Hitchcock v Pratt Group Holdings Pty Ltd as trustee for the Pratt Family Holdings Trust

HIS HONOUR: The Plaintiff, [1] aged 27, is a child of the late Richard Pratt (Mr Pratt), who died on 28 April 2009, and Shari-Lea Hitchcock. The first defendant is the trustee (Trustee) of the Pratt Family Holdings Trust (Trust). The second, third and fourth defendants (respectively, Anthony Pratt, Heloise Waislitz and Fiona Geminder) are the children of Mr Pratt and Jeanne Pratt (Mrs Pratt). They are, in ordinary parlance, half-siblings of the Plaintiff. In the pleadings referred to below they are described as the “Siblings” and, for the purposes of these reasons for judgment, I will describe them as such.

The Plaintiff claims that she is a discretionary object of the Trust. That is despite the fact that, over two decades ago, the Trustee purported to enter into a deed by which it exercised a power to exclude the Plaintiff as a General Beneficiary of the Trust (contested deed of exclusion or CDE). [2]

In her amended statement of claim, the Plaintiff seeks the following by way of final relief:

There are three applications before the Court, the nature of which I describe in more detail below. Two of the applications relate to what is colloquially known as a “pleading dispute”, in which the Plaintiff seeks leave to file a proposed further amended statement of claim and proposed amended reply, while the Trustee (with the Siblings’ encouragement) seeks to have parts of the Plaintiff’s amended statement of claim and reply struck out. I have heard those two applications. By agreement, the third application has not yet been dealt with by me, as it is dependent upon the outcome of the pleading dispute.

On the hearings, Mr Withers SC appeared for the Plaintiff with Mr Puttick and, on 16 February 2024, also with Ms Lindeman. Mr Myers KC appeared with Mr Carney for the Trustee, and Mr Sheahan KC appeared with Ms Smith for the Siblings. Counsel provided various written outlines of submissions prior to the hearings and made oral submissions on the two hearing dates of the applications.

I will cite the evidence in the applications by reference to the Court Book (CB) and exhibit numbers, and cite the submissions by reference to transcript pages (TD1 for 16 February 2024 and TD2 for 26 June 2024) and as follows:

The applications are being considered in a context in which a central part of the Plaintiff’s claim relates to the conduct of the Trustee and the Siblings in events which occurred in or around June 2001, over 23 years ago. The Plaintiff’s solicitor (Mr Price) has observed that the events occurred when she was a minor and, accordingly, she has limited knowledge of the events which are the subject of her claim: CB 453[6]. This, it seems, has given rise to perceived difficulties in the Plaintiff being able to plead material facts and give particulars in respect of those facts.

The latest round of proposed amended pleadings which the Plaintiff seeks leave to file constitutes her sixth attempt at formulating her claim. [3]

The hearing of the applications has been vigorously contested over two non-consecutive hearing days, with a significant volume of documents and written submissions being placed before the Court.

To the casual observer, the hearing of the applications has involved a volume of documentation and an amount of court time which is more akin to what would be provided for, and complete, a final hearing of many court proceedings. However, to be clear, the hearing of the pleading dispute is an interlocutory hearing and not a final hearing giving rise to a determination on the merits of the dispute between the parties.

Ultimately, I have decided that leave to amend the Plaintiff’s amended statement of claim should be given in part, with limited leave also given to re-plead certain aspects of the claim in the ways that I specify below. I have also decided that leave to amend the Plaintiff’s reply should be refused and that part of the existing reply, including that alleging fraud or dishonesty, should be struck out. That is partly a consequence of my finding that the Plaintiff’s equitable compensation claim is not arguable and partly a consequence of my finding that the alleged breaches to which the allegations relate cannot give rise to an inference of fraud or dishonesty. Despite the Plaintiff’s allegations that the Trustee engaged in dishonest conduct, significantly, the Plaintiff has not sought relief that would have the effect of either requiring the Trustee to re-exercise its discretion in respect of the relevant years, or an order to have the Trustee removed and a new trustee re-exercise that discretion.

I ought to note that, whilst I have decided that the “substantial” relief sought by the Plaintiff through equitable compensation cannot be pursued, the remaining declaratory and other relief sought would still provide some forensic utility to her going forward.

The proceedings were commenced by statement of claim filed on 22 April 2022. At that stage, the Plaintiff sought a declaration that she was a discretionary object of the Trust, provision by the Trustee of the documentation referred to above and an account in common form be taken and rendered to her.

On 25 November 2022, the Siblings were joined as defendants to the proceedings pursuant to r 6.24 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR).

On 15 December 2022, the Plaintiff filed her amended statement of claim, which added the claims seeking a declaration that the CDE is void and equitable compensation as part of the final relief sought.

The Trustee and the Siblings filed defences to the amended statement of claim on 9 February 2023 and 14 February 2023, respectively. On 12 May 2023, the Plaintiff filed her reply to those defences.

Despite the passing of approximately 30 months since commencement, the proceedings have not progressed beyond the stage of pleadings. As I set out in more detail below, that is because the proceedings have been mired by the pleading dispute.

The Plaintiff’s claims are complex and it should not be thought that the parties have been desultory in facilitating the overriding purpose in civil proceedings for the just, quick and cheap resolution of the real issues in the proceedings: s 56 Civil Procedure Act 2005 (NSW) (CPA). Nonetheless, there is some imperative in the proceedings being progressed beyond the stage of pleadings toward a final hearing.

The three applications before the Court consist of the following:

Orders made on 8 December 2023 contemplated that the amendment application and the strike out application would be heard before the separate determination application.

That is a sensible course because, until the final version of the amended pleadings upon which the Plaintiff seeks (or is permitted) to rely is known, the question of whether there is any utility in dealing with separate questions of construction of the Trust Deed will not be susceptible to a clear answer.

Further, although they are technically separate applications, there are common aspects to the amendment application and the strike out application such that the determination of aspects of one will practically resolve most (or possibly all) of the aspects of the other.

On the hearing of the applications, the following affidavit evidence was read and exhibits tendered:

The Plaintiff also tendered the annual return of Deansworth Pty Ltd (Deansworth) for the financial year ended 30 June 2001, which was marked as Exhibit P1: TD1 3.40.

The Trust was settled by the Trust Deed on 9 May 1983 between the Trustee (then known as Rushmoor Pty Ltd) and Phillip Bornstein as settlor. In the Schedule to the Trust Deed, Deansworth was nominated as the “Guardian” and “Appointor”. The Trust Deed was subsequently varied by a deed dated 7 February 1984 between Deansworth and the Trustee.

At the time that the Trust was settled, Mark Liebler (Mr Liebler), Michael Naphtali (Mr Naphtali) and John Fast (Mr Fast) were the directors of the Trustee. Mr Fast resigned as a director of the Trustee on that day, and it is not known whether his resignation took effect prior to or after the execution of the Trust Deed.

Deansworth was the Guardian until 16 May 2018, after which Deansworth Two Pty Ltd has been the Guardian of the Trust. Given that most of the significant events which concern these proceedings occurred prior to 16 May 2018, I will refer to Deansworth simply as the “Guardian” hereafter unless indicated otherwise.

On 4 June 2001, the Trustee and the Guardian purported to enter into the CDE. At that time, the directors of the Trustee were Mr Leibler and Mr Naphtali. The directors of the Guardian were Mr Liebler, Mr Naphtali, Robert Kaye (Mr Kaye) and the Siblings.

Since 1 July 2013, the directors of the Trustee have been the Siblings, Mrs Pratt and Mr Kaye.

Understanding the Plaintiff’s claim that she is a discretionary object of the Trust requires an appreciation of the defined terms in the Trust Deed which identify the class of discretionary objects. I will set out the necessary definitions and provisions below.

Clause 1 of the Trust Deed contains various definitions. The terms “Specified Beneficiary” and “Specified Beneficiaries” are defined in cl 1(1) as follows:

The persons identified as Special Beneficiaries in the Schedule to the Trust Deed are:

Significantly, the word “child” is defined in cl 1(21) as follows:

For the purposes of the Trust Deed, cl 1(26) states that “the singular shall mean and include the plural and vice versa and any gender shall mean and include all other genders”.

The term “General Beneficiaries” is defined in cl 1(2), which relevantly provides:

The term “the excluded class” is defined in cl 1(3), which relevantly provides:

The word “beneficiary” is defined in cl 1(7) as meaning “any of the General Beneficiaries”.

Further content is given to the terms “Specified Beneficiaries” and “General Beneficiaries” by cl 1(8), which provides:

Certain other provisions of the Trust Deed are relevant to the issues in the proceedings. Non-exhaustively, they include the following.

By cl 3(1), the Trustee is empowered to, inter alia, pay, apply or set aside all or any part(s) of the net income of the Trust Fund to or for any one or more of the General Beneficiaries living or in existence at the time of the determination. Relevantly, cl 3(2)(e) provides that, with respect to any determination made pursuant to cl 3(1), “the Trustees shall have an absolute discretion in the making of any determination and shall not be required to assign any reason therefor”.

Clause 9 (the exemption clause) provides that (my italicised emphasis below):

Clause 10 relevantly provides that:

In the Plaintiff’s Claim, the term “reserved power” was used to reference the Trustee’s power to exclude a General Beneficiary found in the second proviso to cl 1(2) of the Trust Deed. I shall adopt that term henceforth to refer to that power.

Clause 18 addresses the Trustee’s obligation to keep accounts.

Clause 19 addresses the topic of disclosure of documents. In terms, it indicates that the Trustee is not bound to disclose any documents which reflect deliberations and reasons of the Trustee regarding the exercise (or non-exercise) of powers or discretions. It is as follows:

The CDE was executed on 4 June 2001 by Mr Liebler and Mr Naphtali as directors of the Trustee and by the fourth defendant, Ms Geminder, as director and Mr Kaye as secretary of the Guardian.

Aside from restating the effect of certain provisions of the Trust Deed set out above, the recitals of the CDE relevantly stated:

By cl 2 of the CDE, the Trustee purported to exclude the Plaintiff by exercising the reserved power:

By cl 3 of the CDE, the Guardian purported to waive its entitlement to notice of the exercise by the Trustee of the reserved power.

The Schedule to the CDE provides that:

The Plaintiff’s Claim is elaborate, spanning 80 paragraphs with many sub-paragraphs and particulars. The Trustee’s defence, the Siblings’ defence and the Plaintiff’s Reply are similarly intricate.

At the risk of oversimplification, I will summarise the Plaintiff’s Claim, the existing defences of the defendants and the Plaintiff’s Reply.

In essence, the Plaintiff claims that:

In their defences to the amended statement of claim, the Trustee and the Siblings variously:

In her Reply, the Plaintiff pleads, inter alia, various matters of which she asserts the Trustee was aware or had taken the view of at the time of entering into the CDE, such that the alleged breaches of duty in the failure to appoint income allegations were committed as a consequence of conduct (consisting of the purported exclusion), which conduct was committed in “personal conscious and fraudulent bad faith” by the Trustee and constituted a “fraudulent breach of trust” within the meaning of s 21(1)(a) of the LAA. In those circumstances, the Plaintiff denies that the exemption clause operates to relieve the Trustee of responsibility for the claims of loss or that her claims for breach of trust are statute-barred.

It is helpful at this point to set out the relevant paragraphs of the Claim and Reply which are particularly contentious. They are as follows (accounting for underlining and strike-through).

Claim [3]-[6]:

Claim [12]:

Claim [18]-[54]:

Claim [55]-[58]:

Claim [59], [64]-[70]:

Claim [71]-[74]:

Reply [2(a)-(f)]:

The contest over aspects of the Plaintiff’s Claim and Reply is articulated in the parties’ various written and oral submissions.

The parties, by their counsel, provided the Court with detailed submissions regarding the principles of pleading applicable to the Claim and Reply. Much of the recitation of principles is common ground. However, there are some aspects of the principles which the parties initially contended to be in dispute, in particular in respect of the requirements for pleading dishonesty.

One of the practical difficulties that has arisen in the way in which the Plaintiff’s case has been pleaded, and accordingly how the parties have addressed submissions dealing with the pleading dispute, is that a critical aspect of the Plaintiff’s case for relief, namely that the Trustee has committed various breaches of trust in “personal conscious and fraudulent bad faith”, only arises in the Reply rather than in the Claim. Thus, a vital issue on which the parties are at odds is only crystallised by something which the Plaintiff pleads in reply.

This seeming curiosity ought to be briefly explained. It should not be assumed that the Plaintiff has been coy or engaged in afterthought in this respect. The crystallisation of that issue arises from conventional pleading principles, namely, that a plaintiff should not plead matters that respond to a likely defence, in essence anticipating an answer of an adversary, which go beyond materials facts necessary to make out a good prima facie case. It was described by Hale CJ as effectively “like leaping before one comes to the stile”: Sir Ralph Bovey’s Case (1672) 1 Vent 217; 86 ER 146, cited in D B Casson and I H Dennis, Odgers’ Principles of Pleading and Practice in Civil Actions in the High Court of Justice (22nd ed, 1981, Stevens & Sons) (Odgers) at 101. The fact that the Trustee may, in due course, plead by way of defence that there is a provision of the Trust Deed which exonerates the Trustee from liability for certain breaches of trust is not something which the Plaintiff is required to anticipate in a statement of claim. Thus, I do not regard the Claim itself as being defective because it does not plead that the various breaches were committed in “personal conscious and fraudulent bad faith”. It seems to me that such a pleading is properly done by way of reply, as the Plaintiff has done.

In making their respective submissions, the parties have addressed the issues in the amendment application and the strike out application by moving sequentially through the Claim and then the Reply.

For that reason, and because it has some logic to commend it, drawing upon the various submissions I have identified the main issues as follows:

As I have noted above, these proceedings have been commenced in a context in which the Plaintiff has limited knowledge of the events which are the subject of her claim. Somewhat understandably, this has meant that the Claim and Reply contain allegations of fact which will be sought to be inferred from so-called primary facts. However, the parties’ submissions on the present applications were pervaded by what appeared to be different views as to the requirements for pleading primary facts and inferences.

The Trustee’s submissions went as follows (TWS4 [31]-[34]):

The Siblings referred to the same extract from Sir Frederick Jordan in Carr v Baker (1936) 36 SR (NSW) 301 (Carr) at 306, quoted approvingly by Spigelman CJ in Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262; [2000] NSWCA 29 (Seltsam) at [86], as authority for the drawing of inferences in the present applications: SWS4 [25].

However, as the Plaintiff submits, it is important to observe that both Carr and Seltsam were concerned with the drawing of inferences of fact from evidence at a trial: PWS4 [11]. The context of a pleading dispute gives rise to different considerations.

The requirements for pleading facts based on inferences from primary facts have been considered in claims of conspiracy. In such cases, it has been recognised that a plaintiff’s case will necessarily be based on inferences from the overt acts of the parties done in pursuance of the alleged agreement or combination; all that the plaintiff can do is plead the overt acts which were performed and rely on inferences from the evidence as a whole at trial to establish the necessary elements of the claim: Uber Australia Pty Ltd v Andrianakis (2020) 61 VR 580; [2020] VSCA 186 (Uber) at [55] and [60] per Niall, Hargrave and Emerton JJA. Given the Plaintiff’s limited knowledge of the events the subject of her claim, and the allegations made in respect of the interactions between the Trustee and the Siblings, the pleadings at issue here bear some resemblance to a conspiracy claim in that regard.

In Uber, the Victorian Court of Appeal dismissed an appeal from the decision of Macaulay J (as his Honour then was) in Andrianakis v Uber Technologies (Ruling No 1) [2019] VSC 850 (Uber – First Instance), in which (inter alia) his Honour refused to strike out the plaintiff’s further amended statement of claim in which he alleged that the defendants had engaged in the tort of conspiracy by unlawful means. In setting out the relevant principles, Macaulay J stated the following at [39]-[43] (footnotes omitted):

That approach appears to have been endorsed by the Court of Appeal: see Uber at [51]-[57]. On their appeal, the defendants argued that the allegations of agreement or combination in the pleading were a “rolled-up” conclusion based on facts and matters alleged elsewhere in the statement of claim. In response, the Court stated that a reading of the identified allegations, in the context of the statement of claim as a whole, disclosed a clear case that the defendants (or one or more of them) performed acts from which, if proved, the requisite agreement or combination may arguably be inferred at trial: Uber at [59].

In determining whether the facts pleaded by the Plaintiff based on inference are liable to be struck out, I propose to adopt the approach set out by Macaulay J in Uber – First Instance (in particular at [43]) and applied by the Victorian Court of Appeal.

Modern litigation in New South Wales operates under what lawyers understand to be a system affected by the “Judicature Act” amendments introduced in the United Kingdom in 1873 and 1875 and in New South Wales in 1970. It is a system of “fact pleading”: Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 (Aon) at [15] per French CJ.

Generally speaking, a party’s pleading must contain only a summary of the material facts on which the party relies, and not the evidence by which those facts are to be proved: r 14.7 UCPR. The word “material” means necessary for the purpose of formulating a complete cause of action: Bruce v Odhams Press Ltd [1936] 1 KB 697 (Bruce) at 712 per Scott LJ. That applies whether the cause of action is founded in common law, equity or statute. At least in theory, if any one “material” fact is omitted, the pleading is “demurrable” (in the old phraseology), and (in the new phraseology) liable to be “struck out”: Bruce at 712.

The function of material facts in a pleading is to define the issues in general terms: Halsbury’s Laws of Australia (Halsbury’s), 325 – Practice and Procedure at [325-3615].

In a statement of claim, the plaintiff must plead specifically any matter that, if not pleaded specifically, may take the defendant by surprise: r 14.14(1) UCPR.

A party may make allegations of fact, or raise grounds or claims, in the alternative, but must not in any pleading make an allegation of fact, or raise any ground or claim, inconsistent with any of his or her previous pleadings: r 14.18 UCPR.

Regarding the pleading of conclusions, Halsbury’s relevantly states at [325-3615] fn 3 that:

Generally, a pleading must give such particulars of any claim, defence or other matter pleaded by the party as are necessary to enable the opposite party to identify the case that the pleading requires him or her to meet: r 15.1(1) UCPR.

Other functions of particulars are said to include to: (a) control the generality of the pleadings and define the issues of fact to be tried; (b) avoid surprise at the trial; and (c) enable the opponent to be prepared with the necessary evidence at the trial: Halsbury’s at [325-3610]. It is not the function of particulars to inform the opponent about the method by which the party pleading proposes to prove the case, or to supply details about the witnesses to be called: Halsbury’s at [325-3610], citing (inter alia) R v Associated Northern Collieries (1910) 11 CLR 738 at 741 per Isaacs J; [1910] HCA 61.

The function of particulars is not to expand the issues defined by the pleadings, but “to fill in the picture of the plaintiff’s cause of action with information sufficiently detailed to put the defendant on his guard as to the case he has to meet and to enable him to prepare for trial”: Goldsmith v Sandilands [2002] HCA 31; (2002) 190 ALR 370 at [2] per Gleeson CJ, quoting Bruce at 712-713.

Strictly speaking, the provision of particulars cannot cure a bad (i.e. defective) statement of claim. However, in practice, “it is often difficult to distinguish between a ‘material fact’ and a ‘particular’ piece of information which it is reasonable to give the defendant in order to tell him the case he has to meet; hence in the nature of things there is often overlapping”: Bruce at 713. In Bruce, Scott LJ further observed at 713:

There is no requirement to plead to particulars: e.g. Hoxton Park Residents Action Group Inc v Liverpool City Council [2012] NSWSC 1026 at [43] per Ward J (as her Honour then was), citing inter alia Pinson v Lloyds and National Provincial Foreign Bank Ltd [1941] 2 KB 72 at 75 per Scott LJ.

Relevantly, a pleading must give particulars of any fraud or breach of trust on which the party relies: r 15.3 UCPR. The rationale for the rule is that, where there is an imputation on the character of an opponent, it is only right and fair that the opponent should know definitely before the trial what is the charge brought against him or her: Odgers at 122. The charge should be stated with as much definiteness and particularity as may be done, both as regards time and place: Odgers at 122-123, citing Marriner v The Bishop of Bath and Wells [1893] P 145 at 146 per Lord Penzance. It is no excuse for the omission of such details that the opponent must already be well aware of the facts: Odgers at 123, citing B v B and G [1937] P 1 at 5 per Langton J.

A pleading that alleges any “condition of mind”, including any fraudulent intention, must give particulars of the facts on which the party pleading relies: r 15.4 UCPR. However, “condition of mind” does not include an allegation of knowledge: r 15.4(2) UCPR.

Where knowledge is pleaded as a fact, particulars of the facts on which the party relies in support of the allegations may, but need not, be contained in the pleading itself: Odgers at 124. However, such particulars should be given on request or the Court may order them to be given: Odgers at 124.

In this regard, the law distinguishes between an allegation of actual knowledge and imputed knowledge. In the case of actual knowledge, Brereton J (as the Commissioner then was) stated in Banks v Alphatise Pty Ltd [2014] NSWSC 1437 (Banks) at [17]-[21] that:

In the case of imputed knowledge, where a party alleges that another party “ought to know” or “ought to have known” some fact, it is said that particulars of the facts and circumstances relied upon in support of the allegation will be ordered: Odgers at 124, citing Fox v H Wood (Harrow) Ltd [1963] 2 QB 601.

The Court has power at any stage of proceedings to grant leave to a party to amend a document, including a pleading: s 64(1)(b) CPA.

Subject to s 58 of the CPA, all necessary amendments are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, correcting any defect or error in the proceedings and avoiding multiplicity of proceedings: s 64(2) CPA. Section 58 sets out the dictates of justice which the Court must seek to act in accordance with when deciding whether to make any order or direction for the management of proceedings, including any order for the amendment of a document: s 58(1)(a)(i) CPA.

For the purposes of determining what the dictates of justice are in a particular case, the Court must have regard to the provisions in ss 56 and 57 of the CPA (which set out the overriding purpose and objects of case management): s 58(2)(a) CPA. The Court may also have regard to the matters set out in s 58(2)(b) of the CPA, to the extent to which the Court considers them relevant. Those matters relevantly include, inter alia: the degree of difficulty or complexity to which the issues in the proceedings give rise; the degree of expedition with which the respective parties have approached the proceedings, including the degree to which they have been timely in their interlocutory activities; and the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction.

Where, as here, the proceedings are still at an early stage, a particularly important aspect of exercising the power under s 64(1)(b) of the CPA is to ensure that the real issues in dispute between the parties are brought forward in the pleadings: see generally s 56 CPA and Aon at [36] per French CJ and at [67]-[72] per Gummow, Hayne, Crennan, Kiefel and Bell JJ.

However, leave will not be granted to allow an amendment if it would be liable to be struck out had it appeared in the original pleading: Horton v Jones (No 2) (1939) 39 SR (NSW) 305 at 310 per Jordan CJ; Colombini v De Berigny [2021] NSWSC 374 at [81] per Ward CJ in Eq (as her Honour then was).

Relevantly, the Court may at any stage of proceedings order that the whole or any part of a pleading be struck out if the pleading: (a) discloses no reasonable cause of action or other case appropriate to the nature of the pleading; (b) has a tendency to cause prejudice, embarrassment or delay in the proceedings; or (c) is otherwise an abuse of process of the Court: r 14.28(1) UCPR.

Conversely, the Court’s power to order summary dismissal is found in r 13.4(1) of the UCPR, which provides that if it appears to the Court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings: (a) the proceedings are frivolous or vexatious; (b) no reasonable cause of action is disclosed; or (c) the proceedings are an abuse of the process of the Court, the Court may order that the proceedings be dismissed generally or in relation to that claim.

The Court may receive evidence on the hearing of both strike out applications (r 14.28(2) UCPR) and summary dismissal applications (r 13.4(2) UCPR).

The reference to a pleading having a tendency to cause “embarrassment” in r 14.28(1) is to be understood by reference to the origins of the word. Its use in English derives from the French embarrasser, meaning to block or obstruct. It is a word used by lawyers to describe that which “obstructs” a pleading’s clarity and brevity. It covers a wide variety of pleading vices, including that which makes the pleading “unintelligible, ambiguous, vague or too general, so as to embarrass the opposite party who does not know what is alleged against him”: Meckiff v Simpson [1968] VR 62 at 70 per Winneke CJ, Adam and Gowans JJ.

When it comes to applying the relevant test, a large degree of first instance and appellate authority on strike out applications draw upon High Court decisions involving summary dismissal applications. Of course, strike out and summary dismissal are distinct applications and call upon distinct powers of the Court. However, both types of applications often involve asking whether a claim is sufficiently arguable (whether it be as to substance and/or form) to be permitted to progress towards a final hearing.

Both r 14.28(1) and r 13.4(1) disclose three distinct circumstances in which the relevant power may be enlivened.

A simple comparison of the two powers readily reveals that there is a close coincidence of two of the three circumstances where each power is enlivened, namely, where the pleading or claim (a) discloses no reasonable cause of action or (b) is an abuse of process.

In respect of the former, I note that r 14.28(1)(a) is expressed in slightly broader terms so as to make any pleading which discloses no “other case appropriate to the nature of the pleading” also liable to be struck out.

That difference aside, it is clear that consideration of whether there is essentially a reasonable cause of action is relevant when the Court exercises either power. In answering that question, there is often a practical distinction in the approach taken under the two types of applications. On a strike out application, one may be concerned with whether the pleading contains a reasonable cause of action as a matter of form, whereas on a summary dismissal application one may ask whether there is a reasonable cause of action as a matter of substance. However, there are limitations to such distinctions and often both substance and form may be considered in identifying whether there is a reasonable cause of action.

Another practical distinction relates to the avenues available to the Court to resolve the application. In some strike out applications where the Court finds that, as a matter of form, the pleading discloses no reasonable cause of action, it may nonetheless provide for the formal issue to be overcome by ordering the party to re-plead: e.g. Perera v Genworth Financial Mortgage Insurance Pty Ltd (2017) 94 NSWLR 83; [2017] NSWCA 19 (Perera), where a pleading of defamation was defective but an opportunity was given to re-plead the allegation. Meanwhile, where summary dismissal applications are acceded to, it is often because the Court has come to the view that, as a matter of substance, there is no reasonable cause of action, such that any opportunity given to reformulate the claim would be a fruitless endeavour.

Conventionally, a pleading should only be struck out on the ground that it discloses no reasonable cause of action in plain and obvious cases. Once it appears that there is a real issue, whether of fact or of law, and that the rights of the parties depend on it, the pleading raising such an issue should not be struck out: e.g. New South Wales v Williams [2014] NSWCA 177 at [71] per Emmett JA (Macfarlan and Simpson J agreeing), citing inter alia Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 per Dixon J (as his Honour then was); [1949] HCA 1 and General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 (General Steel) at 129-130 per Barwick CJ; [1964] HCA 69.

In General Steel, Barwick CJ set out the various verbal formulae used to describe the test at 129:

Such formulae are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way: Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41 (Agar v Hyde) at [57] per Gaudron, McHugh, Gummow and Hayne JJ.

In Shaw v New South Wales [2012] NSWCA 102 (Shaw), Barrett JA (with whom Beazley, McColl and Macfarlan JJA and McClellan CJ at CL agreed) at [32] framed the relevant question as:

On a hearing to strike out pleadings, the function of the Court is not to evaluate disputed issues of fact, as that is a matter for trial. On such an application, it is assumed that the allegations of fact made in the statement of claim could be made out at a trial (i.e. taken as true) and the orders sought will not be made unless it appears that the cause of action propounded is manifestly untenable: Empire Shipping Co Inc v Owners of the Ship “Shin Kobe Maru” (1991) 32 FCR 78 at 80 per Gummow J; [1991] FCA 641; Maybury v Plowman (1913) 16 CLR 468 at 473 per Barton A-CJ; [1913] HCA 43.

The Court does not entertain the question of whether the allegations of fact are improbable or false, as to do so would be trying the action prematurely: Remmington v Scoles [1897] 2 Ch 1 at 7 per Lopes LJ.

As noted above, in her Reply the Plaintiff pleads that the conduct and the breaches of duty pleaded in the Claim were committed in “personal conscious and fraudulent bad faith” by the Trustee. The term “personal conscious and fraudulent bad faith” is taken from the exemption clause.

A similar term in a trustee exclusion clause (albeit with the minor difference of omitting the word “and”) was considered in Wilden Pty Ltd v Green (2009) 38 WAR 429; [2009] WASCA 38 (Wilden). In that case, McLure JA (Newnes AJA agreeing at [254] and Pullin JA agreeing on the same ground at [251]) concluded that the words “conscious fraudulent bad faith” were intended to be conjunctive not disjunctive, and that the clear intention was that there only be liability for “actual fraud” not its equitable equivalent: Wilden at [162].

In this context, “actual fraud” means dishonesty or bad faith: Wilden at [162], citing Armitage v Nurse [1998] Ch 241 (Armitage) at 251 per Millett LJ (as his Lordship then was) (Hutchinson and Hirst LJJ agreeing).

In case there were any doubt, McLure JA’s interpretation has since been applied in a case involving a trustee exclusion clause which contained the precise words “personal conscious and fraudulent bad faith”: see Cardaci v Cardaci [2023] WASCA 158 at [638].

Later in her Reply, the Plaintiff pleads that the failure to appoint income allegations are claims by a beneficiary under a trust in respect of a “fraudulent breach of trust” to which the Trustee was a party or privy within the meaning of s 21(1)(a) of the LAA.

The reference to “fraudulent breach of trust” in limitation provisions for breaches of trust has been held to involve dishonesty or at least some knowledge of the impropriety of the conduct involved: Banque Commerciale SA (en liq) v Akhil Holdings Ltd (1990) 169 CLR 279 at 286 per Mason CJ and Gaudron J; [1990] HCA 11 (Akhil Holdings); Armitage at 260-261; Simmons v Ross [2018] VSC 306 at [112] per Derham AsJ; see also G E Dal Pont, Law of Limitation (2nd ed, 2021, LexisNexis) at [10.23]. However, for the purposes of the present applications, I did not understand any party to have contended that there is a material distinction to be made between “fraudulent breach of trust” for limitation purposes and “personal conscious and fraudulent bad faith” as understood in the exemption clause, such that the pleadings could be adequate for one but not the other.

In Armitage, Millett LJ explained dishonesty at 251 as connoting “at the minimum an intention on the part of the trustee to pursue a particular course of action, either knowing that it is contrary to the interests of the beneficiaries or being recklessly indifferent whether it is contrary to their interests or not”. Millett LJ emphasised that, in this context, one is not concerned with the common law tort of deceit. Drawing on what was said in Armitage, the learned authors of Underhill and Hayton: Law of Trusts and Trustees (20th ed, 2022, LexisNexis) respond to the question of what constitutes a dishonest breach of trust at [51.62] as follows (footnotes omitted):

Millett LJ’s conception of dishonesty has been adopted in Australia: see Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] FCA 1628; (2001) 188 ALR 566 at [152] per Finkelstein J (upheld on appeal in Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2002] FCAFC 285 and see in particular [106]); see also Wilden at [162].

There is some authority in New Zealand and England to the effect that the question of dishonesty must be determined objectively, although subjective elements have some relevance: see Walker v Stones [2001] QB 902 (Walker) at 939 per Sir Christopher Slade (Mantell and Nourse LJJ agreeing); Spencer v Spencer [2014] 2 NZLR 190 (Spencer) at [131] per Randerson J (delivering the judgment of the Court). In Spencer, the test to be applied was stated at [131] as follows:

While it appears that the question has not yet been specifically considered in Australia, an objective approach would seem to be more consistent with the approach taken by the Court to a fiduciary’s dishonesty in cases of knowing assistance: see e.g. Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266 at [124] per Leeming JA; Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43 at [71] per Gageler J (as his Honour then was).

Fraud allegations have a special status in civil litigation: Spiliotopoulos v National Australia Bank Limited [2017] NSWSC 971 (Spiliotopoulos) at [21] per Harrison J (as his Honour then was). The same is true of like allegations such as dishonesty. The obligations concerning the pleading of fraud or dishonesty arise both under the general law as a rule of practice and under the rules of Court: Spiliotopoulos at [22].

The serious nature of the allegations and the potential damage that can be caused by generalised assertions is such that by common decency the allegations should not be lightly made. When it is made, the law requires it to be pleaded “clearly and distinctly”, “with particularity”, “clearly and without ambiguity” and in various other formulations to the same effect: Spiliotopoulos at [23], citing Akhil Holdings at 285 and 295.

The term “fraud” encompasses many different notions in law and in equity and the pleading rule regarding “fraud” applies to all types of fraud or like conduct. The law’s concern for clarity in pleading serious allegations is not diverted by mere semantics.

The fact that fraud may take a variety of forms, which in turn effectively deprives a party against whom fraud is alleged from ascertaining precisely what must be negatived, underlies the rule of practice that it must be pleaded specifically and with particularity: Akhil Holdings at 285 per Mason CJ and Gaudron J. That rule of practice is now reflected in rr 15.3 and 15.4 of the UCPR, as set out above.

Thus, part of the purpose of the pleading rule is to distinguish between those allegations involving dishonest conduct and those that do not. For example, an allegation of fraud is quite different from an allegation of a mistaken conception of right, duty or power: Arthur Yates & Co Pty Ltd v Vegetable Seeds Committee (1945) 72 CLR 37 (Arthur Yates) at 63 per Latham CJ; [1945] HCA 55.

Pleaded allegations which are consistent with an allegation of innocent or negligent breach of trust cannot amount to an allegation of fraud or fraudulent breach of trust: Akhil Holdings at 286.

The general principles relating to a pleading of dishonesty were summarised by Millett LJ in Armitage at 256-257 as follows:

The above statement was quoted approvingly by Murphy JA in Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17; (2011) 278 ALR 291 (Streeter) at [605], to which his Honour added “even if the word ‘fraud’ is used in the pleading, it is insufficient if it is no more than a bald assertion, absent reasonable particularity of the circumstances which are said to constitute the fraud”: Streeter at [606], citing Australian Metropolitan Life Assurance Company Ltd v Ure (1923) 33 CLR 199 at 219-220 per Isaacs J; [1923] HCA 29.

The requirements for pleading dishonesty were further considered by the House of Lords in Three Rivers District Council v Bank of England (No 3) [2003] 2 AC 1 (Three Rivers). While the pleadings at issue in Three Rivers concerned the tort of misfeasance in public office, the principles stated therein are relevant to pleading dishonesty more broadly. Expanding upon what his Lordship said in Armitage, Lord Millett explained the two principles in play as follows:

Lord Millett said further:

Meanwhile, Lord Hope of Craighead stated that:

In respect of the second principle outlined by Lord Millett, it has subsequently been said that a claimant does not have to plead primary facts which are only consistent with dishonesty; the correct test is whether or not, on the basis of the primary facts pleaded, an inference of dishonesty is more likely than one of innocence or negligence: JSC Bank of Moscow v Kekhman (No 2) [2015] EWHC 3073 (Comm) (Kekhman) at [20] per Flaux J (as his Lordship then was); Sofer v Swissindependent Trustees SA [2020] EWCA Civ 699 (Sofer) at [23(iii)] per Arnold LJ (with whom David Richards and Patten LJJ agreed). Particulars of dishonesty must also be read as a whole and in context: Walker at 944B per Sir Christopher Slade); Sofer at [23(iv)].

Each of the parties made extensive submissions on the proper application of Lord Millett’s statements of principle in Three Rivers in determining whether the Plaintiff’s plea that the Trustee’s alleged breaches of trust were dishonest or fraudulent is liable to be struck out. I will deal with them below.

The Trustee submits that facts consistent with honest conduct do not permit a pleading of fraud, the primary facts pleaded by the Plaintiff are consistent with honesty and there is no primary fact which “tilts the balance and justifies an inference of dishonesty”: TWS4 [21], [109]; TD2 25.4. Along similar lines, the Siblings submit that particulars of facts that are consistent with honesty are not sufficient, and the Plaintiff has not pleaded material facts which, if proved, would establish that the Trustee exercised its power to exclude the Plaintiff for an improper purpose, still less in fraudulent bad faith: SWS4 [33], [40].

The Plaintiff submits that the Trustee and Siblings’ proposition that a plea and particularisation of facts consistent with honesty is insufficient is wrong, being predicated on a reading of Lord Millett’s opinion which has been rejected in subsequent decisions: PWS4 [21]. The Plaintiff places primary emphasis on the “correct test” stated by Flaux J in Kekhman, by which a claimant does not have to plead primary facts which are only consistent with dishonesty. Applying that test, the Plaintiff submits that an inference of dishonesty is more likely on the facts pleaded and proposed to be pleaded: PWS4 [23]. The Plaintiff further submits that, even if the Court might be disinclined to so infer, leave should still be granted and the strike out refused: see PWS4 [23]-[25].

In reply, the Trustee contends that Flaux J’s restatement of the test is only a “reformulation” of what was said by Lord Millett in Three Rivers and does not change the position that fraud “will not be sufficiently particularised if the facts alleged are consistent with innocence”: TWS5 [25]-[27], quoting Sofer at [23]. For their part, the Siblings contend that Flaux J’s decision in Kekhman in fact supports the defendants’ position, rather than the Plaintiff’s: SWS5 [4]. Again, the Siblings submit that there is no pleaded fact which “tilts the balance” and the pleaded facts are entirely consistent with a genuine exercise of discretion for a proper purpose: SWS5 [5]-[6]. While the Siblings accept that Lord Millett’s first requirement of an unequivocal plea of fraud might be satisfied, they submit that it is the second requirement at which the Plaintiff’s pleading fails: SWS5 [7].

On the second day of the hearing, Mr Withers SC submitted that the “correct approach” that the Court should adopt is as follows (TD2 19.31-.43):

Despite the Plaintiff’s contention otherwise, in my view there does not appear to be any material distinction to be made between the legal principles being put forward by the parties on this issue. On the hearing, Mr Sheahan KC took issue with the Plaintiff’s contention that the defendants’ position is on all fours with that which was rejected by Flaux J in Kekhman at [19]-[20]: TD2 38.43-.46. Rather, he framed the submission that was being made as follows (TD2 38.46-39.21):

Three Rivers is a case which relevantly addressed the tort of misfeasance in public office. In the authorised report, the decision of the Court of Appeal is reported first, followed by two separate decisions of the House of Lords (constituted by Lord Steyn, Lord Hope of Craighead, Lord Hutton, Lord Hobhouse of Woodborough and Lord Millett). In the first decision, the House of Lords determined, inter alia, that the tort of misfeasance in public office involved an element of fraud or bad faith. In the second decision, the House of Lords was asked to determine whether the facts alleged (or capable of being alleged) by the plaintiffs met the test for the tort which was set out in the first decision. A majority found that the plaintiffs’ amended pleadings should not be struck out and ordered that leave to amend be granted. It is only the second decision which is presently of relevance.

Strictly speaking, the observations of Lord Millett referred to above were said as obiter dicta, [9] because his Lordship preferred to dismiss the appeal and strike out the action on the broader ground that the action had no real prospects of success: see Three Rivers at [191]. In coming to that result, his Lordship was in dissent (along with Lord Hobhouse of Woodborough). The majority consisted of Lord Steyn, Lord Hope of Craighead and Lord Hutton. Each gave separate opinions and, for his part, Lord Steyn substantially agreed with the reasons of Lord Hope and Lord Hutton. In addition to the parts of their Lordships’ opinions that have been extracted earlier, it is worth setting out what fell from Lord Hope at [55]-[56]:

In stating the “correct test” to be applied from what Lord Millett said in Three Rivers, the submission to which Flaux J was responding in Kekhman, and which the Plaintiff sought to assimilate with the defendants’ position, went as follows (see Kekhman at [19]):

That submission was found to overstate what is required for a valid plea of fraud: Kekhman at [20]. It was at this point that Flaux J set out the test to be applied:

As identified by the Plaintiff, that “correct test” was accepted in Sofer. In that case, Arnold LJ (with whom David Richards and Patten LJJ agreed) found that the amended pleading contained sufficient particulars to sustain a case of dishonesty in accordance with the test for dishonest breach of trust stated by Lewison J (as his Lordship then was) in Fattal v Walbrook Trustees (Jersey) Ltd [2010] EWHC 2767 (Ch) at [81]: Sofer at [40]. In arriving at that conclusion, Arnold LJ accepted the claimant’s submissions that the primary judge was wrong to say that the particulars of dishonesty were consistent with honest incompetence and “had failed to step back and consider all of the particulars pleaded… as a whole to see if there was sufficient to tip the balance”: Sofer at [38]-[39].

In Persons Identified in Schedule 1 v Standard Chartered plc [2024] EWCA Civ 674 (Standard Chartered), the claimants sought to allege fraud by reliance upon allegations that had been made by a third party. The defendant contended that: (a) a pleading must disclose on its face a solid evidential foundation for any allegation of fraud or dishonesty made in it; and (b) where it is alleged that fraud or dishonesty is to be inferred, the pleading must include all the primary facts which are said to support the inference and they must be such as on their face to tilt the balance in favour of fraud or dishonesty. In response to the first contention, Newey LJ (with whom Coulson and Phillips LJJ agreed) did not consider there to be a rule that “a pleading must disclose on its face a solid evidential foundation for any allegation of fraud or dishonesty made in it”: Standard Chartered at [52]. In response to the second, his Lordship observed that “[i]n so far as the claimant suggests that fraud or dishonesty is to be inferred, there is an onus to plead primary facts such as to ‘tilt the balance’, but even then the claimant need not detail the evidence with which he hopes to prove what he alleges”: Standard Chartered at [52]. In respect of the “tilting the balance” requirement, his Lordship earlier stated at [47]-[49]:

Whether or not Newey LJ’s comments in Standard Chartered amount to some form of qualification in England to the principles set out by Lord Millett in Three Rivers need not be determined here.

The pleading aspect in the decision of the House of Lords in Three Rivers was the subject of some discussion by Chris Chapman in an article “Pleading allegations of dishonesty” (2006) 1 NZLJ 13. Further, there have been various first instance decisions in Australia which have approvingly referred to Lord Millett’s second principle regarding particularisation of fraud or dishonesty and the notion of “tilting the balance” from Three Rivers. Understandably, many of those decisions concerned pleadings of misfeasance in public office, although some involved pleadings of fraud or dishonesty in other contexts: see e.g. Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 3) [2010] FCA 361; (2010) 267 ALR 494 at [69] per Flick J; Polar Aviation Pty Ltd v Civil Aviation Safety Authority (No 4) (2011) 203 FCR 293; [2011] FCA 1126 at [110] per Kenny J; Lock v Australian Securities and Investments Commission (2016) 248 FCR 547; [2016] FCA 31 per Gleeson J at [126]; Spiliotopoulos at [33]; Plaintiff M83 v Morrison (No 2) [2020] FCA 1198 at [57], [116] per Mortimer J (as her Honour then was); I Cook Foods Pty Ltd v State of Victoria [2022] VSC 649 at [13], [34] per John Dixon J; Alpert v Commonwealth (Department of Defence) [2024] FCA 447 at [83]-[84] per Snaden J; Haigh v Haddad [2024] NSWSC 904 at [107] per Weinstein J. The specific comments of Lord Millett in Three Rivers at [183]-[190] regarding the requirements for pleading dishonesty have not been expressly considered by the NSW Court of Appeal.

In Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653; [2008] NSWCA 206, Ipp JA at [440]-[441] stated in relation to pleading dishonesty:

In Finance & Guarantee Company Pty Ltd v Auswild (No 2) [2016] VSC 559, Sifris J (as his Honour then was) provided the following summary after reviewing some of the above (as well as other) authorities on pleading dishonesty:

Discussion in caselaw of this issue of pleading, whilst emphasising the importance of particularisation of dishonesty, acknowledges that what might suffice will vary from case to case, depending on the purposes to be achieved by the requirements for pleading: e.g. Standard Chartered at [47]-[49]. As I have said earlier, there does not appear to be any material distinction between the legal principles being put forward by the parties on this issue. The real contest is in the application of those principles. However, were it necessary for me decide, I consider that there is much to be said for adopting the approach taken by Sifris J in determining whether the facts pleaded justify an inference of dishonesty. Specifically, where the language used to formulate the allegation is unequivocally that of fraud or dishonesty, the facts pleaded or particularised in support of the allegation will tilt the balance if they might give rise to an inference of dishonesty, even if they may also be consistent with innocence. Which inference ought to be made will be a matter for evidence at a trial.

The nature of the Plaintiff’s claims in the proceedings require an understanding of the purposes for which the Trustee’s reserved power may be exercised. As with the requirements for pleading dishonesty, the parties’ submissions devoted a significant degree of time to addressing the principles relevant to the exercise of a power of exclusion by a trustee, and the purposes for any such exercise. Whilst I will deal with the submissions more fully under Issues 7 and 8, I will set out some general principles below.

A power is an “ability to do or act; capability of doing or effecting something”: Macquarie Dictionary, online ed. More specifically, a “legal power” is said to be “generated by legal rules allowing a powerholder to change hers and/or another’s legal status by manifesting her intention to effect that change”: Jessica Hudson, “The Proper Purpose Rule: Preventing Law’s Intentional Abuse” (Paper), Supreme Court of NSW Annual Conference, 2024 (Hudson) at 4. The proper purpose rule controls the exercise of this type of power.

Powers may be held on terms which, as Dr Hudson notes, are the instructions for how the power may, and may not, be used: Hudson at 8. The terms are significant because they express the ends or object of the relevant arrangement. For example, the terms of an express trust express the object or end to which the trustee must use the legal entitlements, including power, held on trust: Hudson at 9.

A powerholder’s “authority” is the range in which she may lawfully exercise a power as defined by her adherence with the applicable set of terms: Hudson at 10. That differs from the existence and scope of power, which is what a powerholder must do to affect the legal change she wants: Hudson at 10.

There is a “fundamental juristic principle” that “any form of authority may only be exercised for the purposes conferred, and in accordance with its terms”: Hudson at 10, quoting Wong v Burt [2005] 1 NZLR 91 at [27].

Dr Hudson notes that this principle is instantiated by two distinct rules imposing conditions or standards for the lawful exercise of power, being: (a) the “duty to obey the terms”, sometimes referred to as the “excessive execution rule”; and (b) the proper purpose rule: Hudson at 10.

In the Claim, the Plaintiff adopts expressions akin to “fraud on a power” and “improper purpose”. The intent of those expressions is to identify instances where the Trustee is said to have exercised the reserved power for a purpose other than that for which the power has been given.

Different terminology has been used over time to express the rule which the Plaintiff seeks to invoke.

In an advice referred to by the Trustee (at TWS4 [81]), the Privy Council in Grand View Private Trust Co Ltd v Wong [2022] UKPC 47 (Grand View) indicated its preference for the language of the “proper purpose rule” over the historical language of “fraud on a power”. At [56], Lord Richards stated for the Board:

While it has been observed that the equitable doctrine of fraud on a power has been increasingly referred to as the proper purpose rule (see Hudson at 1), the historical language of “fraud on a power” has at least in the last decade in Australia been used without judicial reprobation: see e.g. Hancock v Rinehart [2015] NSWSC 646; (2015) 13 ASTLR 1 (Hancock v Rinehart) at [57] per Brereton J (as the Commissioner then was); Mercanti v Mercanti (2016) 50 WAR 495; [2016] WASCA 206 at [78], [101], [244], [245], [309] and [310] per Buss P, and at [375] per Newnes and Murphy JJA; Mercanti v Mercanti [2017] HCA 1; (2017) 340 ALR 225 at [4] per Kiefel J (as her Honour then was); Cooper v The Owners — Strata Plan No 58068 (2020) 103 NSWLR 160; [2020] NSWCA 250 (Cooper) at [57] per Basten JA (as his Honour then was); Baba v Sheehan [2021] NSWCA 58; (2021) 151 ACSR 462 at [5]-[6] per Brereton JA (as the Commissioner then was); Soulos v Pagones [2023] NSWCA 243 at [576] per Ward P; Katsoulas v Kritikakis; Katsoulas v Apostolatos [2024] NSWSC 67 at [107] per Leeming JA.

The reasons for that need not be explored in any depth. In some instances, use by judges of the terminology “fraud on a power” rather than “improper purpose” may be entirely explicable by the way in which the parties have framed pleadings or submissions: e.g. Brougham v Edwards [2024] SASCA 59 at [10], [76], [80], [83] per Livesey P, Doyle JA and Buss AJA. Further, in Cooper Basten JA indicated at [57] that the preference for one expression over the other is also explicable by reference to the area of law in which the issue is being considered in any given case. His Honour stated (omitting footnotes):

Dr Hudson states that the proper purpose rule performs a basic rule of law commitment to prevent law’s abuse by requiring “a powerholder’s intentional adherence with the terms according to which power is held”: Hudson at 2, 12. The operation of the rule varies according to the specific relational or institutional context, and the type of power involved: Hudson at 3.

The basic idea of the rule is that power must be exercised properly such that, in the words of Lord Westbury LC in Duke of Portland v Topham (1864) 11 HLC 32 (Duke of Portland) at 54 (cited in Hudson at 3-4):

The historical language of “fraud on a power” has long been recognised as meaning that “the power has been exercised for a purpose, or with an intention, beyond the scope of or not justified by the instrument creating the power”: Vatcher v Paull [1915] AC 372 at 378 per Lord Parker of Waddington for the Board.

While those classic statements were made in the context of powers of appointment, the rule applies a fortiori to a power given to trustees as such: Cowan v Scargill [1985] Ch 270 at 288 per Sir Robert Megarry VC.

In Eclairs Group Ltd v JKX Oil & Gas plc [2015] UKSC 71, Lord Sumption explained the proper purpose rule at [15] and [30] as follows:

The proper purpose rule evolved from cases concerning non-fiduciary powerholders and, whilst it clearly has application in relation to fiduciary powerholders, Dr Hudson explains that the fiduciary status or capacity in which a power is held is not the reason or trigger for the proper purpose rule. She politely rejects the notion in authority (including the opening line of Lord Richards in Grand View) and academic works which suggests otherwise: Hudson at 13-14. Further, she explains that the equitable proper purpose doctrine is not a duty in the Hohfeldian sense of a duty-right relation, a breach of which triggers a secondary duty to compensate for consequential loss: Hudson at 26, referring to W Hohfeld, “Fundamental Legal Conceptions as Applied in Judicial Reasoning” (1913) 23 Yale LJ 16.

In determining whether a power has been exercised for an extraneous or ulterior purpose, the Court determines: first, as a matter of law, for what purpose or purposes the power may properly be exercised; and secondly, as a matter of fact, whether the purpose for which the power was in fact exercised was within the category of permissible purposes: Hancock v Rinehart at [60]. The burden of proof is borne by those who allege a fraud on the power or improper purpose: Hancock v Rinehart at [61].

The proper purpose or purposes of a power is to be objectively determined at the date of the instrument conferring the power, by reference to: (a) the rest of the instrument containing the power; (b) documents which objectively inform the context of the instrument; and (c) substantially contemporaneous documents intended to be read with the trust deed, such as a letter of wishes: Grand View at [61]-[63]. The purpose for which the power may permissibly be exercised may be illuminated by the terms of the trust, and in particular the nature and extent of the trustee’s powers and discretions: Hancock v Rinehart at [73].

Proof of the powerholder’s purpose might be evident from recitals in a deed or other communications between parties, such as letters or emails: Hudson at 16.

A powerholder’s purpose is the “result or consequence desired and intended to be achieved” via the exercise of power: Hudson at 15, citing inter alia Arthur Yates at 68 per Latham CJ. Thus, the relevant inquiry is as to the powerholder’s state of mind or intention: Hudson at 15. This “subjective inquiry” is answered according to an objective assessment of the evidence of the powerholder’s intention and is informed by the surrounding circumstances: Hudson at 16; Hancock v Rinehart at [60]; see also Grand View at [72]; Curwen v Vanbreck Pty Ltd (as trustee for W S and N R Harvey Family Trust) (2009) 26 VR 335; [2009] VSCA 284 (Curwen) at [48].

A subjective intention or purpose may be inferred from objective or circumstantial matters. However, the mere fact that an exercise of power is consistent with an improper purpose will not necessarily lead to the drawing of such an inference: Curwen at [48].

Further, it is not necessary that an improper purpose be the only or dominant purpose for the exercise of the power. Rather, it has been said that the improper purpose must be an operative or actuating purpose, one without which it cannot be said that the exercise of power would have been made: Curwen at [42]; Mandie v Memart Nominees Pty Ltd (2020) 62 VR 528; [2020] VSCA 281 (Mandie) at [183]. Recognising that the causal inquiry has been formulated in different ways in various cases, it is useful to recall that the party alleging impropriety bears the onus of proving that the power was not exercised with “an entire and single view to the real purpose and object of the power”: Hudson at 22-23, citing Duke of Portland at 54.

The effect of an improper purpose is dictated by the legal rules generating the subject power, rather than the proper purpose rule itself: Hudson at 28.

The Plaintiff pleads both an actuating purpose of the Trustee and a reason for acting when entering into the CDE. However, it is important to distinguish between purpose and motive when considering the proper purpose rule.

A powerholder’s purpose is the end or effect which the powerholder intends to achieve, whereas the powerholder’s motive is the reason(s) for seeking that end: Hudson at 17. When an improper purpose is alleged, the powerholder’s motive is only relevant in so far as it sheds light on purpose: Hudson at 18.

The law further distinguishes between exercising a power in good faith and exercising a power for a proper purpose.

Within the realm of the exercise of powers, “good faith” involves a subjective inquiry into whether the powerholder “is aware of her power, the terms on which it is held and requires her to have consciously considered whether the specific exercise of power is permitted by the terms”: Hudson at 24. Like the proper purpose rule, good faith requires the powerholder to believe that her purpose is proper: Hudson at 24.

However, good faith differs from the proper purpose rule as the latter also requires the powerholder to be correct in her belief according to the terms of the power: Hudson at 24. Thus, powerholders might exercise power in good faith, believing that their purpose was proper, but be found to have acted improperly because of a mistaken understanding of the terms and the purposes which they authorised: Hudson at 24.

A trustee’s power to exclude (or add) beneficiaries, even if expressed to be “absolute and unfettered”, can only be exercised for the broader purpose of the trust, such as furthering the interests of the beneficiaries: Hudson at 20, citing inter alia Grand View at [75]-[77], [94]. Given that the power to exclude is in general not exercised in the interest of the person being excluded, it may be exercised in the interests of the remaining beneficiaries: Lynton Tucker, Nicholas Le Poidevin and James Brightwell, Lewin on Trusts (20th ed, 2020, Sweet & Maxwell) at [33-065].

A trustee’s power to remove a beneficiary is a dispositive power and its exercise is subject to the same constraints as other fiduciary powers, meaning it must not be exercised capriciously: Campbell v T. L. Clacher No. 2 Pty Ltd [2019] QSC 218 at [58], [62] per Jackson J.

In Curwen, the third and fourth appellants sought to impugn their exclusion from a discretionary family trust on the basis that the trustee’s power to exclude had been used for the improper purpose of preventing the appellants from gaining access to certain trust documents, as the trustee had exercised its power to exclude shortly after a request had been made for such access. The first and second appellants were the parents of the third and fourth appellants and had previously been excluded from the class of beneficiaries over a decade prior. However, it was only the recent exclusion of the third and fourth appellants which was challenged.

The trustee’s power to exclude was contained in cl 20(1) of the trust deed in the following terms:

Clause 20(2) of the trust deed provided that the trustee may not, inter alia, make any appointment or determination for the purposes of or pursuant to cl 20(1) without first giving to the guardian two clear days’ notice in writing of its intention to do so.

The trustee submitted that its discretion in exercising the above exclusion power was absolute and uncontrolled as the trust deed provided no relevant restriction upon how the trustee ought to exercise its power: Curwen at [35]. Whilst the trustee acknowledged that cl 20 provided a “notice” procedure in relation to the guardian, it was contended that this did not act as any kind of “fetter” on the matters which might be taken into account in the exercise of the power.

In response to this submission, the Victorian Court of Appeal (Redlich and Bongiorno JJA and Hansen AJA) stated at [36] (emphasis added, footnotes omitted):

The appellants had relied upon circumstantial evidence to establish their improper purpose case against the trustee. In concluding that the appellants’ case failed, the Court of Appeal made the following comments at [48]-[49] (footnotes omitted):

In Mandie, the applicants fell within the class of general beneficiaries of a discretionary family trust, and were the spouses and children of two brothers (Ian and Stephen) who had previously disclaimed their interests under the trust. The disclaimer was the result of a fracture within the family, with the two brothers on one side and their sister (Evelyn) and parents (David and Minnie) on the other. Pursuant to its express power to exclude, the trustee made two formal declarations removing, first, Ian and Stephen as general beneficiaries and, secondly, the applicants as general beneficiaries (the May Declaration and September Declaration, respectively). On their pleaded case, the applicants alleged that the trustee made the May Declaration without power and for an improper purpose and made the September Declaration in bad faith and for an improper purpose. On appeal, the applicants were permitted to rely upon the additional argument that the September Declaration was made by the trustee without power.

The terms of the trustee’s power to exclude in Mandie are almost completely replicated in the reserved power in this case. In Mandie, the power was found in a proviso to cl 1(2)(iv) of the trust deed in the following terms:

The parties agreed that the reference to cl 10 should have been a reference to cl 19 of the trust deed, which provided for every discretion vested in the trustee to be absolute and uncontrolled. Similarly, the reserved power in this case makes reference to cl 10 of the Trust Deed which provides, subject to any express provision to the contrary, that “every discretion vested in the Trustees shall be absolute and uncontrolled and every power vested in them shall be exercisable at their absolute and uncontrolled discretion…”: CB 434.

The Victorian Court of Appeal (Tate, Niall and Emerton JJA) noted that the trustee’s power to exclude was very broad in its expressed terms and the breadth of the discretion was confirmed by cl 19 of the trust deed: Mandie at [240]. It was further noted that “the exercise of the exclusion power inevitably reduces the pool of persons who are entitled to be considered for benefaction of both income and corpus under the Trust”: Mandie at [240]. More significantly, the Court then stated the following at [241] (emphasis added):

The Court also considered that there was “no warrant to read down the generality of the power by confining it to an exclusion for cause in response to disentitling conduct”: Mandie at [243].

At first instance, Ginnane J rejected the plaintiffs’ improper purpose case in respect of the September Declaration: Mandie v Memart Nominees Pty Ltd [2018] VSC 719 at [160]-[167]. Relevantly, his Honour made the following observations at [160]-[161] about the nature of the power to exclude (emphasis added, footnotes omitted):

Those observations were accepted by the Court of Appeal, which stated the following at [266] and [269] (emphasis added, footnotes omitted):

The first instance decision of Mandie J in Curwen v Vanbreck Pty Ltd [2008] VSC 338 and the Court of Appeal’s decision in Mandie were recently applied by Lundberg J in AA as Executor of the Estate of BB v XX (No 2) [2024] WASC 39 (AA). Amongst the claims dealt with in AA was one for judicial advice by the trustee, who sought a declaration that it had the power to remove the first defendant as a specified beneficiary in circumstances where they had committed three acts of parricide. The trustee had a power to exclude in the trust deed which was broadly stated and, other than formal requirements, had no words of limitation or restriction (nor did Lundberg J think that any should have been imposed): AA at [88] (the relevant clause was extracted at [65]).

Similar to the Court of Appeal in Mandie, Lundberg J considered that it was not necessary for the trustee to rely upon, or to establish, disentitling conduct: AA at [89]. His Honour found that the existence of conduct, such as a conviction for murder, can be a relevant factor to the exercise of a power to exclude a beneficiary, but it is not decisive.

In Grand View, Lord Richards said at [82] that the power to exclude a beneficiary is capable of benefitting other beneficiaries or the excluded beneficiary, for example where their continued inclusion in the class has adverse tax consequences for some or all of the other beneficiaries or for the excluded beneficiary. His Lordship said further of the power to add or to exclude beneficiaries at [121]:

In HSBC International Trustee Ltd v Poon (No 2) [2014] JRC 254A; 18 ITELR 355 (Poon), Sir Michael Birt, Bailiff, observed that the power to exclude a person as a beneficiary is an “unusual power”, noting at [40] (emphasis added):

The facts in Poon were characterised by the Bailiff as “perhaps a classic example of where it may well be appropriate to exclude a beneficiary”: Poon at [41]. In that case, the trustee had purported to exclude the settlor’s wife following her receipt of a substantial lump sum payment as part of a divorce order. In those circumstances, the Bailiff found at [42]:

In Re the C Trust [2012] JRC 086B (C Trust), Commissioner Clyde-Smith set aside a trustee’s instrument of appointment which purported to exclude the settlor’s grandchildren as beneficiaries of the discretionary family trust during the lifetime of their grandmother (the settlor’s widow). The decision to exclude the grandchildren was taken in the context of divorce and other proceedings between the grandchildren’s mother and their father (the settlor’s one surviving son). The grandchildren had become estranged from their father (and the widow) and were living with their mother in Peru. They had made an application to the trustee for assistance in their maintenance and education.

Notably, the Commissioner considered at [131] that:

The central justification put forward by the trustee for the exercise of the power was that it gave effect to the settlor’s wishes. Ultimately, however, the Commissioner found that there was no suggestion from the settlor that no assistance could be given to the father and grandchildren during the widow’s lifetime. Rather, the decision to exclude was “a defensive step taken to prevent the other beneficiaries from exercising their right to be considered for benefit or… coming to the trustee with ‘their hands open’”, and the trustee never independently and dispassionately considered the circumstances of the grandchildren as beneficiaries of the trust in their own right: C Trust at [139] and [144].

The Victorian authorities referred to above make clear that the purpose of a power of exclusion is not for determining whether one or more of the beneficiaries ought to be entitled to trust documents. Rather, it is conferred to enable the trustee to determine whether each of the listed beneficiaries ought to be entitled to a possible distribution of trust property. Unless the terms of the trust deed provide otherwise, a trustee may exclude the progeny of one or more of the beneficiaries because of changes to the broader family dynamic, and it is not necessary for the trustee to rely upon, or to establish, disentitling conduct. It has been recognised that the exercise of the power of exclusion necessarily has the potential to prejudice the excluded party and, conversely, benefit the remaining beneficiaries.

However, the overseas authorities cited above suggest that it is incumbent upon the trustee to consider the position very carefully, to take into account the position of the person to be excluded and whether therefore it is a reasonable decision in the interests of the other beneficiaries. That is particularly so where it is young children that are being excluded.

On the initial day of the hearing, Mr Sheahan KC submitted for the Siblings that r 14.28 of the UCPR must now be read in light of s 56 of the CPA, such that the test derived from General Steel and Agar v Hyde no longer governs the application of r 14.28(1)(a): TD1 49.14-.22. That proposition was said to be founded in the judgment of Hammerschlag J (as the Chief Judge then was) in Simmons v Protective Commissioner of NSW [2012] NSWSC 455 (Simmons) at [28] and [64], where his Honour stated:

While his Honour noted at [28] that the difference between the two tests did not matter in that case, because the stricter test had been met, Mr Sheahan KC maintained that the above statement formed part of the ratio decidendi of Simmons (on the understanding that the ratio of a case will include alternative reasons for reaching the same outcome): TD1 51.29-.32.

However, by reference to later authorities which expressly considered the interaction between s 56 of the CPA and r 13.4 of the UCPR, the Siblings ultimately submitted that, in r 14.28(1) of the UCPR, the phrase “discloses no reasonable cause of action” must be construed and applied in light of s 56, and the approach of Hammerschlag J in Simmons is a “useful guide” in that regard: SWS5 [20]; TD2 40.6-.7.

The Plaintiff’s response to the Siblings’ initial contention for a less strict test was essentially twofold. First, the Plaintiff submitted that the statements in Simmons relied upon by the Siblings were obiter dicta and, in any case, the decision was overturned on appeal in Simmons v Henwood [2013] NSWCA 184 (Simmons v Henwood): PWS4 [14].

Secondly, the Plaintiff submitted that there are subsequent authorities which cast doubt upon Hammerschlag J’s comments in Simmons as setting out a new test to be applied: PWS4 [15]-[19]. Particular reference was made to the decisions of Hamill J in Commonwealth Bank of Australia v ZYX Learning Centres Ltd [2014] NSWSC 1676; (2014) 103 ACSR 476 (ZYX Learning Centres) at [47]-[70] and Wright J in Di Liristi v Matautia Developments Pty Ltd (No 2) [2020] NSWSC 862 (Di Liristi) at [27]. The Plaintiff further noted that in Perera, Leeming JA (with whom Macfarlan JA and Simpson JA agreed) emphatically stated at [30] that “the inquiry is as to the demonstrated certainty of the outcome of the litigation, as opposed to its prospects of success”: PWS4 [16].

While contending that any potential difference in the tests to be applied does not really matter in this case (as the Plaintiff would satisfy even the less strict threshold), Mr Withers SC submitted on the second day of the hearing that, in Simmons, Hammerschlag J was not intending to depart from the conventional test established in General Steel and Agar v Hyde: TD2 10.14-.19. He did so by suggesting that where, for example, his Honour said at [61] “[j]ust as a party’s prospect of successfully prosecuting a proceeding will not be reasonable if that prospect is no more than fanciful, a cause of action whose prospects of success are no more than fanciful will likewise not be reasonable”, “fanciful” essentially equates to a high degree of certainty about the ultimate outcome of the proceeding: TD2 9.1-.8, 10.19. While the Siblings noted that Simmons did not appear to have been brought to the Court’s attention in Perera (SWS5 [19]), Mr Withers SC submitted that, if understood in this way, Simmons was not inconsistent with the test that was posited by Leeming JA: TD2 10.27-.33.

After the initial day of the hearing, and with the benefit of a thorough review of the authorities after Simmons, the Siblings took what I perceived to be a more nuanced approach to this issue. I understood their ultimate submission on the second day of the hearing to be that I must construe and apply the words in r 14.28 of the UCPR in light of s 56 of the CPA. That submission is put much more broadly than the scope of Issue 1, as I have framed it. For the purposes of Issue 1, however, it means that I have not ultimately been asked to adopt a “no reasonable prospects of success” test that is less stringent than the test set out in General Steel, Agar v Hyde and applied in later appellate decisions. That being said, I wish to make some brief observations below.

In New South Wales, there has for some time been a question as to the effect that the statutory directives about case management (most notably s 56 of the CPA) have, or ought to have, on the Court’s approach to determining summary dismissal and strike out applications brought pursuant to rr 13.4 and 14.28 of the UCPR.

In Commonwealth of Australia v Griffiths [2007] NSWCA 370 (Griffiths), Young CJ in Eq (as his Honour then was) at [155] reserved his position tentatively taken on the hearing that “the overriding purpose stated in s 56 of the Civil Procedure Act 2005 may well warrant courts striking out proceedings on less substantial grounds than those stated in General Steel”. His Honour did not need to venture any further as he agreed that the claim at issue should be struck out under the traditional test from General Steel.

In Bott v Carter [2012] NSWCA 89 (Bott) (delivered on 17 April 2012 – two days before the decision in Shaw), Basten JA (with whom McColl and Whealy JJA agreed) stated at [13]-[14] (emphasis added):

The Siblings’ submissions sought to draw my attention to the last sentence of the above extract: SWS5 [16].

However, Basten JA noted that the matter was argued on the basis that no factual or discretionary issue was said to arise: Bott at [15].

In Simmons, Hammerschlag J referred to both Griffiths and Bott: Simmons at [65]-[66]. For the most part, however, his Honour’s formulation of a test based upon “no reasonable prospects of success” derived from Spencer v Commonwealth of Australia (2010) 241 CLR 118; [2010] HCA 28, in particular at [25] where French CJ and Gummow J commented upon the requirements of s 31A(2) of the Federal Court of Australia Act 1976 (Cth) (a provision dealing with summary dismissal which is framed in terms of no reasonable prospect of success: see in particular s 31A(2)(b)): see Simmons at [52], [60]-[61]. Hammerschlag J reasoned that, given the combination of the inclusion of the word “reasonable” in r 13.4(1)(b) of the UCPR and the operation of s 56(2) of the CPA, the approach to exercising the power to dismiss under the rule is the same as that elucidated by the High Court in relation to the federal enactment: Simmons at [62].

As noted by the Plaintiff and the Siblings, these aspects of Hammerschlag J’s judgment were not engaged with directly on appeal: PWS4 [14]; SWS5 [13]. Nonetheless, it is worth observing that Emmett JA (with whom Gleeson JA agreed) referred to the test as set out in Agar v Hyde at [57]: Simmons v Henwood at [95]. The Court ultimately considered that the plaintiff ought to be given the opportunity to make an application to the primary judge for leave to amend, and made an order to that effect. An application was made by the plaintiff which was subsequently dismissed by Hammerschlag J, on which occasion his Honour also summarily dismissed the claim: Simmons v NSW Trustee and Guardian [2013] NSWSC 1688. On the appeal of that decision in Simmons v New South Wales Trustee and Guardian [2014] NSWCA 405, Gleeson JA (with whom Beazley P and Barrett JA agreed) noted at [201] that:

However, as noted by the Plaintiff, in Perera Leeming JA said at [30] that two matters were clear in respect of the applicable test where a defendant applies for the summary intervention of the Court to prevent a plaintiff’s case being determined in the usual way at trial:

In first instance decisions of this Court, there has been some caution (or, indeed, resistance) against the adoption of Hammerschlag J’s formulation in Simmons in place of the conventional test applied in General Steel and subsequent High Court and Court of Appeal decisions: see in particular ZYX Learning Centres at [55], [70] per Hamill J; Di Liristi at [27] per Wright J. However, there have also been instances where his Honour’s approach has been cited with (mostly implicit) approval, although seemingly on the understanding that it did not advocate for any less strict test for the power to be engaged, as distinct from its effect on discretionary considerations: see e.g. McDonald v Grech; Bank of Western Australia Ltd v McDonald [2012] NSWSC 717 at [32]-[33] per Ward J (as her Honour then was); Drake v Wood Marshall Williams Solicitors [2015] NSWSC 1091 at [20]-[23] per Harrison AsJ; National Australia Bank Ltd v Charlton; Charlton v The General Manager, NSW Rural Assistance Authority [2018] NSWSC 157 at [57] per Walton J. That being said, Slattery J recently observed in Human Appeal International Australia v Beyond Bank Australia Ltd [2023] NSWSC 382 at [45] that “[t]he passing of the Civil Procedure Act 2005 has arguably made the test under UCPR, r 13.4 less strict than previously”, citing Bott at [13]-[14].

For my own part, it is clear that the overriding purpose in s 56(1) of the CPA has some impact on the application of r 14.28 of the UCPR, by virtue of s 56(2). If it were necessary to decide, I would doubt that s 56 has made the test under r 14.28 less strict than previously, in the sense of reducing the conditions for the engagement of the power. Rather, as Basten JA suggested in Bott, s 56 may limit the circumstances in which the Court, satisfied that the power is available, might be inclined to refuse relief on discretionary grounds.

In her existing amended statement of claim, the Plaintiff seeks to bring herself within the class of General Beneficiaries of the Trust through two avenues: (a) as a Specified Beneficiary, on the basis that she is a child of Mr Pratt; and (b) as a sister of the Specified Beneficiaries (being the Siblings). Both avenues further rely upon the claim that the CDE did not have the effect of excluding the Plaintiff from the class of Specified Beneficiaries or General Beneficiaries.

The Siblings point out that the first avenue seems to be predicated upon construing the definition of Specified Beneficiaries severally, such that it should effectively read “[t]he children of RICHARD PRATT… and/or JEANNE PRATT…”: SWS4 [8(a)]. However, for the purposes of the present applications, the Siblings do not appear to take any objection to the Plaintiff’s pleading of either of these grounds in attempting to establish her status as a General Beneficiary: SWS4 [3]-[8].

By her Claim at [5], [6] and [12], the Plaintiff seeks to demonstrate her status as a General Beneficiary by a third avenue: as a Specified Beneficiary, on the basis that she is a child of Mr Pratt and Mrs Pratt, because:

Similar to the other avenues, this proposed avenue also relies upon the purported exclusion not having the effect of excluding the Plaintiff from the class of Specified Beneficiaries: Claim [12(b)]. The Siblings submit that this new avenue depends upon an interpretation of the definition of “child” in cl 1(21) which is not reasonably arguable, when applied to the definition of Specified Beneficiaries: SWS4 [11].

The Siblings’ submissions were twofold. First, they argue that there is no proper basis for the Plaintiff to contend that an acknowledgement by Mr Pratt that the Plaintiff is his daughter would “convert” her into a child of Mrs Pratt, for the purpose of falling within the class of Specified Beneficiaries: SWS4 [14]. The Siblings say that this argument is “hopeless” because: (a) the use of the word “parent” in the definition of “child” in cl 1(21), when referring to an illegitimate child, can only mean the biological parent of the illegitimate child; and (b) there is no rational basis to conclude that being acknowledged as a member of the acknowledger’s “family” necessarily implies that other members of that family in some way become a specified relative of the acknowledged child (i.e. the acknowledger’s wife becomes a mother of the child).

Second, the Siblings argue that the Plaintiff’s contention based on the alleged acknowledgement by Mrs Pratt is also hopeless: SWS4 [15]-[17]. This submission also relies upon the understanding that the word “parent” can only mean biological parent, and not someone who stands in loco parentis. Even if the word “parent” were given that extended meaning, the Siblings say that the Plaintiff has not pleaded material facts sufficient to establish that Mrs Pratt stood in loco parentis to the Plaintiff, such that she “actually assumed the duties of a parent” towards her or “stood in the shoes of an actual [mother]”, citing Hunt v National & General Insurance Co Ltd [1974] Qd R 157 at 158 per Campbell J.

By reason of the above, the Siblings submit that leave should not be granted to the Plaintiff to include [5], [6] and [12] of the Claim, as well as “proposed consequential amendments”, in her pleaded case: SWS4 [18]. They say further that, if leave were granted, there would be “serious case management implications”, asserting that the matters pleaded in [5] would open up a factual dispute regarding personal relationships within the Pratt family over many years and give rise to a substantial discovery burden: SWS4 [19].

The Plaintiff essentially submits that the construction of the Trust Deed is a matter of fact for a trial: PWS4 [83]. To refuse leave to amend, she says that the Court must be satisfied that the interpretation which the Plaintiff advances is not only unarguable, but also that there is nothing in the surrounding circumstances that could bear upon the construction. She asserts that the Court cannot be satisfied of either. The Plaintiff says further that:

As set out earlier, the definition of “child” in cl 1(21) is as follows:

For the purposes of the Trust Deed, the singular is taken to mean and include the plural and vice versa: cl 1(26). Thus, the noun “child” is relevant for definitional purposes wherever the words “child” or “children” appear.

Relevantly, the noun “children” appears in the Schedule as part of the definition of Specified Beneficiaries, being:

There are several constructional issues raised in the definition of “child” in cl 1(21). For the present purposes, those that have been raised by the parties include most notably:

Other questions around the opinion which the Trustee must form may also arise (for example, what constitutes an “acknowledgement” and how is any “opinion” to be formed), however they have not been raised by the parties for the purpose of taking issue with the addition of [5], [6] and [12] of the Claim.

When applying the word “child” to the defined class of Specified Beneficiaries, the parties have also raised the constructional issue of whether the word “and” could have a disjunctive function.

The definition of “child” in cl 1(21) has work to do which is not limited to clarifying what is meant by “children” in the definition of Specified Beneficiaries. The word (or its singular counterpart) also appears in other provisions, including:

Ultimately, there is only one proper construction of “child” for the purposes of the Trust Deed. However, the fact that there is only one proper construction does not mean that it is an easy process to arrive at that construction. The noun “child” has historically been a word which has given rise to difficult questions of construction and conflicting views amongst judges construing the word in Wills and trust deeds: e.g. Harris v Ashdown (1985) 3 NSWLR 193 (Harris). Moreover, often in construction cases there are only slight indicators which tend to reveal the intention with which a settlor or testator has used the particular word: Harris at 204D-E per Priestley JA.

What seems to be relatively clear is that the definition of “child” in cl 1(21) is cast in broad terms that may include a child who is not the biological child of both Mr Pratt and Mrs Pratt.

For the purposes of the amendment application, it is not evident to me that the word “parent” in cl 1(21) can only mean biological parent.

Further, it is not evident to me that a construction which extends the word “parent” to include someone standing in loco parentis would, as the Siblings suggest, render the words “adopted child”, “stepchild” and “illegitimate child” superfluous.

Much is said in the law regarding a “counsel of perfection” in various matters. However, the reality of difficulties in construction need to be faced. Sometimes, no construction of a clause will reconcile all aspects of its meaning. However, that does not stand in the way of the Court imputing to the disputed clause that which, even slightly imperfectly, best accords with the effect which the settlor or testator is taken to, or likely to, have intended: see De Lorenzo v De Lorenzo (2020) 104 NSWLR 155; [2020] NSWCA 351 at [37]-[40] per Leeming JA, citing Re Pulbrook; Pulbrook v Pulbrook (1937) 37 SR (NSW) 345 at 351 per Jordan CJ, and Clerk v Equity Trustees Executors and Agency Co Ltd (1913) 15 CLR 625 at 632-633 per Barton J; [1913] HCA 8.

If the meaning of “parent” in cl 1(21) does extend to someone in loco parentis or in some similar position in respect of a child, I consider that the matters set out in [5] of the Claim (which are not said to be exhaustive) could, if proved, support the proposition in [6] that Mrs Pratt is a parent of the Plaintiff.

Dealing then with the second constructional issue, I reject the Siblings’ submission that there is no rational basis to conclude that the Plaintiff being acknowledged by Mr Pratt as a member of his family implies that she could be considered as a “child” of Mrs Pratt, being the acknowledger’s wife, for the purposes of the definition of Specified Beneficiaries. As noted above, the definition of “child” in cl 1(21) is phrased in expansive terms.

I do not consider that the claims made in [5], [6] and [12] of the Claim are so obviously untenable that they would be liable to be struck out if they appeared in the original pleading.

Finally, in respect of the “serious case management implications” which the Siblings say would follow from leave being granted to include those paragraphs, I am not satisfied that the discovery burden is likely to be so significant that it would rise to the level of a discretionary ground for leave to be refused. The Siblings do not appear to take issue with leave being granted to include [3] of the Claim, which sets out various matters that are said to demonstrate that Mr Pratt acknowledged the Plaintiff as a member of his family. Much of those matters open up a factual dispute regarding the personal relationships within the Pratt family over many years, and indeed there is a degree of overlap between the matters set out at [3] and [5].

I will grant the Plaintiff leave to amend to include [5], [6] and [12] of the Claim in her pleaded case.

The Trustee submits that [35], [41], [43], [45] and [47] of the Claim each allege knowledge of the Trustee without providing particulars of such knowledge: TWS4 [35]. It says that, as those paragraphs are all pleaded as a basis for the allegations of fraud in the Reply, particulars of the knowledge alleged are required under r 15.3 of the UCPR and, in any event, are required to enable the Trustee to identify the case made against it, citing rr 15.1(1) and 15.10(2)(a).

For her part, the Plaintiff submits that these are all instances of actual knowledge and there is no requirement to plead further facts from which actual knowledge is or may be inferred: PWS4 [33]; TD2 13.29-.32. That was said to be because, generally speaking, actual knowledge or the state of the defendant’s mind is something that is primarily in the knowledge of the defendant and, as such, a defendant does not need particulars to know whether or not to admit actual knowledge, citing Banks at [12], [17]-[18] and [20]-[21] per Brereton J (as the Commissioner then was): PWS4 [34]-[35].

In reply, the Trustee disputes the proposition that allegations of actual knowledge are sufficient in the Claim. It submits that the decision of Brereton J was an ex tempore decision and its reasoning based on an English Court of Appeal decision, Burgess v Beethoven Electric Equipment Ltd [1943] KB 96 (Burgess), which is no longer applicable because it applied a rule (being Rules of the Supreme Court 1883 (UK), Ord 19, r 22) to the effect that it was sufficient to allege malice, fraudulent intention, knowledge or some other condition of mind “as a fact without setting out the circumstances from which the same is to be inferred”: TWS5 [17]. The Trustee points out that this rule has since been replaced by provisions broadly consistent with those in rr 15.3 and 15.4 of the UCPR, which “altered the position completely” and “reversed the effect” of the decision in Burgess: TWS5 [17]-[18], citing respectively Feeney v Rix [1968] Ch 693 at 679 per Cross J and Ritchie’s Uniform Civil Procedure NSW at [15.3.5].

The Trustee further submits that Banks did not involve an allegation of fraud and did not discuss the effect of rr 15.3 and 15.4 of the UCPR in effectively reversing Burgess: TWS5 [19]. In any event, the Trustee submits that in Banks there was no need to consider whether particulars of knowledge were necessary under r 15.1 of the UCPR, because a reading of the case makes it clear that the plaintiff had in fact pleaded facts which provided a basis from which the knowledge pleaded was to be inferred.

In dealing with the Trustee’s submissions on this issue, it is apt to initially observe that r 15.4 of the UCPR expressly excludes knowledge from the meaning of a “condition of mind”, in respect of which facts particulars must be given: r 15.4(2) UCPR. Of course, that does not prevent the Court from ordering that particulars of the facts alleged as to knowledge be given: see r 15.10(2) UCPR. These matters were expressly considered by Brereton J in Banks at [15]-[16] and [20]-[21], in the context of discussing the progression from the old rules operative in the time of Burgess to the current provisions under the UCPR. Brereton J was well aware of the differences in the applicable rules. This is evident from his Honour’s reference to the decision of Fitzgerald J in Lyons v Kern Konstructions (Townsville) Pty Ltd (1983) 70 FLR 135 at 146, which expressly acknowledges the difference: Banks at [15]-[16].

Banks concerned, inter alia, a claim that the second defendant was knowingly concerned in the making of an alleged misrepresentation by the first defendant, knowing that the first defendant did not have reasonable grounds for making it. The subparagraphs of the pleading preceding that allegation of actual knowledge included allegations that the second defendant was the first defendant’s controlling mind, that he was the sole director of the first defendant during the relevant period, that he executed the agreement in which the misrepresentation was made on behalf of the first defendant, and that he knew what it contained and knew its effect: Banks at [5].

In Davis v Halliday Financial Management Pty Ltd [2014] NSWSC 1371 (Davis), the relevant paragraphs from the proposed amended statement of claim pleaded that the third defendant had actual knowledge that certain representations made were untrue and had actual knowledge that there was no reasonable basis to make one of the representations, as part of a claim of accessorial liability. Relevantly, Kunc J stated at [26]-[28]:

Referring to the above extract from Davis, Brereton J was unable to agree that the facts from which it is contended that an inference of actual knowledge should be drawn are material facts that must be pleaded in a pleading: Banks at [6]-[7].

The essential reasoning of Brereton J was at [17]-[18] as follows:

His Honour said further at [20]-[21]:

Banks does not appear to have been overturned or otherwise expressly criticised.

In Hookey v Manthey (2020) 4 QR 371; [2020] QSC 125 (Hookey), Ryan J distinguished Banks, holding that the pleading of a bald allegation of knowledge (said in argument to be a plea of actual knowledge) was insufficient. Whilst conscious of the fact that there were differences as to the approaches taken in Banks and Davis, her Honour found that regardless of the difference of opinion in New South Wales, the relevant Queensland rules required that knowledge must be specifically pleaded and any fact from which knowledge is claimed to be an inference must be specifically pleaded.

Banks has otherwise been followed in a number of first instance decisions: see Sondakh v Herliman [2021] NSWSC 1144 at [53] and Willcocks v Croft [2021] NSWSC 1610 at [110] per Harrison AsJ; see also Roseland Capital Pty Ltd v Neometals Ltd [2022] WASC 132 at [74] per Registrar Whitbread.

I note that in Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 599, Einstein J stated at [54] that, where the effect of an allegation of knowledge comes very close to an allegation of fraudulent intention, particulars may often be necessary. However, in that case, it appears that his Honour was primarily concerned with guarding against surprise.

Whilst I acknowledge that a significant allegation in the nature of fraud or dishonesty is a serious matter, I am not convinced that, in the circumstances of the pleading at issue here, the reasoning of Brereton J is so readily sidestepped by asserting that there was no such allegation in Banks.

As the Plaintiff observes, she pleads at [20(b)] of the Claim that the directors of the Trustee at the time of its entry into the CDE were Mr Liebler and Mr Naphtali. She submits that it is through those directors that actual knowledge is alleged: PWS4 [29], [36]. A mental state such as knowledge can only be attributed to a corporation by attributing it to one or more of the corporation’s officers or employees: Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 582-583 per Brennan, Deane, Gaudron and McHugh JJ; [1995] HCA 68, quoting with approval Brambles Holdings Ltd v Carey (1976) 15 SASR 270 at 279 per Bright J; Construction, Forestry, Mining and Energy Union v BHP Coal Pty Ltd [2017] FCAFC 50 (BHP Coal) at [60] per Greenwood, Flick and Rangiah JJ. There may be a question as to whether the identities of the relevant persons are material facts, or are evidence by which the material fact of the company’s knowledge is to be proved: see BHP Coal at [62]. That question need not be answered here. This is not a case where the Plaintiff is not able, or will not be able, to nominate any individual or individuals who are alleged to have the relevant knowledge: cf Ag-Exports (Australia) Pty Ltd v Export Finance and Insurance Group [2006] NSWSC 467 at [26]-[31] per Simpson J (as her Honour then was).

On the basis that the Plaintiff’s case is expressly stated to be one of actual knowledge, and that such knowledge was held by the directors identified, I accept the Plaintiff’s submission that no further pleading or particularisation as to knowledge is required at this stage.

The Trustee submits that [26] to [28], [31] to [33] and [36] to [38] of the Claim each allege (without particulars) that either Anthony Pratt, Heloise Waislitz or Fiona Geminder (i.e. the Siblings) knew of various matters at a time when none of them were directors of the Trustee: TWS4 [36]. The Plaintiff submits that these are all instances of actual knowledge being pleaded: PWS4 [37]. The Siblings do not need particulars to admit or deny what was in their own minds.

Additionally, the Trustee submits that these paragraphs might also be said to be embarrassing, as their relevance to the claims made against the Trustee are unclear: TWS4 [36]. The Plaintiff says that these paragraphs support the allegation at [40] of the Claim that the Trustee’s entry into the CDE was at the demand of the Siblings (the particulars to which cross-refence those paragraphs, among others): PWS4 [38]. I accept the submission that the pleading of [26] to [28], [31] to [33] and [36] to [38] of the Claim purports to underpin the allegation at [40], and for that reason the paragraphs are not embarrassing.

The Trustee submits that leave to amend to make the allegation in [39(c)] of the Claim (alleging that the Guardian consented to the waiver of its entitlement to notice of the exercise of the reserved power “because it was in [the Siblings’] financial interests to do so”) should be refused: TWS4 [43]-[47]; TWS5 [58]. The only particulars given in support of the pleading are the clauses of the Trust Deed relevant to, inter alia, the provision and waiver of notice, and cll 2 and 3 of the CDE, which respectively provide for the exclusion of the Plaintiff and the Guardian’s waiver of its entitlement to receive notice. The Trustee says that the mere fact of a waiver provides no basis for alleging why it was exercised. Further, it is said that [39(c)] is embarrassing as its role in the case made against the Trustee is obscure, yet it is relied upon as a particular of the allegations in [40], [42] and [44] of the Claim. It is not alleged that the Trustee had knowledge of what is pleaded at [39(c)].

The Plaintiff submits that the proposed amendment in [39(c)] concerns the Guardian’s actuating purpose in consenting to the waiver of its entitlement to notice, which is a matter of fact to be found (or not) at a trial, inferentially or otherwise: PWS4 [45]-[49]. She says that the matters pleaded in [39(c)] substantiate findings (inferential or otherwise) of the allegations made in [40], [42] and [44] of the Claim. It is further said that the Trustee must have had the alleged knowledge of the Guardian’s actuating purpose.

As the Trustee notes, the paragraph in question does not make an allegation against it. It is an allegation that, while the Guardian had an entitlement to notice and the ability to prohibit the exercise of the reserved power by the Trustee, it consented to the waiver of its entitlement to notice. The reason why the Guardian so consented is said to be because it was in the financial interests of the Siblings, as directors of the Guardian, to do so.

There is some force in the Trustee’s submission that the proposed amendment in [39(c)] is embarrassing. For my part, I struggle to see what relevance the Guardian’s reason for consenting to waiver of its entitlement to notice (as distinct from any reason the Siblings had for causing the Guardian to so act) has in the Plaintiff’s case against the Trustee or, for that matter, the Siblings. While the Plaintiff pleads that the Siblings controlled the Guardian at the relevant time (Claim [21]), the Guardian has not been joined as a defendant. It is difficult to see how the Trustee could properly plead to the Guardian’s alleged reason for consenting. Contrary to the Plaintiff’s submission, it is not apparent to me how the alleged reason for the Guardian’s consent to waive its entitlement to notice substantiates findings of the facts pleaded at [40], [42] and [44] of the Claim.

I refuse leave to amend for the Plaintiff to include the words “because it was in their financial interests to do so” in [39(c)] of the Claim.

The Trustee submits that leave to plead [40] of the Claim should be refused, on the basis that the particulars (including the preceding paragraphs of the Claim to which they refer) do not lead to any conclusion that the Trustee’s entry into the CDE was at the demand of one or more of the Siblings: TWS4 [49]-[53]. It further says that the existing pleas to [40] of the Claim, which are found in [7G] of the amended statement of claim and [2(a)(ii)] of the reply, should both be struck out.

The Siblings similarly submit that the Court could not draw the inference sought in [40] of the Claim from the facts alleged by the Plaintiff: SWS4 [24].

The Trustee further submits that there is no reasonable basis for the allegations made in the no exercise (ceding) case and the exercise (failure to consider) case, respectively pleaded at [42] and [44] of the Claim: TWS4 [64], [69]. In respect of the no exercise (ceding) case, the Trustee says that cl 10(1) of the Trust Deed anticipates the Guardian giving a direction to the Trustee, and there is nothing wrong with consultation or direction being given to the Trustee so long as it retains its independent judgment: TWS4 [61]. Even if the demand allegation were allowed to be pleaded, it is said that the mere making of a demand does not provide a basis for inferring that the Trustee did not in response to the demand exercise its discretion before acting upon it: TWS4 [63(5)]. Finally, the Trustee submits that the no exercise (ceding) case is embarrassing given its reliance on [34] of the Claim, which it says is inconsistent with the Trustee’s discretion being ceded: TWS4 [63(3)], [64].

In respect of the exercise (failure to consider) case, the Trustee submits that [44(b)] contains a “rolled up plea” and is embarrassing for that reason, because there is no clarity as to what case(s) the Plaintiff seeks to make: TWS4 [67]-[68]. A “rolled up plea” is a technical expression particularly used in defamation law. Its origins are explained in various cases such as O’Sullivan v Schubert [1963] VR 143 at 144-146 per Dean J. Here, the Trustee uses the expression in a different sense. The Trustee understands [44(b)] to involve primarily two allegations: (a) an alleged failure by the Trustee to turn its mind to the exercise of discretion; and (b) an alleged failure to give fair and proper consideration: TWS4 [70]-[73]. The Trustee says that no facts are pleaded which might permit an inference of the first allegation. It interprets the second allegation as appearing to plead a “failure to give consideration” case, and if so the elements of such a case are not pleaded (namely, what it was that should have been fairly and properly considered, or why it is said that it was not considered). For her part, the Plaintiff submits that [44(b)] does not contain a “rolled up plea” because the supposedly distinct allegations identified by the Trustee are not necessarily disjunctive; rather, they bespeak the same essential alleged wrongfulness: PWS4 [59]. She says further that her exercise (failure to consider) case is that the Trustee failed to consider whether its conduct was a reasonable and proper exercise of its power, which is precisely what is pleaded, and there is no onus on a plaintiff to plead the supposedly missing elements referred to by the Trustee: PWS4 [63].

As to the no exercise (ceding) case, the Siblings submit that, even if the primary facts alleged were true, they are entirely consistent with the Trustee having properly considered the exercise of the reserved power and deciding that such an exercise was appropriate. Even if the demand allegation were made out, that would not be sufficient to establish that the Trustee acted under dictation: SWS4 [26]. As such, the Siblings say that there is no proper basis to make the allegation of dictation. They further contend that the exercise (failure to consider) case in [44] of the Claim is in substance no different from the no exercise (ceding) case, and ought not to be permitted for the same reasons: SWS4 [30].

The Plaintiff submits in response that, for the purposes of the present applications, the pleaded allegation in [40] of the Claim must be taken as true and, in any event, the matters particularised do sustain the inference of the demand allegation: PWS4 [50]-[52]. She stresses that whether a trial judge would ultimately so infer is a matter for a trial. Essentially the same submission is made in respect of the no exercise (ceding) case and the exercise (failure to consider) case: PWS4 [56], [62]-[63].

It is evident that the demand allegation is particularly relevant to the Plaintiff’s no exercise (ceding) case and her exercise (failure to consider) case. The tenor of the demand allegation is that the interaction between the Siblings and the Trustee went impermissibly beyond mere “consultation”, which the Trustee may engage in under cl 10 of the Trust Deed.

The contents of [40] of the Claim, and its particulars, are as follows:

On my review, the relevant primary facts pleaded in [20]-[40] of the Claim essentially consist of the following:

If those facts are proved, taken together, I consider that the demand allegation in [40] may arguably be inferred at a trial. In saying that, I stress that I am not making any finding as to whether such an inference can properly or reasonably be drawn, as that is the task of a trial judge with the benefit of all of the evidence: Uber – First Instance at [43]. Similarly, if the demand allegation is made out, I consider that the alternative facts pleaded at [42] and [44] of the Claim may arguably be inferred, and it is a matter for a trial judge to determine, based on the evidence, whether either inference ought to be made.

Dealing with the defendants’ more specific objections, I note the following.

In submitting that the dictation allegation is inconsistent with [34] of the Claim, the Trustee appears to mischaracterise the nature of what is pleaded in that paragraph. The Trustee says that the paragraph pleads that it had a reason for entering into the CDE (being to protect and further the Siblings’ financial interests), which would be inconsistent with the Trustee executing the CDE under the dictation of others: TWS4 [63(3)]. However, [34] states that the Trustee had no reason in so acting, other than to protect and further the Siblings’ financial interests. I do not consider that to be necessarily inconsistent with an allegation that the Trustee acted under dictation.

Both the Trustee and the Siblings made the point that, even if the demand allegation were made out, the mere making of a demand would not be sufficient to establish that the Trustee acted under dictation: TWS4 [63(5)]; SWS4 [26]. Both referred to the following extract from Thomas on Powers (2nd ed, 2012, Oxford University Press) (Thomas on Powers) at [10.60]:

By her no exercise (ceding) case, the Plaintiff is expressly alleging that the Trustee entered into the CDE without exercising its own independent judgment and discretion, so as to have ceded its discretionary power. As such, I do not consider that the above extract from Thomas on Powers bolsters the defendants’ complaint. Further, the drawing of an inference does not take place by a series of independent judgments based on individual facts taken in isolation: British American Tobacco Australia Ltd v Gordon (No 3) [2009] VSC 618 at [59] per Kaye J, quoted in Uber at [56]. Focusing on whether a demand is per se sufficient to establish that the Trustee acted under dictation appears to me to be taking the wrong approach.

In respect of the Trustee’s complaints about the exercise (failure to consider) case, I accept the Plaintiff’s submission that the plea at [44(b)] of the Claim is not “rolled up” so as to be embarrassing. It is apparent that the allegations in that paragraph are not intended to be disjunctive and bespeak the same essential wrongfulness, being the Trustee’s failure to give fair and proper consideration as to whether its entry into the CDE was a reasonable and proper exercise of its power. Contrary to the Siblings’ submission, I do not consider that allegation to be in substance no different from the dictation allegation (as discussed below, the consequences of the two allegations on the CDE are quite different). In my opinion, it is an allegation that can be properly pleaded to in a defence.

There is one further discrete matter. Part of the particulars to [40] of the Claim state that the Court ought to draw an inference from the Siblings’ defence of these proceedings that they consider it to be to their financial advantage if the Plaintiff is excluded and that they held this view at the time of the purported exclusion. I regard that generalised assertion as being embarrassing and determine that that part of the particulars to [40] should be struck out. The reasons for parties to defend proceedings and oppose relief in proceedings is informed and influenced by numerous factors, not the least of which is legal advice from the lawyers that represent them. How the Siblings’ actions in their defence of these proceedings and reasons for opposing relief is susceptible to rationally supporting the likelihood of them making the (alleged) demand, being an event which allegedly occurred 23 years ago, is far from evident. In any case, the form of the allegation referring not to a distinct matter but globally to their actions in defence of the proceedings is not conducive of clarity. Further, an exploration of the Siblings’ conduct might well be vexed and impermissible if their reasons for actions in their defence of the claim are to some extent covered by legal advice and litigation privilege.

The combined effect of [51], [54] and [78] of the Claim is that, if the exercise (failure to consider) case were made out, the Plaintiff seeks a declaration that the purported exclusion is void. Specifically, by [51], it is contended that the purported exclusion is void “as a fraud on [the Trustee’s] power as trustee of the Trust”.

The consequences said to arise from the exercise (failure to consider) case are distinguishable from those said to arise from the no exercise (ceding) case. By reason of the latter, the Plaintiff pleads that she is entitled to a declaration that the purported exclusion is of no effect: Claim [50], [53], [78]. Conceivably, such relief may be available where the Plaintiff can demonstrate at a trial that the Trustee did not turn its mind at all to the exercise of the discretion entrusted to it, such that there has in fact been no exercise of the reserved power: see Turner v Turner [1984] Ch 100 at 111 per Mervyn Davies J; Roadchef (Employee Benefits Trustees) Ltd v Hill [2014] EWHC 109 (Ch) at [107]-[109] per Proudman J.

However, as the Trustee points out (at TWS5 [43]), the failure of a trustee to give real and genuine consideration to the exercise of a discretionary power does not necessarily render the exercise of the power void; rather, it is voidable at the instance of the beneficiary who is adversely affected: Re Owies Family Trust (No 3) [2021] VSC 114 at [30]-[34] per Moore J, with this aspect of his Honour’s judgment being upheld on appeal in Owies v JJE Nominees Pty Ltd (in its capacity as the trustee for the Owies Family Trust) [2022] VSCA 142 (Owies) at [140]-[146] per Kyrou, Niall and Walker JJA, where the Court followed the approach taken by the Supreme Court of the United Kingdom in Pitt v Holt [2013] 2 AC 108. The failure will not automatically lead to the decision being set aside and its consequences reversed. Rather, it is necessary for the Plaintiff to establish that the decision should be set aside and the Court would have to determine any defence that could be raised in answer: Owies at [147].

An exercise of power arising from a demand coupled with a failure to give real and genuine consideration, being part of the pleading in [44] of the Claim, does not involve any sort of “fraud on a power” as to lead to an outcome that the purported exclusion is void, contrary to what is alleged at [51] of the Claim. Leave to plead [51] of the Claim in its current form (with its subsequent reference in [54]) should be refused.

That being said, I consider that leave should be given to re-plead [51] by replacing the words “void as a fraud on its power as trustee of the Trust” with the words “voidable and ought to be set aside”. I will also give the Plaintiff leave to include a new paragraph after [78] of the Claim with words to the effect that, by reason of the matters pleaded at [51] (as amended), the Plaintiff is entitled to an order that the purported exclusion is set aside, with a new prayer for relief which seeks that order.

The Trustee complains that the Plaintiff has not pleaded what (she contends) the proper purpose of the reserved power is, and for that reason the pleading of her exercise (improper purpose) case is defective: TWS3 [34]; TWS4 [89], [91]-[92]. The Trustee noted that the Trust Deed is itself silent as to the purpose of the reserved power, save that it contains one express limitation: the power “shall not be capable of being exercised so as to derogate from any interest to which such General Beneficiary has previously become indefeasibly entitled” (CB 510): TWS4 [90]. Otherwise, the Trustee points out that cl 10 states that the power’s exercise is at the Trustee’s “absolute and uncontrolled discretion” (CB 525).

The Plaintiff disputes the need to plead the purpose for which the reserved power may be exercised, as the purposes for which a power may exercised is a matter of law: PWS3 [28]; TD2 17.48-18.5, citing Hancock v Reinhart at [60] per Brereton J. She submits that there is obvious practical logic to this, as to require a plaintiff to identify, and to plead, all the proper purposes would place on a plaintiff the (undue) burden of identifying a potentially near infinite variety of purposes: PWS4 [69]. She notes that, if the Trustee’s case is that it exercised the reserved power for a proper purpose, it is a simple matter for the Trustee to plead that purpose in its defence.

In any event, the Plaintiff notes that the Trustee had no difficulty denying the allegation of breach of trust in the amended statement of claim, without there being a plea as to the variety of proper purposes for which the reserved power may be exercised on the proper construction of the Trust Deed. The Plaintiff contends that the only question for the Court is whether the purposes pleaded at [46] of the Claim were improper purposes: PWS3 [28].

The parties are agreed that the purpose or purposes for which a power may properly be exercised is a matter of law and whether the purpose or purposes for which the power was in fact exercised was within the category of permissible purposes is a matter of fact.

While the Trustee places emphasis on Brereton J’s judgment in Hancock v Rinehart (see e.g. TWS4 [83], [89]), it is worth observing that, in determining that the plaintiffs’ fraud on a power case was open on the pleadings (in which a phrase akin to “fraud on a power” was absent), his Honour made no reference to any pleading which set out the alleged purpose of the power at issue in that case: see Hancock v Rinehart at [62]-[71]. Rather, the power and its proper purposes were considered by reference to the relevant provision in the Trustees Act 1962 (WA), caselaw and the terms of the trust deed: Hancock v Rinehart at [72]-[74].

In determining whether the Plaintiff’s pleading at [49] of the Claim (that the Trustee’s purported exercise of the reserved power was for “an ulterior and illegitimate object and for an improper purpose”) is made out, the Court at a trial would need to engage to some degree with the two-stage process outlined by Brereton J. However, as a matter of pleading, I do not consider that the Plaintiff’s omission of a pleading which states for what purpose or purposes the reserved power may properly be exercised means that no complete cause of action is pleaded or that the pleading of the improper purpose is otherwise defective. If the defendants wish to contend that the reserved power was exercised by the Trustee for a proper purpose, they can plead that by way of defence, thereby making it an issue in dispute for a trial judge to determine.

The Trustee submits that [34] and [35] of the Claim and [2(a)(vi)] of the Reply, which allege that the Trustee was aware that it had no reason to exclude the Plaintiff other than to seek to protect and further the Siblings’ financial interests, are embarrassing as they involve a non sequitur: TWS4 [37]-[42]; TWS5 [57]. In particular, Mr Myers KC submitted that the allegation “offends rationality” as there might be an enormous number of reasons for the Trustee excluding the Plaintiff, and the allegation consists of conjecture about a matter which the Plaintiff admits to having limited knowledge of: TWS4 [40]; TD1 40.11-.16.

The Plaintiff submits that, if the Trustee’s case is that it had a reason to exclude the Plaintiff other than for the purpose she alleges, the Trustee can plead that purpose in its defence: PWS4 [42]. She says further that a party can have limited knowledge about a matter while having enough to form a reasonable basis for the purposes of a pleading.

In respect of [34] of the Claim and [2(a)(vi)] of the Reply, it seems to me that the nub of the pleading is that, in saying that the Trustee had “no other reason”, the Plaintiff is essentially emphasising that there was a singular particular reason for the Trustee entering into the CDE, namely the protection and furthering of the Siblings’ financial interests. Understood that way, it is a permissible form of pleading. Further, as the authorities involving conspiracy make clear, the fact that the Plaintiff has limited knowledge of certain matters is not to the point. The Plaintiff can plead matters on the basis of enquiries that have been made which enable her to properly verify the pleading, which requires belief that any allegation of fact is true: r 14.23(3)(a) UCPR. As the Plaintiff points out, it is entirely open to the Trustee to deny that there was “no other reason” other than that which the Plaintiff asserts and plead its reason for excluding the Plaintiff in its defence.

In respect of [35] of the Claim, I consider that the pleading of actual knowledge is sufficient for the reasons stated earlier.

In her Claim at [46], the Plaintiff pleads that, in the alternative to the no exercise (ceding) case and the exercise (failure to consider) case, the purpose of the Trustee in purporting to enter into the CDE was to: (a) seek to exclude the Plaintiff from the class of General Beneficiaries prior to her paternity being determined and while her interests were not represented; and (b) advance one or more of the Siblings’ financial interests. In [48], she pleads that the reserved power does not empower the Trustee to exclude a person as a General Beneficiary for those purposes.

The Siblings submit that there is nothing improper about the purposes pleaded at [46] of the Claim: SWS4 [34]. They say that the proper purpose of an exercise of the reserved power could only be to exclude a person from the class of General Beneficiaries, which would at least potentially have the effect of advancing the interests of other beneficiaries. The Siblings submitted further (SWS4 [35]):

The cases relied upon by the Siblings, and to some extent the Trustee, were Curwen and Mandie (both on appeal and at first instance): SWS4 [36]-[39]; TWS4 [84]-[88]. I have set out above the relevant aspects of those judgments to which reference was made by the defendants. Applying those cases, the Siblings submit that the Plaintiff has not pleaded material facts in the Claim which, if proved, would establish that the Trustee exercised the reserved power for an improper purpose, and leave should not be granted to plead the exercise (improper purpose) case. In response, the Plaintiff contends that, if the defendants’ case is that the Trustee did exercise the power for a proper purpose, it is a simple matter for them to plead as such in their defences: PWS4 [69].

Meanwhile, the Trustee submits that the subjective purpose alleged is nothing more than conjecture, which cannot be reasonably drawn from the facts referred to in the particulars: TWS4 [96]; TWS5 [63]. The Trustee also points out that the particulars to [46] of the Claim are the same as those to [42] and [44], with the addition of recitals E and F of the Trust Deed: TWS4 [95]. It is submitted that those particulars provide no basis for inferring the subjective purpose alleged in [46], and the recitals do not add anything to what may be inferred: TWS4 [96]. The Plaintiff says that subjective purpose is a question of fact best left for a trial, and the same particulars can substantiate any and all of the cases based upon dictation, failure to consider and improper purpose: PWS4 [68], [72].

Dealing first with the Trustee’s submissions as to whether the alleged subjective purpose can be reasonably inferred from the facts pleaded and matters particularised, it is again important to remember that it is not appropriate for the Court, at the stage of determining whether a pleading should be allowed, to determine whether the inference can properly or reasonably be drawn. I consider that the subjective purpose alleged in [46] of the Claim could arguably be drawn from the facts pleaded by the Plaintiff, as an alternative to the no exercise (ceding) case and the exercise (failure to consider) case.

However, I ought to note that, to the extent that the alleged purpose relates to the Plaintiff being excluded while her “interests were not represented”, that matter per se appears to be immaterial to her exercise (improper purpose) case. When exercising a discretionary power, a trustee does not need to observe the rules of natural justice: Karger v Paul [1984] VR 161 at 166 per McGarvie J.

Dealing then with the Siblings’ submissions that, assuming the Trustee did have the alleged subjective purpose, such a purpose could not be considered improper, I note the following. Whilst Curwen and Mandie considered the purposes for which a power of exclusion may be properly exercised, I do not consider that those authorities necessarily mean that the Plaintiff’s exercise (improper purpose) case is hopeless, as the Siblings appear to contend. Those cases appear to be the high water mark of judicial consideration in Australia of the purposes of a trustee’s power of exclusion. Ultimately, the purpose or purposes for which a power may properly be exercised is to be objectively determined by the Court, taking into consideration the terms of the trust and any documents which objectively inform the context of the trust deed or were intended to be read with the trust deed: Hancock v Rinehart at [73]; Grand View at [61]-[63]. The case of C Trust demonstrates that the proper purpose(s) of a power of exclusion is not a foregone conclusion. It is premature at this stage of the proceedings to say with any certainty that the purpose alleged at [46] of the Claim, even noting what I have said above, could not be an improper purpose for the exercise of the reserved power.

I consider that the Plaintiff’s exercise (improper purpose) case should be allowed in the form pleaded at [46]-[49] and [52] of the Claim.

The Siblings submit that this aspect of the Plaintiff’s Claim is hopeless and should not be permitted to move forward, because (SWS4 [44]-[46]): first, in their contention, no distributions were made to the Plaintiff; second, the class of General Beneficiaries was modified by the CDE, and accordingly the Trustee had no power to impliedly reinstate the Plaintiff as a General Beneficiary – the Trustee’s state of mind after entry into the CDE is irrelevant to the question of its effectiveness; and lastly, the CDE did not confer on the Trustee any “right” to exclude her which may be “waived”, rather it was a binding modification of the terms of the Trust which the Trustee was duty-bound to adhere. The Trustee made submissions to similar effect: e.g. TD2 34.

The Plaintiff accepts that there appears to be no case which has considered the law’s response to the circumstance of a beneficiary being (purportedly) excluded from a trust, only for her later to receive distributions from the same trust. She submits that even if it is a novel proposition of law, it is a matter for final determination at a trial: PWS4 [95].

On my review, the Plaintiff’s case pleaded at [59]-[70] of the Claim essentially consists of two parts (which on one view are stated as alternatives):

In respect of the first part, I accept the Siblings’ submission that the Trustee’s state of mind after the purported exclusion is irrelevant to the question of its effectiveness. On the assumption that the CDE was valid, the Plaintiff ceased to be a General Beneficiary and she does not plead that there is any power by which the Trustee could determine that the purported exclusion was of no effect or that the reserved power had not in fact been exercised.

The so-called novel nature of the second part does not, per se, preclude it from being arguable.

What needs to be addressed is what the Plaintiff has actually pleaded and contended. Neither the Plaintiff in her pleading nor Mr Withers SC in his submissions identified the precise legal basis for acknowledgement, affirmation, waiver and election, nor was it explained precisely what is meant by those terms. (The only substantial explanation provided by Mr Withers SC was that the claim was concerned with the Trustee’s “right” to assert the CDE against the Plaintiff, which he submitted the Trustee could waive “like any other legal entity” in respect of a particular right: TD2 55.12-.21.) That would not, per se, be fatal to the Plaintiff’s claim. Thus, if the Plaintiff pleaded facts which gave rise to an arguable claim in law such as an estoppel (on which see Pamplin v Irwin [2024] NSWCA 213 at [103]-[104] per Leeming JA (Bell CJ and Griffiths AJA agreeing)), the fact that she had not in submissions identified the claim as an estoppel, or had applied some other legal label to it, would not matter, provided that the Court could see that there is some tenable claim.

However, because the Plaintiff’s legal representatives have framed what is pleaded in the Claim in terms of “acknowledgement”, “affirmation” and “waiver”, it is appropriate for me to address those concepts.

Acknowledgement as a legal concept usually refers to an admission of a debt or obligation, especially a written admission that a debt is due: Macquarie Dictionary, online ed (definition 7a). It is a doctrine frequently associated with the law of limitation: see e.g. s 54(2)(a), (4) Limitation Act 1969 (NSW).

Affirmation as a legal concept involves confirmation or ratification, usually in the contractual context, where it refers to an election to continue performance of contractual obligations: Encyclopaedic Australian Legal Dictionary, online ed. The jurisprudence on the concept need not be deeply inquired into for the purposes of this judgment. It has been said that affirmation is simply a specific application of the general requirement of election between inconsistent rights: J W Carter, Contract Law in Australia (7th ed, 2018, LexisNexis Butterworths) at [18-47], [31-05].

There is no equitable doctrine of “affirmation” strictly so called: Kosmas as Administrator of the Estate of George v Cherote (Supreme Court (NSW), Simos J, 14 March 1996, unrep) (Kosmas) at 155. Nonetheless, in the context of certain claims for equitable relief, for example where relief is sought to set aside a gift on the basis of undue influence, a judge may be satisfied that such relief should be refused in a context in which the transferor has with appropriate knowledge subsequently “affirmed” the gift (e.g. Kosmas at 152-158).

The concept of waiver has multiple meanings and gives rise to “uncertainties and difficulties”: see Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57 (Gardiner) at [54] per Gummow, Hayne and Kiefel JJ.

One such meaning is “an intentional act, done with knowledge, whereby a person abandons a right by acting in a manner inconsistent with that right”: Gardiner at [56]. It has been said that “[p]erhaps the most common usage of waiver is to describe an unequivocal decision by a party, communicated to the other party, not to insist upon a right or not to exercise a power”: Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788 (2022) 277 CLR 445; [2022] HCA 38 (Delor Vue) at [28] per Kiefel CJ, Edelman, Steward and Gleeson JJ.

While it has been said that there is no meaningful difference between the concepts of “waiver” and “election” (Croc’s Franchising Pty Ltd v Alamdo Holdings Pty Ltd [2023] NSWCA 256 at [152] per Payne JA (Stern JA agreeing)), in Delor Vue Gageler J at [155]-[156] preferred the following schema, mapped out by Brennan J in Commonwealth v Verwayen (1990) 170 CLR 394 at 421-424; [1990] HCA 39 (omitting footnotes):

That approach was contrasted to treating election as a doctrine applicable where a party faces a choice between pursuing one or other of two courses of action which cannot be pursued simultaneously, wherein waiver could be treated as a species of election applicable where the choice is simply between the course of action of retaining a right and the course of action of abandoning that same right: Delor Vue at [154].

I consider that there are not merely grave but insurmountable difficulties with the Plaintiff’s claims regarding alleged acknowledgement, affirmation and waiver. They are based upon misconceived notions that the Trustee was able to acknowledge or affirm the Plaintiff’s status as a General Beneficiary and that the Trustee had a “right” to assert the purported exclusion against the Plaintiff which could be waived: see TD2 55.12-.21. In respect of the former, similar to what I have said above, the Plaintiff points to no power by which the Trustee is enabled to so act. In respect of the latter, the Plaintiff does not identify where any such “right” is sourced.

The notion of a trustee exercising a discretion whether or not to distribute income is not an election between inconsistent rights. It is simply the exercise of a discretion one way or the other. However, the niceties of that notion need not be explored.

The position that arises here is very different. Even if one assumes for the moment that a trustee has made a payment to a person who has been excluded as a discretionary object under a deed of exclusion, the case is not one of election between inconsistent rights or waiver of a right. That is because once the discretionary object is excluded, there is no power to make a distribution for their benefit. There are no competing rights. If the discretionary object has been excluded, the payment by the trustee is simply a payment to a non-object, which prima facie (and indeed even on the Plaintiff’s pleadings) would constitute a breach of trust.

I consider the same is true even if a broader view of election were to be considered and one was talking of inconsistent courses of action.

I consider that this aspect of the Plaintiff’s proposed claim is not arguable and leave should not be given to plead it.

In [58] of the Claim, the Plaintiff pleads as follows:

A similar allegation is made at [74], albeit that the loss is said to have occurred from 28 April 2009 to the present.

At [79] of the Claim, the Plaintiff pleads that, by reason of the matters pleaded in [58], or in the alternative [74], she is entitled to equitable compensation. She states that particulars of the quantum of equitable compensation to which she is entitled will be provided following discovery and evidence.

The Trustee submits that, if the paragraphs of the Claim and Reply with which it takes issue are struck out, the consequence is that the Plaintiff’s claim for equitable compensation should be dismissed: TWS4 [2]. Whilst I accept that that may be a consequence of taking that course, I nonetheless consider that the claim for equitable compensation is unarguable even on the proposed pleadings, having regard to the discretionary nature of the Trust and the power to appoint income in cl 3(1) of the Trust Deed.

Even if the Plaintiff is able to prove that the Trustee acted in breach of duty by failing to give real and genuine consideration to appointing income to her over a number of years, that does not necessarily mean that she has suffered any quantifiable “loss”. The purpose of an order for equitable compensation for breach of trust is generally to make good any deficit in the trust fund which may have been quantified through an order for an account: see generally J D Heydon, M J Leeming and P G Turner, Meagher, Gummow & Lehane’s Equity Doctrines & Remedies (5th ed, 2015, LexisNexis Butterworths) at [23-030]-[23-035]. On the Plaintiff’s proposed pleadings, there has been no deficit in the trust fund which the remedy of equitable compensation would make good.

No case was cited in the submissions by which an excluded discretionary object (or indeed a person who is unquestionably a discretionary object) has succeeded in obtaining an order for equitable compensation in circumstances such as are pleaded here. Further, the Plaintiff does not, for example, plead a claim to set aside any of the Trustee’s resolutions by which it made income distributions to the other discretionary objects (i.e. the Siblings), such as that sought by the plaintiffs in Re Owies Family Trust (No 3) [2021] VSC 114. (Given that would involve asking the Court to set aside up to 23 years’ worth of resolutions, and the availability of equitable defences and the discretionary nature of such relief, one might query whether such a claim could be properly made in any event.) Nor, as I have observed above, does she seek an order that the Trustee re-exercise its discretion in respect of the relevant years, or an order to have the Trustee removed and a new trustee re-exercise that discretion.

In the circumstances, I consider that [58], [74] and [79], as well as prayer 3A, of the Claim are liable to be struck out.

Given that the allegations made in [2] of the Reply (as in [2] of the existing reply) are in response to the defences raised by the Trustee in respect of the Plaintiff’s equitable compensation claim (in [79] of the Claim or alternatively [10B] of the amended statement of claim), and I have found that such claim is liable to be struck out, the necessary consequence is that leave to plead [2] of the Reply must be refused and [2] of the Plaintiff’s existing reply ought to be struck out. Notwithstanding that, given the amount of time taken on the hearing of the application to address the allegations in that paragraph, I propose to make some observations on the claims of dishonesty raised by the Plaintiff in reply and consider whether they could be made out.

In [2(a)] of her Reply, the Plaintiff (in summary) seeks to draw the following inferences from the alleged facts pleaded at [15]-[57] of the Claim:

By [2(b)] of the Reply, the Plaintiff pleads that, at the time of the Trustee’s entry into the CDE, it took the view and/or one or more of the Siblings took the view that the Plaintiff needed to be excluded prior to her paternity being determined. That is said to be inferred from recitals E and F of the CDE.

The allegation of personal conscious and fraudulent bad faith by the Trustee is then made at [2(c)]. It is worth setting out that allegation again as it appears in the Reply:

The allegation of fraudulent breach of trust, in response to the limitation defence, is then pleaded at [2(e)] of the Reply as follows:

At the outset, four observations should be made about the way in which [2(c)] and [2(e)] of the Reply are pleaded.

First, it is unclear why the Plaintiff has chosen to group together [15]-[57] of the Claim for the purposes of these allegations. The previous iteration of her reply refers to what is now (broadly speaking and allowing for the additional paragraphs) [15]-[54] of the Claim. That grouping of conduct would make more sense when reading [2(c)] of the Reply, avoiding what would otherwise be an overlap between the conduct pleaded in [15]-[57] and the breaches pleaded at [55]-[58] of the Claim, which are separately referred to.

Second, the last clause in [2(c)] of the Reply is worded in such a way that, on the face of the pleading, it is only the conduct pleaded at [15]-[57] of the Claim which is alleged to have been committed in personal conscious and fraudulent bad faith by the Trustee. Indeed, this is the way in which the Trustee says that it has understood the allegation in [2(c)]: see TWS4 [103]. However, the Plaintiff contends (and it is clearly her intention) that the pleading of fraud in the Reply picks up the totality of the Trustee’s conduct, including the breaches alleged in [55]-[57] and [71]-[73] of the Claim: PWS4 [76]. That intention could be made clearer in the drafting of [2(c)] of the Reply.

Third, the particulars to [2(c)] of the Reply invite the Court to infer that the Trustee was aware that the exclusion of the Plaintiff as a General Beneficiary was or may be for an ulterior or illegitimate object and for an improper purpose, as well as other matters which largely repeat those in [2(a)]. I must admit that I find this somewhat confusing, as it is unclear whether the improper purpose being alleged was that of the Trustee, someone else or both. If the purpose was simply that of the Trustee, the no exercise (ceding) case and the exercise (failure to consider) case would seem to be ruled out of the allegation made in [2(c)]. Otherwise, it is left unclear as to whose purpose it was, although one might imagine that the Plaintiff has the Siblings in mind. In any case, the Plaintiff’s inclusion of the words “or may be” invite a degree of equivocality which is inconsistent with the allegation being made in [2(c)]. I cannot see what the particulars to [2(c)] add to particularise the allegation of dishonesty beyond the reference to what is pleaded in the Claim and [2(a)]-[2(b)] of the Reply.

Fourth, subject to what I have just said, the allegations made in [2(c)] and [2(e)] otherwise constitute a clear and unequivocal allegation of fraud or dishonesty. As the Siblings accept, that appears to satisfy the first requirement described by Lord Millett in Three Rivers at [185]: SWS5 [7]. To the extent that the Trustee submits otherwise (e.g. TWS4 [105]), I would not accept such a submission. Thus, the substance of the dispute between the parties is whether that allegation of fraud or dishonesty is sufficiently particularised in the manner in which I have discussed earlier by reference to the authorities. The Trustee and the Siblings submit that the facts pleaded are consistent with honesty and there is no fact which tilts the balance and justifies an inference of dishonesty: TWS4 [109]; SWS5 [5]. The Plaintiff, meanwhile, submits that an inference of dishonesty is more likely on the facts pleaded and proposed to be pleaded than one of innocence: PWS4 [23].

With those observations in mind, I propose to first consider whether dishonesty on the part of the Trustee could be inferred from the conduct pleaded at [15]-[54] of the Claim, and then consider the same question for the breaches alleged at [55]-[58] and [71]-[74].

After the demand allegation in [40] of the Claim, the conduct of the Trustee pleaded by the Plaintiff splits between three alternative routes, consisting of the no exercise (ceding) case, the exercise (failure to consider) case and the exercise (improper purpose) case. Thus, for the allegation of dishonesty in the Reply to be made out, given that it is made globally in respect of [15]-[54] of the Claim, the inference would need to be available in each of the alternative routes.

The Trustee submits that a trustee found to have improperly acted under dictation may have done so either honestly or dishonestly: TWS4 [62]. It cites as an example of the former Ex Parte Brown, In Re Smith (1886) 17 QBD 488, in particular at 492 per Lord Esher MR. The Trustee says that, if fraud were in fact alleged in respect of the conduct pleaded at [42] of the Claim, its seriousness should be noted, as it would involve the allegation that the Trustee’s directors at the time executed the CDE “knowing it to falsely state that the Trustee had determined to exercise the [reserved] power” (as stated in recital L of the CDE): TWS5 [39]. The Siblings submit that the facts pleaded in support of the no exercise (ceding) case are entirely consistent with innocence: e.g. SWS5 [5].

A claim of dishonesty in respect of a trustee’s purported exercise of a power of exclusion which is alleged to have been intended to further the interests of the remaining objects and adversely affect the interests of the excluded object is conceptually a difficult claim to allege and make out. There are various reasons for that. Most fundamentally, whilst many (or even most) powers must be exercised in the interests of the objects of the power, generally (leaving aside exclusion for tax advantages) the exercise of a power to exclude is likely not to be for the benefit of the person to be excluded, but instead be for the benefit of the remaining beneficiaries: see Poon at [40]. It may also be attended by practical difficulty if the trust deed (as is the case here) contains a provision which provides that the trustee is not bound to disclose any documents which reflect deliberations and reasons of the trustee regarding the exercise (or non-exercise) of powers or discretions.

The conceptual difficulty is evidenced by the fact that there appear to be no Australian cases in which such a claim has successfully been made out. Internationally, there seem to be few cases. One example where the instrument effecting the exclusion was set aside (although not being a case where dishonesty appeared to be alleged) is that referred to above, namely C Trust, where a decision to exclude grandchildren was struck down on the basis that there was not a reasonable exercise of discretion in the circumstances, as no proper account had been taken of the financial position of the grandchildren, their likely need for distributions from the trust and other related matters.

Having acknowledged all of the above, each case will turn on its own facts.

I accept that the facts pleaded by the Plaintiff in support of the no exercise (ceding) case may be consistent with innocent conduct on the part of the Trustee. However, I consider that they might also support an inference of dishonesty, if the Plaintiff is able to prove that the Trustee was aware that it was acting under the dictation of one or more of the Siblings so as to have ceded its discretionary power (as alleged in [42]-[43]), and in that sense sufficiently tilt the balance and justify the allegation of dishonesty.

Similarly, I consider that the facts pleaded in support of the exercise (failure to consider) case might also support an inference of dishonesty, if the Plaintiff is able to prove that the Trustee was aware that it had failed to give fair and proper consideration as to whether the purported exclusion was a reasonable and proper exercise of the reserved power (as alleged in [44]-[45]). Such facts appear to tilt the balance and justify the allegation of dishonesty.

The defendants spilled much ink in setting out their complaints about the allegation of dishonesty in the context of the Plaintiff’s exercise (improper purpose) case. At their core, most of those submissions essentially argued that no inference of dishonesty is available because the Trustee did not act for an improper purpose: see e.g. TWS4 [110]; SWS4 [40]; SWS5 [6]-[7]. As I have explained above, if the defendants wish to contend that the Trustee acted for a proper purpose, that can be pleaded in their defences. The question of any dishonesty on the part of the Trustee arises, on this alternative, once it is established that its purpose was improper.

Assuming that is established, the Trustee submits that the pleadings do not identify the facts from which it could be inferred that the Trustee knew that the exercise of the reserved power was for an improper purpose: TWS5 [49]-[50]. The Trustee identifies that, because the proper purpose rule is only concerned with subjective purpose, [47] of the Claim (alleging that the Trustee was aware of the purpose for the purported exclusion) adds nothing to what is already pleaded at [46] of the Claim: TWS4 [76]. I am inclined to agree with that submission.

While the Plaintiff pleads at [48] of the Claim that the purpose stated in [46] is an improper purpose for an exercise of the reserved power, she does not plead that the Trustee knew that the purpose was improper. It is difficult to see how the Plaintiff would be able to infer any dishonesty on the part of the Trustee under the exercise (improper purpose) case without pleading that fact.

In those circumstances, I would not allow the Plaintiff to plead [47] of the Claim. However, I will grant leave to re-plead after [48] of the Claim (i.e. in a new paragraph) words to the effect that the Trustee was aware at the time of the purported exclusion that the purpose set out in [46] was improper. With that amendment, it would seem that the facts pleaded to support the allegation of dishonesty for the exercise (improper purpose) case tilt the balance and justify an inference of dishonesty.

In [55] of the Claim, the Plaintiff pleads that the Trustee owes a duty to each General Beneficiary to give real and genuine consideration to exercising its power under cl 3(1) of the Trust Deed to pay, apply or set aside all or any part of the net income of the Trust to any one or more of the General Beneficiaries. At [56]-[57], the Plaintiff pleads that the Trustee has breached that duty which she says is owed to her as a General Beneficiary of the Trust (presumably in every year since the purported exclusion).

Essentially the same formulation of allegations is made at [71]-[73] of the Claim, except that the alleged breaches are said to have begun after Mr Pratt’s death in 2009.

Without more, I do not consider that, from those pleaded facts, an inference of dishonesty on the part of the Trustee might be made in respect of those alleged breaches of duty. There is no fact which tilts the balance. In contrast to the allegations made in [15]-[54] of the Claim, there is no pleading of the Trustee’s relevant state of knowledge, from which an inference of dishonesty might be inferred. There are further difficulties with an inference of dishonesty being made. For example, as the Trustee notes (TWS5 [44]), on at least one outcome of the allegations made in [15]-[54], the purported exclusion may be voidable rather than void. No attempt is made to discern how the Trustee could have dishonestly failed to appoint income to the Plaintiff in such circumstances. More generally, the allegation implicitly relies on an argument that any dishonest conduct in respect of the purported exclusion necessarily infects the subsequent failure to appoint income allegations with dishonesty. As a matter of pleading, I do not consider that that reasoning is sufficient.

Further, in respect of the alleged breaches in [71]-[73], the Trustee correctly observes that those breaches are based on an assumption that the purported exclusion was valid: TWS5 [54]. In those circumstances, an inference of dishonesty could not be made from the pleadings in [71]-[73] of the Claim. In any case, I refuse to give leave for the Plaintiff to plead [71]-[74] of the Claim as a consequence of finding that her alternative case is unarguable (see Issue 9).

As a consequence of what has been stated above, the allegations made in [2(c)]-[2(f)] of the Reply cannot be made out. While I consider that, taken as a whole, the conduct pleaded at [15]-[54] of the Claim might support an inference of dishonesty, the same cannot be said for [55]-[58], [71]-[74] and [79] of the Claim, which set out the failure to appoint income allegations and the equitable compensation claim. As it is only in respect of those allegations and claim that the Trustee raises the exemption clause and limitation defence (because it is responding to the Plaintiff’s equitable compensation claim), there would be no utility in giving the Plaintiff an opportunity to re-plead those parts of its Reply to which those matters relate.

In [1(c)] of the Reply, the Plaintiff claims that by at least 19 April 2022, the Trustee: (a) had been called upon by her to form an opinion as to whether she is a “child” within the meaning of cl 1(21); and (b) had formed the opinion she was not a “child” within the meaning of cl 1(21), which opinion was unreasonably and/or improperly held. The particulars reference a letter from Arnold Bloch Liebler dated 19 April 2022 sent on behalf of the Trustee and state that the opinion was unreasonably and/or improperly held by reason of the matters in [12(a)(i)] of the Claim.

The Trustee submits that it cannot be properly alleged to have been called upon by the Plaintiff to form an opinion for the purposes of cl 1(21) and to have then, on the basis of the letter from its then solicitors dated 19 April 2022, unreasonably and improperly formed an opinion that the Plaintiff was not a “child” under that clause: TWS1 [18(1)(d)], [159], [162]. It says that the 19 April 2022 letter, in which it was stated that the Plaintiff is not a beneficiary of the Trust, was in response to the Plaintiff’s request for documents. It is noted that the request did not refer to cl 1(21) and cannot objectively be considered to be a request that the Trustee consider the application of cl 1(21) to the Plaintiff or provide a basis that a determination had in fact been made, and that it was unreasonably and improperly formed.

The Plaintiff says that the Trustee’s focus upon her request for documents, to which the 19 April 2022 letter was responding, is misdirected as she pleads at [1(c)] of the Reply simply that by at least 19 April 2022, the Trustee had been called upon to form the opinion: PWS2 [41]. Mr Withers SC acknowledged that the Plaintiff does not know how or when the opinion was formed: TD1 21.4-.5. The Plaintiff submits further that the allegation that the Trustee’s opinion that she was not a “child” within the meaning of cl 1(21) was unreasonably and/or improperly held is consistent with the Plaintiff’s allegations that she is a “child” of Mr Pratt and Mrs Pratt; if that allegation is found to be open, it necessarily follows that it is reasonably arguable that forming the contrary opinion is an opinion “unreasonably and/or improperly held”: PWS2 [42]-[44].

Precisely why the Trustee has raised in its defence that it has not been called upon by the Plaintiff to form an opinion as to whether she is a “child”, and that it has formed no opinion on that matter, is unclear. The definition of “child” in cl 1(21) requires the Trustee to form an opinion as to whether the subject child “has been or is acknowledged by one of that child’s parents as a member of that parent’s family”. The requisite opinion is as to whether there has been an acknowledgement, not whether the definition of “child” is satisfied. The opinion with which the Trustee is concerned in its defence is misconceived. Rather than identifying this, the Plaintiff in her Reply pleads that that opinion was unreasonably and/or improperly held.

In any case, it is far from obvious how the matters pleaded at [1(c)] of the Reply advance the Plaintiff’s claims for relief beyond what is already pleaded in [12(a)] of the Claim. The matters pleaded in [1(c)] of the Reply are unnecessary. I consider that leave should be refused to amend [1(c)] and that subparagraph also ought to be struck out of the Plaintiff’s existing reply.

While the Trustee has not raised the exemption clause or limitation defence in its defence to the amended statement of claim in respect of the purported exclusion per se, it is worth understanding whether the Plaintiff’s claim in relation to the purported exclusion (i.e. excluding the failure to appoint income allegations) would be maintainable if such matters were raised in the Trustee’s defence. In doing so, I emphasise that I am not making any findings on this question, but rather demonstrating that my observations above have some conceivable relevance if the matter progresses beyond this pleading dispute.

The exemption clause is worded such that it exempts the Trustee from liability in respect of (inter alia) a breach of trust. That is, it does not render what would otherwise be a breach of trust not a breach of trust (in contrast to, for example, clauses in a trust deed which enlarge certain powers or abridge certain duties). As the Plaintiff does not claim any loss or damage as a result of the purported exclusion per se, the exemption clause would be no response.

However, there may be a limitation issue in relation to the purported exclusion, given that it took place in 2001. In general, causes of action based upon a breach of trust first accrue on the date of commission: In de Braekt v Powell (2007) 33 WAR 389; [2007] WASCA 55 at [17] per Buss JA; Seiwa Australia Pty Ltd v Seeto Financial Services Pty Ltd [2008] NSWSC 1260 at [107] per Harrison J.

Absent any fraud or fraudulent breach of trust, the limitation period imposed by s 21(2) of the LAA is six years from the date on which the right of action accrued. However, given that the Plaintiff was a minor until her eighteenth birthday in September 2015, it was at that time from which a six-year limitation period effectively commenced: ss 3(2), 23(1) LAA. That period expired in September 2021. As these proceedings were commenced on 22 April 2022, the Plaintiff would appear to be out of time if she could not rely upon s 21(1)(a) of the LAA. As I consider that, with the amendments that I have indicated, the conduct pleaded at [15]-[54] of the Claim which relates to the purported exclusion might give rise to an inference of dishonesty, it seems that the Plaintiff’s claim in relation to the purported exclusion could be maintainable if the limitation defence were raised by the Trustee in its defence.

The arguments on both applications were focused upon and applied to the Plaintiff’s latest round of proposed amended pleadings. Where I have granted leave to amend to the Plaintiff in respect of her Claim, it is generally because the necessary or critical elements formed part of the proposed amendments.

Since, by its strike out application, the Trustee seeks to have [7F]-[7J], [7L]-[7N], [10A] and [10B] of the amended statement of claim struck out, it is necessary for me to record findings on those paragraphs, albeit given the way in which the applications were run I can do so shortly.

By [7F]-[7J] of her amended statement of claim, the Plaintiff in essence pleads that: the purpose of the Trustee in entering into the CDE was to seek to exclude her from the class of General Beneficiaries prior to it being determined through paternity testing that she was a child of Mr Pratt; the Trustee’s entry into the CDE for that purpose was at the “request or direction” of one or more of the Siblings; in those circumstances, in entering into the CDE, the Trustee purported to exercise the reserved power for an improper purpose and as such the CDE is void as a fraud on power. Without more, those paragraphs would be liable to be struck out for not disclosing a reasonable cause of action. [10A] relies on those paragraphs in seeking a declaration that the CDE is void, and would also be struck out as a consequence.

By [7L]-[7N], the Plaintiff pleads the failure to appoint income allegations in essentially the same way as that pleaded in [55]-[58] of the Claim. As those allegations rely upon [7F]-[7J], they would be liable to be struck out as a consequence. In any case, [7N] should be struck out for the same reason that [58] of the Claim would be, as it forms part of the equitable compensation claim. [10B], which states that the Plaintiff is entitled to equitable compensation, would also be struck out as a consequence.

In summary, my findings are as follows:

If the Plaintiff chooses not to avail herself of the leave that has been granted, [7F]-[7J], [7L]-[7N], [10A] and [10B] of the amended statement of claim ought to be struck out.

In taking this approach, I am mindful that the discretion to refuse an amendment on the basis that it would, if allowed, be liable to be struck out, should not be exercised simply on the basis that the applicant’s case appears to be weak, or on the basis of minor, stylistic or technical deficiencies that could be readily cured (indeed, I have expressly indicated where those exist and how they might be cured): see KTC v David [2022] FCAFC 60 at [228] per Wigney J. Where the Plaintiff’s pleadings are clearly liable to be struck out, and could not be saved by a further opportunity to re-plead, I have refused leave to plead them and/or struck them out.

While the positions of the Plaintiff and the Trustee encouraged a binary choice between their respective applications (e.g. PWS4 [97]; TWS4 [115]-[116]), the Court’s discretion allows some latitude as to the choice of the decision to be made: Aon at [89] per Gummow, Hayne, Crennan, Kiefel and Bell JJ, quoting Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission (2000) 203 CLR 194; [2000] HCA 47 at [19] per Gleeson CJ, Gaudron and Hayne JJ. I consider that the approach I have taken appropriately falls within that latitude and accords with the overriding purpose in s 56 of the CPA.

In the event that her amendment application was successful and the strike out application was dismissed, the Plaintiff submits that costs should follow the event: PWS4 [97]. However, she accepts that she ought to pay any costs thrown away by reason of her proposed amendments: PWS3 [49]. In the event that the amendment application was dismissed and the strike out application was successful, the Trustee seeks to have its costs of the applications, as agreed or assessed, paid by the Plaintiff forthwith: TD2 36; MFI-1.

Costs are in the discretion of the Court: s 98(1)(a) CPA. It is generally the case that costs follow the event: r 42.1 UCPR. Unless the Court orders otherwise, the costs of an interlocutory application are to be paid and otherwise dealt with in the same way as the general costs of the proceedings: r 42.7 UCPR.

There is a line of authority to the effect that a party who seeks and obtains an indulgence from the Court, such as in an application for leave to amend, should pay the costs of the application and the costs thrown away by the amendments, even if the party applying for leave is successful: see e.g. O’Shanassy v AIA Australia Limited (previously The Colonial Mutual Life Assurance Society Limited t/as CommInsure) [2022] NSWSC 677 at [149] per Henry J and the authorities cited therein.

However, as is evident from the summary of my findings above, arguably neither of the outcomes contemplated by the Plaintiff and the Trustee have eventuated. To some degree, they have both enjoyed a measure of success. In those circumstances, it is appropriate that I hear the parties on the question of costs.

I direct the parties to bring in short minutes of order to give effect to these reasons for judgment. Those short minutes of order should: (a) include an order that [1(c)] and [2] of the Plaintiff’s reply be struck out; (b) provide that the Plaintiff has leave to file and serve a further amended statement of claim in accordance with my findings within a specified time, with a subsequent timetable (should the Plaintiff avail herself of that leave) for the defendants to file and serve a defence to the further amended statement of claim and the Plaintiff to file and serve a reply to those defences; and (c) address the question of costs – if costs cannot be agreed, there will need to be a timetable for submissions on the costs of the applications.