Supreme Court Offers Guidance on Trust Distribution

The court provided judicial advice to trustees regarding the distribution of trust funds under conflicting legal opinions. The decision allowed for the distribution according to a specific construction of the trust deed, ensuring personal protection for the trustees.

OUTCOME: Allowed

Supreme Court New South Wales

Medium Neutral Citation: [NAME] v [COMPANY] [2015] NSWSC 1815 Hearing dates: 27 November 2015 Date of orders: 04 December 2015 Decision date: 04 December 2015 Jurisdiction: Equity Before: Pembroke J Decision: Judicial advice granted Catchwords: TRUSTEE ACT – Section 63 – judicial advice regarding 'interpretation of trust instrument' – competing opinions – proper approach – whether appropriate to give advice Legislation Cited: Trustee Act 1925 (NSW) Cases Cited: [COMPANY] v J Noble Pty Ltd [2003] NSWSC 548 Australian Broadcasting Commission v [COMPANY] (1973) 129 CLR 99; [1973] HCA 36 Beck v Henley [2014] NSWCA 201 Harrison v Mills [1976] 1 NSWLR 42 [COMPANY] v [NAME] The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 Re Application of [COMPANY] [2003] NSWSC 1185 Re Estate late [NAME] [2013] NSWSC 844 Texts Cited: [NAME], [NAME], [NAME] and [NAME]'s Law Relating to Trusts and [NAME], 18th ed, 2010 Category: Principal judgment Parties: [NAME] – first plaintiff [NAME] – second plaintiff [NAME] – [NAME] [RESPONDENT] - defendant Representation: Counsel: [redacted] No appearance for the defendant

Solicitors: [redacted] [NAME] – for the defendant File Number(s): 2015/334526

Judgment

Introduction 1. This is a summons by [NAME] for orders pursuant to Sections 70 and 63 of the Trustee Act 1925 (NSW). The defendant, [COMPANY], did not appear and consented to the relief sought. Although the proceedings came to me in the Applications List, I reserved my decision partly because of the complexity of the issues and partly to enable me to better consider an opinion by a [NAME] [NAME] which, in one material respect, differed from the advice on which the [NAME] propose to act 2. Notwithstanding the opinion of [NAME], who is a member of the extended family, there is substantial unanimity among all persons with a direct or indirect interest in the outcome. The solicitor for the plaintiffs has written to everyone who may be entitled to take a share, or may have a contingent interest, in the fund in question. Almost all have given their unqualified consent to the course proposed by the [NAME]. Several specifically, but unnecessarily, requested that the judge be provided with all relevant opinions obtained by the [NAME].

3. Only one, [NAME], withheld his consent and proffered his own opinion. He is content however so long as 'all advices and letters and views of the beneficiaries, including those of [NAME] [NAME], Mr [NAME] and my own, will be properly, fully and unbiasedly (sic) placed before the presiding Judge in Court proceedings which seek judicial advice and sign off'. If I declined to give judicial advice, it appears likely that no interested person would wish to take on the role of being an active defendant in a construction suit.

4. In those circumstances, there is utility in giving judicial advice, notwithstanding that the principal question involves a disputed issue of construction that affects the rights of beneficiaries. The question as to whether any particular case is an appropriate vehicle for judicial advice is ultimately a matter for the exercise of the Court's discretion and depends very much on the particular circumstances. In this case, I do not think that the interests of justice would be served if I refrained from giving advice to the [NAME], simply because the central issue is a question of construction on which minds have differed. Compare Re Application of [COMPANY] [2003] NSWSC 1185 AT [15] – [18]; Harrison v Mills [1976] 1 NSWLR 42 at 45; [COMPANY] v J Noble Pty Ltd [2003] NSWSC 548 at [20]; and [COMPANY] v [NAME] The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42 (2008) 237 CLR 6 at [60]. See also Beck v Henley [2014] NSWCA 201 at [54] and Re Estate late [NAME] [2013] NSWSC 844 at [188].

5. That is not to say however, that I am required to resolve the question of construction – as if this were a final hearing in contested proceedings in which one party seeks a declaration as to the proper construction of the trust instrument. The relevant question before me is whether the [NAME] 'would be justified' in acting in accordance with the advice of senior counsel. The procedure on such an application is summary, ex parte and non-binding – in the sense that any advice that I give will not prevent further litigation on the issue of construction. This is not an adversarial proceeding, but a facility for giving private advice, the principal function of which is to ensure the personal protection of the [NAME]: [COMPANY] at [54] – [76] but cf [72].

6. In an application for judicial advice pursuant to Section 63 of the Trustee Act, even one regarding 'the interpretation of the trust instrument', the Court does not finally determine the question of construction. And it does not finally determine the rights of the beneficiaries. That is partly because there is no contradictor. I did not have the benefit of a professional advocate who could have developed and presented the argument in favour of the contrary construction to that on which the [NAME] propose to act. I had only the dry words of [NAME] [NAME] 'note' and [NAME] vigorous expression of his own personal opinion. Even on a question of construction however, what is 'right' can often be a matter on which reasonable minds differ, including – perhaps especially – reasonable judicial minds. The issue on this application is simply whether the choice made by the [NAME] is justified. If it is justified, the [NAME] will be deemed to have discharged their duty. That is so, even if, in the unlikely event of a future challenge, another court takes a different view of the question of construction. With that introduction, I should consider the facts.

Factual Background 1. The difference of opinion that requires judicial intervention arises out of two trusts created in 1926 and 1934 by [NAME] ([NAME]) for his children and grandchildren. He was a [NAME] from Goodooga and formerly held the rank of Major in the Royal Highland Regiment, better known as the Black Watch. He had five children – [NAME] (known as [NAME]) and [NAME]. [NAME] is still alive. The plaintiff, [NAME], is the son of [NAME]. The plaintiff, [NAME], is the daughter of [NAME]. And the plaintiff [NAME] is a daughter of [NAME].

2. The [COMPANY] provided for a fund in five equal parts. [NAME]'s son, [NAME], was to obtain his share on turning 24. His four daughters, [NAME] and [NAME] were to enjoy life interests with remainders to such of their children as they appointed by will, or otherwise their shares were to go to all of their children equally.

3. In 1934 [NAME] established a number of further trusts – three for each of the elder children and another for his twin daughters, [NAME] and [NAME]. I am only directly concerned with the [COMPANY] for [NAME] and [NAME] ([COMPANY]). The [COMPANY] conferred life interests on each of [NAME] and [NAME] and created a contingent interest if one or both of them died without children or before reaching the age of 24 years. [NAME] died on 20 February 2015 without children. In consequence, Clause 13 of the [COMPANY] required her half share of the fund to be transferred to the trustee of the [COMPANY], to be dealt with on 'the same trusts as those contained in a settlement dated the Tenth day of December 1926'.

4. On 31 May 2011 [NAME] wrote to [NAME] in connection with the [COMPANY] and advised her that the 'administration processes required to finalise this trust have now been completed'. A sum of $17,072.13 was deposited directly into her bank account. A similar deposit was apparently made in January 2011 in relation to [NAME] share of the [COMPANY] fund.

5. If [NAME] half-share of the [COMPANY] is now transferred to the [COMPANY], there will be a sum of approximately $3 million available for distribution. The [COMPANY] have obtained advice as to the distribution of these monies, including as to the proper construction of both the [COMPANY] and the [COMPANY]. They consulted Dr [NAME], Mr [NAME] and [NAME] [NAME]. Unusually for an application such as this, there is a substantial difference of opinion as to the proper construction of the trust deeds. The difference is material to the financial interests of members of the family.

Substitution of [NAME]

1. There is however one logically anterior issue with which I should deal before turning to the issues requiring the judicial advice. [NAME] is the trustee of the [COMPANY]. The [COMPANY] have requested [NAME] to consent to its retirement as trustee of the [COMPANY] so that they can be appointed also as [COMPANY]. Their object is to ensure a more efficient and cheaper resolution of any residual issues relating to both trusts. [NAME] has indicated its preparedness to retire from the role of trustee but requested that an additional trustee, experienced in law and trust matters, be appointed in addition to the first two named plaintiffs. The [NAME], [NAME], who is suitably qualified, has consented to be appointed. And [NAME] consents to her appointment.

2. There is however a question as to whether the [COMPANY] terminated when [NAME] transferred the balance of the fund to [NAME] in 2011. If it did, no utility would be served by appointing new [NAME] to it. [ADDRESS] has a broad power to appoint new [NAME] under Section 70 of the Trustee Act. An appointment may be made 'whenever it is expedient to appoint a new trustee and it is inexpedient, difficult or impractical so to do without the assistance of the Court'. It is obviously expedient in a general sense to make an order for the appointment of the plaintiffs as [COMPANY]. The three plaintiffs are fit and proper persons; two of them have been [COMPANY] since 1997; the [NAME] is a solicitor and an officer of this Court; and I infer that she is well acquainted with her obligations relating to the administration of trusts. In the events that have occurred, the administration of the [COMPANY] and [COMPANY] has become entwined, so that it is more efficient, and likely to involve less expenditure, if the same persons are appointed as the [NAME] of each trust. Finally, of course, only one child ([NAME]) of [NAME] remains alive and she is 92 years of age. This is therefore the inexorable final stage of the administration of the trusts which [NAME] established so long ago.

3. I do not think that [NAME] transfer of the then outstanding account balances to [NAME] and [NAME] in 2011 constitutes a legal impediment to the appointment of the plaintiffs as [COMPANY]. In 2011 it should have been apparent that the trustee of the [COMPANY] would become entitled to substantial funds from the [COMPANY]. That contingent interest involved a right to demand the proper administration of the [COMPANY] and constituted valuable property. A mistaken clerical decision by an administrative officer of [NAME], who was apparently unaware of the existence of a contingent right to property accruing under the [COMPANY], could not constitute the termination of the [COMPANY]. This is not a case where, for example, a trustee has knowingly and deliberately taken steps to terminate a trust by exercising a power 'to decant all of the trust assets out of the trust to another trust or to individuals as absolute beneficial owners': [NAME], [NAME], [NAME] and [NAME] to Trusts and [NAME], 18th ed, 2010 at [21.2] – [21.3].

[COMPANY]

1. The second issue involves an uncontroversial application for judicial advice in relation to an aspect of the [COMPANY]. There is little difficulty about this question. Upon the death of [NAME], Clause 13 of the [COMPANY] became applicable. There is really only one plausible relevant construction of that clause, namely, that upon the death of either [NAME] or [NAME], her half-share of the fund was to be transferred to the trustee of the [COMPANY] to hold on those trusts. There is no sound basis for the contention that the whole of the fund is required to be transferred.

2. On this issue, both Dr [NAME] and [NAME] [NAME] agreed that the proper construction of Clause 13 of the [COMPANY] was that 'upon the death of Mrs [NAME], one-half of the fund of the [COMPANY] should be transferred to the trustee of the [COMPANY] to be held on the trusts of that settlement'.

3. Mr [NAME] also provided an opinion in which he generally agreed with [NAME] [NAME]. He did not say so, but I infer that his concurrence extended to the proper construction of this aspect of Clause 13 of the [COMPANY]. There was therefore no contrary legal opinion and no reason to doubt the shared opinions of Dr [NAME] and [NAME] [NAME].

[COMPANY] 1. The [NAME] issue involves an application for judicial advice in relation to the [COMPANY]. The receipt by the [COMPANY] of [NAME]'s half-share of the [COMPANY] gives rise to a question as to the manner in which they should deal with it. Dr [NAME] and [NAME] [NAME] differed on this issue.

Dr [NAME] SC 1. Dr [NAME] opinion is that the [NAME] should deal with that sum by distributing it equally to the estates or heirs of [NAME]'s five children pursuant to the terms of the [COMPANY]. This would mean that each of the estates or heirs of [NAME] and [NAME] receive a one-fifth share plus one-quarter of the one-fifth share that would have accrued to [NAME].

[NAME] [NAME] 1. [NAME] [NAME] came to a different, more complicated, and less attractive, view. The result, on his analysis, is that [NAME] half-share of the [COMPANY], should not be divided five ways among [NAME]'s five children or their heirs. Instead, it should be held only for [NAME], the sole survivor, and her heirs. He acknowledged that 'this creates some difficulty in working out how the [COMPANY], which divides property into five separate funds, is to be applied where there is only one child remaining'. But such an outcome is the consequence, he thought, of the language of the last few words of Clause 13 of the [COMPANY], namely 'for the benefit of [NAME]'s surviving children'.

2. The problem is that the [COMPANY] really has nothing to do with the issue. As I have made clear, Clause 13 directs that [NAME] half-share of the fund be held 'upon the same trusts' as those contained in the [COMPANY]. The [COMPANY] was established for [NAME]'s children and grandchildren. Clear words would be required to indicate that [NAME] intended that the straightforward phrase 'upon the same trusts' should be construed in a qualified manner.

3. I do not regard the concluding words of Clause 13 of the [COMPANY] as amounting to a direction to deal with the property contrary to the trusts of the [COMPANY]. Those words do not, in my view, amount to a form of modification of the trusts under the [COMPANY]. I doubt whether they are truly ambiguous, but even if the language of the concluding words of Clause 13 is open to two constructions, I prefer that 'which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust': Australian Broadcasting Commission v [COMPANY] (1973) 129 CLR 99 at 109; [1973] HCA 36.

4. It is therefore appropriate that [NAME] half-share of the remainder of the [COMPANY] should be treated as accruals to the separate shares provided for [NAME]'s five children under the [COMPANY]. It is certainly an approach on which the [NAME] are justified in acting.

[NAME] 1. [NAME] is the youngest son of [NAME]. I respect and understand his enthusiastic support for [NAME] [NAME] opinion; and his lengthy written submissions were cogently and vigorously expressed. But although he obtained a number of legal qualifications in the 1980s, [NAME] holds no current practising certificate and has not done so for several decades. I carefully reviewed his submissions but ultimately, they rise no higher than [NAME] [NAME] analysis, which he embraced and sought to develop, but with which I differ.

Mr [NAME] SC 1. I did not find Mr [NAME] opinion conclusive. His brief written advice stated that he had been asked a series of unspecified questions, each of which remains a mystery to me. He then deferred to the need for a court hearing, stating that 'it is appropriate that there be a summons for judicial advice … [or] a construction summons'. At the conclusion of his advice, he added that he 'agreed generally' with the views of [NAME] [NAME], without identifying what those views were. [NAME] [NAME] 'note' was, I am afraid to say, replete with multiple views. But on the critical issue of the distribution of [NAME] half-share of the [COMPANY], I prefer the view proposed by Dr [NAME].

Distribution under [COMPANY]

1. Dr [NAME] analysis is one on which the [NAME] are justified in acting. As I have made clear, I am not expressing a concluded view on the question of construction. But given the constraints of a Section 63 application, I am satisfied that there are sound reasons why the [NAME] are justified in preferring Dr [NAME] analysis to that of [NAME] [NAME].

2. This means that the [NAME] are justified in dealing with [NAME] half-share of the [COMPANY] in accordance with the terms of the [COMPANY], in the following manner: After payment of any expenses in regard to the administration of the [COMPANY]: (a) to pay one-fifth of the said sum to the Estate of the late [NAME]; (b) to pay one-fifth of the said sum to the children of the late [NAME] ([NAME]) as have been appointed by her will to receive such sums, or in the event that no such appointment is made under her will between her children equally; (c) to pay one-fifth of the said sum to the children of [NAME] ([NAME]) as by her will she has appointed to receive such sum or in the event that her will makes no such appointment to her children equally; (d) to hold the one-fifth share upon trust for [NAME] for her life, and upon her death to distribute the balance of the corpus of that trust after payment of any expenses of the trust to such of her children as she may have appointed under her will to receive such payment, or in the absence of any such appointment to her children equally; (e) as to the one-fifth which would have accrued to [NAME] as follows: (i) to pay one-quarter of the said sum to the Estate of the late [NAME]; (ii) to pay one-quarter of the said sum to the children of the late [NAME] ([NAME]) as have been appointed by her will to receive such sums or in the event that no such appointment is made under her will between her children equally; (iii) to pay one-quarter of the said sum to the children of [NAME] ([NAME]) as by her will she has appointed to receive such sum, or in the event that her will makes no such appointment to her children equally; (iv) to hold the remaining quarter share upon trust for [NAME] for her life and upon her death to distribute the balance of the corpus of that trust after payment of any expenses of the trust to such of her children as she may have appointed under her will to receive such a payment or in the absence of any such appointment to her children equally.

Orders 1. I therefore make orders in accordance with Prayers 1 – 5 of the summons filed on 13 November 2015. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 December 2015