Ballard v Ballard: 2020/236059

1. [1]

   The Court has been asked to make declarations as to the interpretation and effect of a will which established trusts in favour of the testator’s grandchildren. The application has been made by the recently appointed trustees of the trust. Clarification is required both for the discharge of the trustees’ obligations in the future and for the purposes of claims, or potential claims, for breach of trust against the predecessor trustee. In this regard the trustees have also sought judicial advice, which will be the subject of a later application in the proceedings.

2. [2]

   The testator was Laurice Geraldine Ballard who lived in Oxenford in Queensland. Her will was made in March 2008 and she died in July of that year. For convenience, and without disrespect, I will refer to the relatives and friends of the deceased who come into this judgment by their given names.

3. [3]

   The main beneficiaries of the residue of the deceased’s estate were her grandchildren, Jessi Louise Ballard, Casey Louise Ballard and Jack Anderson Ballard. They are the children of the deceased’s son, Timothy Lawrence Ballard, and his ex-wife, Jennifer Elaine Ballard. Timothy and Jennifer separated in 2018 and divorced in 2019.

4. [4]

   The testator’s will required that the deceased’s Oxenford house, and its contents, be retained for the use of her friend, Kevin Robert Steele, at the expense of the deceased’s estate, until the deceased’s oldest grandchild (Jessi) turned 26 or Kevin surrendered his interest. After dealing with the testator’s jewellery and personal effects the will provided that Timothy was to receive a bequest of $200,000 and the residue of the estate was to be divided into trust funds for Jessi, Casey and Jack.

5. [5]

   The will named Kevin and another friend of the deceased, Susan Helen Whitmill, as her executors and trustees. Probate was granted to Susan by the Supreme Court of Queensland in July 2009. This followed litigation in the Supreme Court of Queensland which was the subject of a deed of settlement approved by that Court in June 2009.

6. [6]

   Those proceedings had been begun by Timothy, seeking family provision orders. Under the settlement, Kevin was to receive the sum of $150,000 and his right to live in the Oxenford house was to terminate on 10 February 2012. It was also made conditional upon his paying rent of $200 per week. Following the settlement, the bequest of $200,000 would be paid to Timothy, and Kevin would resign as executor and trustee leaving Susan as the sole executor and trustee.

7. [7]

   Later, in April 2012, the Supreme Court of Queensland made an order, apparently by consent, for Susan to be removed as the trustee and Timothy appointed as trustee in her place. I assume that by this point Kevin had vacated the Oxenford property.

8. [8]

   Jessi was born in April 2000. Casey was born in December 2001. Jack was born in May 2004. Thus at the time Timothy was appointed as trustee of the estate, Jessi was 12, Casey was 10 and Jack was 7 years of age.

9. [9]

   The background to these proceedings is set out in a judgment I delivered in November last year in earlier proceedings concerning the estate: Ballard v Ballard (No 2) [2020] NSWSC 1687. A summary for the purposes of this judgment appears below.

10. [10]

    Following his appointment as trustee, Timothy sold the Oxenford property. But he failed to invest the proceeds for the benefit of his children in accordance with the terms of the trusts established by his mother’s will. Instead most of the money appears to have been expended on renovations to the family home (a house at Anna Bay, Port Stephens) and the payment of family expenses.

11. [11]

    The previous proceedings were brought by Timothy as plaintiff against Jennifer as defendant. Timothy acknowledged that he had breached the terms of the will, but alleged that Jennifer had been complicit in the breaches. He invited the Court to make a declaration that a specified proportion of the Anna Bay property was held by way of constructive trust for the testator’s grandchildren under the terms of the will.

12. [12]

    The proceedings were presented to the Court as a necessary preliminary to determination of property settlement proceedings in the Family Court between Timothy and Jennifer as a consequence of their divorce. But it became clear that insufficient analysis of the terms of the trust, and the nature of any claims against Timothy and Jennifer, had been undertaken. Nor were all interested parties (in particular, the children, who were the most closely concerned in the matter) represented.

13. [13]

    The present proceedings were then begun by Timothy as an application for judicial advice. But Timothy’s advisers realised that his position as trustee was untenable. Exercising a power which he had under the Queensland trustee legislation as the existing trustee, he appointed Anthony Stephen Ballard (his brother) and Peter William Mansbridge as the trustees of his mother’s estate (“the Trustees”) in his place. The Trustees were joined as defendants and it became apparent that the issues about the administration of the trusts would be better determined in the present proceedings. The earlier proceedings were eventually dismissed.

14. [14]

    The present application has been brought by the Trustees by way of cross-claim. The Trustees have joined to the cross-claim as cross-defendants all of the potentially interested parties, namely, Timothy, Jennifer, Casey (who has been appointed to represent the interests of her sister and brother as well) and the Attorney-General of Queensland (as protector of charities, given that one of the provisions in the will contemplates the appointment of income in favour of charitable organisations selected by the Trustees).

15. [15]

    The cross-claim seeks to have the Court make twenty-two declarations concerning the effect of various provisions of the will. Prayer 23 seeks judicial advice concerning potential claims against Timothy or Jennifer or both. It was agreed that this would be deferred until the Court had decided the questions which arise about the interpretation of the will, and a settlement conference with Timothy and Jennifer’s representatives had been held.

16. [16]

    For the purposes of the application for declarations, I was provided with an opinion from counsel for the Trustees. Counsel for the interested parties were afforded an opportunity to make written submissions. The matter then returned to Court on 10 August where I raised various points with counsel for the Trustees and also gave the other parties an opportunity to make consequential submissions.

Inception of trusts

1. [17]

   One of the issues raised by the proposed declarations was whether the Trustees could, or should, administer the trusts as three separate funds. This question was also potentially relevant to past breaches on Timothy’s part. In turn it raised a wider question as to when and how the trusts in favour of the grandchildren were established.

2. [18]

   The relevant provisions of the will are cll 3.1, 3.2, 4, 4.6 and 5:

3. [19]

   Counsel’s opinion was that the will created three separate trusts, not a single trust, and that each trust should be separately invested and accounted for. With respect, this is clearly correct. Clause 4.6 expressly obliged the trustees to hold the residue as “separate trust funds”. It is a settled rule of trust administration that the trust funds should be held and administered separately, and should not be mixed either with other trust funds or with the trustee’s own private monies: J D Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworths) at 358 [17-20].

4. [20]

   Counsel next concluded that the grandchildren’s trusts were established upon completion of the administration of the estate. This would have occurred when all of the assets requiring realisation had been realised, which would presumably have been in around 2009 and would certainly have been before Kevin’s right of occupation terminated in February 2012. It followed that from that point forward the trustee (who presumably at the time was Susan) and her successors, would have been obliged to establish separate accounts for each grandchild’s trust.

5. [21]

   At the hearing, I put to counsel that this view might create a practical problem in view of the provision in the second sentence of cl 3.1 requiring that the expenses of maintaining the house and contents during Kevin’s occupation were to be borne by the “estate”. If all of the residuary assets had been appropriated to trusts in favour of the grandchildren, there would, at least in theory, be no assets available.

6. [22]

   However this consideration is of limited weight, because cl 6.1 required the income from the trusts to be applied in the first instance to meeting the expenses of the Oxenford property. No difficulty appears to have arisen during Kevin’s occupation of the property. On balance I think it is clear from the structure of the will and the wording of cl 4 that the testator intended to create trusts in favour of her grandchildren which would come into effect upon the completion of administration.

7. [23]

   I therefore agree with counsel’s opinion on this point. Accordingly there should be a declaration to the effect that the grandchildren’s trusts were constituted upon the assets left by the testator being fully administered.

8. [24]

   While, as I have said, there was and remains an obligation on the Trustees to hold and administer the property as three separate trusts, I do not think that I need to make a declaration to that effect as was asked in the cross-claim. The principle was not contentious between the parties and is so well established as not to require a formal declaration.

Kevin’s interest under the will

1. [25]

   The summons sought declarations confirming that Kevin had no further interest in the will (including the entitlements to income set out in cll 6.2 and 6.3: see [28] below).

2. [26]

   The deed of settlement relevantly provided in cll 2, 2.4, 3, 3.1, 3.2:

3. [27]

   Counsel’s opinion was that the effect of the deed has been not only to work a surrender of Kevin’s entitlement to occupy the Oxenford property, but also of the rights to income under cll 6.2 and 6.3. I agree. There will be a declaration accordingly.

Income derived from grandchildren’s trusts

1. [28]

   Clause 6 of the will relevantly provides:

2. [29]

   I have already discussed cl 6.1, the operation of which ceased once Kevin surrendered his interest in the Oxenford property. The effect of cll 6.2 and 6.3 ceased at the time of the deed of settlement. This leaves cl 6.4 into which all of the income generated by the trust assets now falls.

3. [30]

   Two questions were raised about the operation of this clause. The first was whether it created a gift in favour of charities in the nominated class (which would presumably need to be identified cy-pres), or merely a power which could be exercised in favour of charities in the nominated class. The second was whether, if the clause only created a power, that power was personal to Kevin and Susan so that it cannot now be exercised by the Trustees.

4. [31]

   Counsel’s opinion was that the clause merely created a power. With respect, I think that is correct on the language. Counsel for the Attorney-General did not argue to the contrary. The result is that the Trustees may, but are not obliged, to distribute the income from each grandchild’s trust to charities in the nominated class until that grandchild turns 26. If they do not exercise the power, then the income must be accumulated.

5. [32]

   The power granted is a broad one, and the will does not contain any criteria to guide successor trustees in the exercise of it. In terms, the power is conferred only on Kevin and Susan. But the will refers to “my trustee Kevin” and I think that this is sufficient indication that if Kevin and Susan ceased to be the trustees the successor trustee may still exercise the power. The law favours charities, and I see no reason to read down the grant of a charitable power of appointment.

6. [33]

   There will be declarations to reflect these conclusions. Counsel also considers that the term “income” as used in the will is to income as determined for trust purposes, rather than the extended sense in which the term is used in income tax legislation, as including capital gains. This may well be correct but so far as I can see the issue does not currently arise for decision, and I propose not to make any decision on it in the absence of a concrete issue on which I could hear all affected parties.

Power of maintenance, education and advancement

1. [34]

   Clause 8 of the will relevantly provides:

2. [35]

   Counsel’s opinion was that cl 8.2 would permit the Trustees to appoint capital or income out of each grandchild’s trust for the stated purposes. But I think that, at least so far as it applies to income, their view is questionable.

3. [36]

   Arguably, cl 6.1 manifests an intention on the part of the deceased that until her grandchildren turned 26, they would not derive any income from the trust. To appropriate income for the stated purposes arguably might infringe that intention. It can therefore be argued that the general power in cl 8.2 should give way to a specific (implicit) prohibition in cl 6.1. As, again, no current concrete issue has arisen under cl 8.2, it is not necessary to decide the question and I will not do so.

Conclusions and orders

1. [37]

   I have concluded that I should make declarations to the extent discussed above. As I have mentioned, the judicial advice application has been deferred. No application was made for costs and I will reserve costs so that they can be dealt with at the end of the proceedings.

2. [38]

   The orders of the Court are:

   1. (1)

      Declare that on the true construction of the will of the late Laurice Geraldine Ballard dated 20 March 2008 and admitted to probate by the Supreme Court of Queensland on 13 July 2009, and in the events which have happened:

   2. (2)

      Costs reserved.