sanctuary Cove property or its sale proceeds “properly form part of the residue of the estate because the deceased [Mrs Salisbury] was the sole remaining beneficiary of the Trust and therefore upon her death the Trust should be wound up and the proceeds distributed to her estate”.

But the Claimants cannot require the trustees to appoint a distribution date. The Claimants have obtained administration of Mrs Salisbury’s estate cum testamento annexo. If in this capacity they were to call for the appointing of distribution date, the trustees “absolute discretion” to so appoint or not to appoint under Deed, clause 1.1(4) could not readily be displaced. Second, the next of kin of Mr Salisbury at the date of his death, as the Seventh Schedule specifies, would be his siblings. If there was no Eligible Beneficiary otherwise entitled on the distribution date and there was no one living at the distribution date who had been identified in the Seventh Schedule then Mrs Salisbury’s estate does not become entitled to the Trust Fund. If all these contemplated dispositions of the Trust Fund fail, then ordinarily the Trust Fund, together with any unallocated income would be held for the settlor or his estate, under resulting trust: J.D. Heydon and M.J. Leeming, Jacob’s Law of Trusts in Australia, 7th ed, Lexis Nexis, [529].

The second question posed to the Court for advice should therefore be answered in the affirmative.

The Court’s construction of the power to variation in clause 20 means that the interest of the living Eligible Beneficiaries and the living next of kin of Mr Salisbury are not only contingent on their being alive at the distribution date or at any failure to vest, but they are defeasible to the extent that the Trustees may from time to time elect under the Deed to benefit other objects listed in the Fifth Schedule.

Such rights as Mrs Salisbury may have had under Deed, clauses 3 or 4 lapse upon her death. Her rights to income under clause 3 are qualified by the requirement that she, “as a person named in the fourth schedule” shall be a person “living at the exploration of such annual accounting period”. Again in relation to clause 4, in order to qualify as an Eligible Beneficiary to qualify for the corpus of the Trust Fund she must “survive the distribution date”. She ceased to be qualified under either of these provisions upon her death. So her estate has no rights under those clauses.

The possibility of Mrs Salisbury having entitlements arising under Deed, clause 22 because of some failure to vest of the Trust Fund does not arise. Although a failure of the Trust Fund to vest means the fund is held on trust for “the persons mentioned in the Seventh Schedule”, those persons do not include Mrs Salisbury, who would not have been entitled to share in his estate “as his next of kin on the date of [his] death”. Husband and wife are not “of kin”: Garrick v Camden (1809) 14 Ves. 372; 34 E.R. 1139 and Bailey v Wright (1811) 18 Ves. 49; 34 E.R. 236; and Milne v Gilbert (1852) 23 LJ Chancery 828; 42 E.R. 1052. Husband and wife are not of the same blood. But quite apart from this, the persons entitled under clause 22 must “be living at the distribution date”. Upon Mrs Salisbury’s death before the distribution date she or her estate lost any capacity to qualify under that provision.

In the result therefore the Court answers the questions posed as follows: