Lowther Park Pty Ltd as trustee for the Lowther Park Family Trust v Simon Della Marta

These proceedings were commenced by summons filed 5 December 2023 by the plaintiff, Lowther Park Pty Ltd as trustee for the Lowther Park Family Trust.

There is considerable urgency for parts of the application to be determined by me sitting as duty judge because unless the principal order sought is made, the Lowther Park Family Trust will vest on 1 January 2024 with adverse consequences for it.

The Lowther Park Family Trust was established by way of a Deed of Trust dated 19 June 1974 made between William Wentworth Thompson (as settlor) and Lowther Park (as trustee). The Lowther Park Family Trust was created to benefit members of the Lowe family. Without meaning any disrespect, for convenience in this judgment I will refer to members of the Lowe family by their first names.

During the course of the hearing on 8 December 2023, Lowther Park foreshadowed an application to amend the summons. I directed that the form of the proposed amended summons be provided to me in chambers. On 11 December 2023, I received the proposed amended summons and have decided to grant leave for it to be filed. In this judgment I have determined the issues based on the form of the amended summons to be filed consequent on the orders at the conclusion of this judgment.

The parts of the amended summons on which Lowther Park move are as follows:

Lowther Park do not move on prayers 2, 7 and 8 of the amended summons.

At the commencement of the hearing, I made the order in prayer 1 of the amended summons that Mr Simon Della Marta (Mr Della Marta) be appointed to represent the interests of any unborn and/or unascertained beneficiary of the Trust Estate. Mr Della Marta consented to the filing of the amended summons.

Lowther Park relied on the following evidence:

Mr Della Marta relied on the affidavit of Simon Della Marta sworn 7 December 2023.

At the hearing, Mr D Barlin appeared for Lowther Park instructed by HWL Ebsworth and Mr JP Nathan appeared for Mr Della Marta instructed by Pointon Partners.

As I have stated, the Lowther Park Family Trust was established by the Deed of Trust made on 19 June 1974. The “Settlor” defined in cl 1(a) of the Deed of Trust is William Wentworth Thompson, who is now 91 years of age and gave evidence in the proceedings by way of affidavit. The “Trustee” defined in cl 1(b) of the Deed of Trust is Lowther Park.

The relevant provisions of the Deed of Trust are described below.

Clause 1(d) defines “The Trust Fund”:

Clause 1(c) defines “The Initial Amount” as the sum of money set out in the 3rd part of the schedule, which is stated to be $10.

Clause 1(e) defines “The Beneficial Class” as the persons named and described in the 4th part of the schedule and the persons from time to time comprised in the class of persons (if any) defined in the said 4th part of the schedule. The 4th part of the schedule sets out the class of persons comprising:

In short, The Beneficial Class comprises Frederic and Audrey, their children and spouses if married prior to the Terminal Date, and their grandchildren in certain circumstances.

Clause 1(g) defines “The Terminal Date” as the date specified in or determined in accordance with the provisions of the 7th part of the schedule. The 7th part of the schedule states:

Clause 3 states:

The 5th part of the schedule contains a gift over of corpus in the following form:

This gift over is subject to a proviso in the event that the Beneficial Class included one or more grandchildren of Frederic and Audrey, a further proviso if on the Terminal Date there was no person living who is entitled under the preceding portion of the provision and a final proviso concerning the potential share of any great grandchildren of Frederic and Audrey.

Clause 4 states:

The 6th part of the schedule contains a gift over of intermediate income in the following form:

This gift over is subject to a similar series of provisos as are contained in the 5th part of the schedule set out above.

The Deed of Trust does not contain a provision allowing for it to be amended or varied.

On 18 June 1974, Lowther Park was incorporated with Frederic and Audrey as directors and Audrey as the secretary. Two of the shares in Lowther Park were owned by Audrey and one share was owned by Frederic.

William Thompson is “The Settlor” (as defined in cl 1(a) of the Deed of Trust) of the Lowther Park Family Trust. He recalls that on 19 June 1974 he attended at the residence of his cousin, Audrey, and her spouse, Frederic, to execute the Deed of Trust to establish the Lowther Park Family Trust. He also recalls that he contributed “The Initial Amount” of $10. Mr Thompson is a party to the Deed of Trust in his capacity as “The Settlor”, together with Lowther Park, and he signed it on the execution page. Frederic signed the Deed of Trust on the execution page as a director of Lowther Park, and his signature was witnessed by Audrey.

The evidence is that the main asset comprising “The Trust Fund” (as defined in cl 1(d) of the Deed of Trust) of the Lowther Park Family Trust is a unit known as 4/2-12 Eastbourne Road, Darling Point, New South Wales (Darling Point Property), which was purchased on 17 September 1974 for $52,000, thereby classifying it as a pre-capital gains tax asset under the relevant provisions of the Income Tax Assessment Act 1936 (Cth) (ITAA).

The other assets comprising “The Trust Fund” (as defined in cl 1(d) of the Deed of Trust) of the Lowther Park Family Trust are a trading account with Rural Bank and $10 held in cash forming “The Initial Amount” (as defined in cl 1(c) of the Deed of Trust).

Mr Thompson recollects that he was told by Frederic and Audrey that the main purpose behind the establishment of the Lowther Park Family Trust was to acquire the Darling Point Property for the benefit of Frederic and Audrey and, after their death, for the families of their children by providing them with a place to stay while in Sydney. Catherine was told precisely the same thing by each of her parents, Frederic and Audrey, at the time that the Lowther Park Family Trust was set up.

Mr Thompson says that he did not read the terms of the Deed of Trust in detail but relied on the solicitor who prepared it (whose name he does not recall). To support this recollection, he says that the misspelling of Frederic’s second name as Edward instead of Edwin in the Deed of Trust indicates that he did not read it because he would have noticed that error.

Mr Thompson says that at the time he signed the Deed of Trust he did not know that it contained a set of perpetuity rules and a vesting date defined by reference to “The Terminal Date” which had the effect of limiting the life of the Lowther Park Family Trust to a period less than the maximum allowed by law at that time. He says that he did not know that the Deed of Trust provided that the Lowther Park Family Trust was to vest on 1 January 2024 or after a period of time of 50 years or less from the date of its establishment on 19 June 1974.

Mr Thompson said it was not his intention at the date of the establishment of the Lowther Park Family Trust that it would terminate on 1 January 2024. He also does not recall Frederic, Audrey or the solicitor involved in the preparation of the Deed of Trust ever mentioning that the Lowther Park Family Trust was to vest on 1 January 2024 and it was certainly not his intention that it do so.

Mr Thompson does not recall any reason why the Deed of Trust would have provided that the Lowther Park Family Trust would vest in less than 50 years from the date of its establishment. To the contrary, he said it was his intention that the Lowther Park Family Trust would run for as long as possible by law on the understanding that the Darling Point Property could be kept in the family of Frederic and Audrey and used for the benefit of future generations of that family.

Catherine recalls that neither Frederic nor Audrey ever mentioned that it was their intention as directors of Lowther Park and the intention of Mr Thompson to cause the Lowther Park Family Trust to vest on 1 January 2024 or after a period of time of 50 years or less from the date of its establishment. Catherine also said that Frederic and Audrey had told her that the Lowther Park Family Trust was to run for their future generations in the context of her being provided with control over the Lowther Park Family Trust after their respective deaths.

The solicitor who prepared the Deed of Trust was Peter Thompson, a principal at the law firm Priddle Gosling, located at 60 Martin Place, Sydney, New South Wales. Despite the considerable efforts which have been taken by the solicitor from HWL Ebsworth acting for Lowther Park, Mark McLellan-Drehs, to locate the client file of Priddle Gosling relating to the establishment of the Lowther Park Family Trust, none have been successful in doing so. This includes multiple enquiries at each of the current successor firms of Priddle Gosling, which have variously transformed into Barker Gosling, Dibbs Barker Gosling, Dibbs Abott Stillman, Dentons Australia, Murphy & Moloney, Murphy & Murphy, Prior Tzannes & Wallis and Hunt & Hunt.

On 22 May 2000, Frederic died. Catherine then became a director of Lowther Park.

On 19 May 2018, Audrey died. The husband of Catherine, Andrew White, then became an additional director of Lowther Park.

Under the wills of each of Frederic and Audrey, Catherine was gifted the 3 shares in Lowther Park held by them. As a result, Catherine is now the sole shareholder of Lowther Park.

While the Darling Point Property was originally used as Sydney accommodation for different family members of Frederic and Audrey, since 2020 the Darling Point Property has been rented to produce income for the Lowther Park Family Trust for anticipated strata and other costs. This is due to the fact that the entire building in which the Darling Point Property is located is to be the subject of major structural work involving the replacement of all windows. Unless the Darling Point Property produces sufficient income to meet the strata and other costs, it will have to be sold. If the Lowther Park family trust vests on 1 January 2024, there will be a deemed disposal of the Darling Point Property so that it would no longer be regarded as a pre-capital gains tax asset under the ITAA.

The current value of the Darling Point Property is about $2 million.

Catherine and her spouse Andrew are alive and form part of the Beneficial Class as defined in the Deed of Trust. Annabel White and Nicholas White (both alive) are the children of Catherine and Andrew. All of them have expressly consented to the orders which are sought in the summons.

John and his spouse Margaret Shepherd are also alive and form part of the Beneficial Class as defined in the Deed of Trust. Charles Lowe and William Lowe (both alive) are the children of John and Margaret. All of them have expressly consented to the orders which are sought in the summons.

On 21 October 2020, the accountant for Lowther Park (Boyce Pty Ltd) lodged the Deed of Trust with Revenue NSW via its online portal explaining that the Deed of Trust was not capable of amendment to irrevocably exclude “foreign persons” as potential beneficiaries and that none of the existing beneficiaries of the Lowther Park Family Trust were “foreign persons” for the purposes of the Foreign Persons Land Tax Surcharge under the Land Tax Act.

In December 2020, NSW Revenue via their portal stated that the Lowther Park Family Trust is not foreign owned and that the Deed of Trust excludes foreign beneficiaries. This position was then clarified by telephone conversation between the accountant from Boyce and a representative of NSW Revenue who stated that they had accepted the self assessment of Lowther Park as not being foreign owned. If that position is maintained (although it is not binding) the Foreign Persons Land Tax Surcharge will not be charged to Lowther Park.

On 12 January 2023, the portal of Revenue NSW indicated that the assessment for land tax of the Darling Point Property which had been charged to Lowther Park for 2023 was for an amount of $10,496.40, and the amount of the Foreign Persons Land Tax Surcharge was stated to be “not applicable”. This same amount was contained in the land tax assessment notice issued to Lowther Park on 12 January 2023.

On 6 December 2023, Mr McLellan-Drehs sent emails with attached letters on behalf of Lowther Park to the Commissioner of Taxation at the Australian Taxation Office and the Chief Commissioner of State Revenue at Revenue NSW informing each of them of this application and providing copies of the summons and such of the supporting affidavits which had been made by that time. The letters particularly drew attention to the fact that the relief being sought included extending the vesting date of the Lowther Park Family Trust and ensuring that “foreign persons” cannot benefit from it. Mr McLellan-Drehs asked whether each of the Commissioner of Taxation and the Chief Commissioner of State Revenue wished to be heard in relation to the application.

By letter dated 7 December 2023, the Chief Commissioner of State Revenue indicated that he did not wish to participate in the proceedings.

By email dated 7 December 2023, the Commissioner of Taxation indicated that he did not propose to intervene or seek to be heard in the proceedings.

In my opinion, the issue in relation to the vesting date of 1 January 2024 under the Deed of Trust can be resolved by the application of the principles by which a document may be ordered to be rectified because it mistakenly expresses the common intention of the parties to it, in the manner in which those principles apply to trust deeds.

In Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336, Mason J at 350 said:

As stated in Commissioner of Stamp Duties (NSW) v Carlenka (1995) 41 NSWLR 329 (which involved the rectification of a trust deed), by Mahoney AP at 331:

In the judgment of McLelland AJA in Carlenka at 345, his Honour considered the nature of the evidence required to establish the conditions for an order of rectifications, saying:

These principles have been elucidated in two decisions of this court in relation to trust deeds.

In Public Trustee v Smith [2008] NSWSC 397, White J (as his Honour then was) at [71] said:

In Sanwick Pty Ltd v Kalyk [2016] NSWSC 100, Stevenson J at [16] referred to the passage from Maralinga extracted above and said:

The decision in Sanwick was to order the rectification of the trust deed in that case to delete the date which would have the effect of causing the trust to vest.

Similarly to the settlor in each of Smith at [73] and Sanwick at [9], Mr Thompson as the Settlor under the Deed of Trust did not read the Deed of Trust and had no input into its contents, and the circumstances inferentially demonstrate that Mr Thompson intended the Deed of Trust to operate in whatever manner Frederic and Audrey intended it to operate. Both Mr Thompson and Catherine give contemporaneous evidence that it was the intention of Frederic and Audrey that the Lowther Park Family Trust acquire the Darling Point Property, and that the Darling Point Property was to be kept in the family of Frederic and Audrey and used for the benefit of future generations of that family.

In these circumstances, I am satisfied that there is clear and convincing evidence that at the time the Deed of Trust was executed by the trustee, Lowther Park (through its director Frederic) and by the Settlor, Mr Thompson, each of them had an actual intention that the Lowther Park Family Trust was not to vest as early as 1 January 2024 and that the Deed of Trust does not reflect this intention.

At the hearing, Mr Nathan for Mr Della Marta made the submission that the interests of the unborn and unascertained beneficiaries are not adversely affected by the rectification of the Deed of Trust sought by Lowther Park.

For these reasons, I propose to order that the Deed of Trust be rectified by deleting the words “or the 1st day of January in the year 2024” from the definition of “The Terminal Date” in the 7th part of the schedule to the Deed of Trust.

As a result of the view I have formed regarding the rectification of the Deed of Trust, it is unnecessary for me to address any of the submissions that were made to me in relation to the variation of this part of the Deed of Trust pursuant to s 86A of the Trustee Act as sought in prayers 4 and 5 of the amended summons. The complexity of the operation of that provision in the circumstances that arise in this case will have to await another day.

The issue of the variation of the Deed of Trust pursuant to either ss 81 or 86A of the Trustee Act to irrevocably vary the Lowther Park Family Trust and the powers be irrevocably revoked so that a “foreign person” as defined in s 104J of the Duties Act cannot benefit under it arises from prayers 6 and 6A of the amended summons.

I consider that such an order can be made pursuant to s 81 of the Trustee Act and so again it is not necessary for me to embark on any issue that might arise in making the order under s 86A of the Trustee Act.

Under s 2A of the Land Tax Act, a “foreign person” is defined to have the same meaning as in Chapter 2A of the Duties Act, which provides in s 104J that a “foreign person” is a modified form of that definition in s 4 of the Foreign Acquisition and Takeovers Act 1975 (Cth) (FATA), which states:

The modification to the definition of “foreign person” in s 4 of FATA which is made by s 104J(2) of the Duties Act is as follows:

Section 5A(1) of the Land Tax Act creates a surcharge land tax for residential land owned by a “foreign person”. The definition of a “foreign person” in the Land Tax Act has the same meaning as in Chapter 2A of the Duties Act, which is contained in s 104J as extracted above.

Section 5D of the Land Tax Act contains a particular provision for how a trustee of a discretionary trust is taken to be a “foreign person” by providing:

In short, if the terms of the Lowther Park Family Trust prevent a “foreign person” from being a potential beneficiary of it, no surcharge land tax will be payable by Lowther Park on any residential land held by it, which currently is the Darling Point Property. Obviously, if a surcharge land tax became payable by Lowther Park it will have a detrimental financial effect on the Lowther Park Family Trust.

In general terms, a trustee of a discretionary trust cannot amend or vary a trust deed unless the terms of the trust or legislation expressly permits it: Re Dion Investments Pty Ltd (2014) 87 NSWLR 753; [2014] NSWCA 367, Barrett JA (with whom Beazley P and Gleeson JA agreed) at [44]-48].

Section 81 of the Trustee Act states:

I am of the view that the present case is one in which the reasoning regarding the operation of s 81 of the Trustee Act in similar circumstances (albeit involving applications for judicial advice) as stated by Sackar J in each of Re Dion Investments Pty Ltd [2020] NSWSC 1661, Re Cecil Investments Pty Ltd [2021] NSWSC 211, Casibond Pty Ltd [2021] NSWSC 320, Budumu Pty Ltd [2021] NSWSC 522 and TNB 878 Pty Ltd [2022] NSWSC 527 should be followed.

This line of reasoning is encapsulated in TNB, where Sackar J at [81] said:

At the hearing, Mr Nathan for Mr Della Marta made submissions in support of the proposed variation of the Deed of Trust on the basis that there is no evidence that there is any person that might be within the Beneficial Class or the second rank of such persons who may fit the description of a “foreign person”.

I note that the Chief Commissioner of State Revenue and the Commissioner of Taxation did not wish to be heard in these proceedings. Those positions do not, however, prevent either of them acting on the basis that the Lowther Park Family Trust do not prevent a “foreign person” from being a potential beneficiary of it.

For these reasons, I propose to order pursuant to s 81 of the Trustee Act that Lowther Park irrevocably surrenders and/or releases all trusts and/or powers as appropriate so that any beneficiary of the Lowther Park Family Trust who is a “foreign person” as that term is defined in the Land Tax Act, the Land Tax Management Act and the Duties Act is not a beneficiary whilst they meet the definition of “foreign person”

The orders I propose to make are as follows: