Adamstoun Holdings Pty Ltd (ACN 009 049 165) v Brogue Tableau Pty Ltd
[2007] WASCA 43
•26 FEBRUARY 2007
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: ADAMSTOUN HOLDINGS PTY LTD
(ACN 009 049 165) & ANOR -v- BROGUE TABLEAU PTY LTD [2007] WASCA 43
CORAM: STEYTLER P
BUSS JA
HEARD: 1 NOVEMBER 2006
DELIVERED : 26 FEBRUARY 2007
FILE NO/S: CACV 45 of 2006
BETWEEN: ADAMSTOUN HOLDINGS PTY LTD
(ACN 009 049 165)
First Appellant
AM SECURITIES PTY LTD (ACN 000 685 601)
Second AppellantAND
BROGUE TABLEAU PTY LTD
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :MASTER NEWNES
Citation :BROGUE TABLEAU PTY LTD -v- BINNINGUP NOMINEES PTY LTD & ORS [2006] WASC 63
File No :CIV 2006 of 2005
Catchwords:
Interlocutory appeal - Application for leave to appeal against dismissal of application to strike out parts of statement of claim
Trusts - Appointment of sole beneficiary of unit trust as sole trustee - Whether reasonably arguable that trust is extinguished
Legislation:
Property Law Act 1969 (WA), s 18
Result:
Application for leave to appeal dismissed
Category: B
Representation:
Counsel:
First Appellant : Mr D H Solomon
Second Appellant : Mr D H Solomon
Respondent: Mr J D Merralls QC & Mr A Metaxas
Solicitors:
First Appellant : Solomon Brothers
Second Appellant : Solomon Brothers
Respondent: Arthur Metaxas & Co
Case(s) referred to in judgment(s):
Binningup Nominees Pty Ltd v Brogue Tableau Pty Ltd [2004] WASC 14
Charles v Federal Commissioner of Taxation (1954) 90 CLR 598
CPT Custodian Pty Ltd v Commissioner of State Revenue of the State of Victoria (2005) 224 CLR 98
DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (New South Wales) (1982) 149 CLR 431
DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510
Glenn v Federal Commissioner of Land Tax (1915) 20 CLR 490
In re Fletcher; Reading v Fletcher [1917] 1 Ch 339
Ingle v Vaughan Jenkins [1900] 2 Ch 368
Karingal 2 Holdings Pty Ltd v Commissioner of State Revenue (2002) 51 ATR 190
Saunders v Vautier (1841) 49 ER 282
The State of Western Australia v Bond Corporation Holdings Ltd (1991) 5 WAR 40
Wilson v Metaxas [1989] WAR 285
STEYTLER P: I agree with Buss JA.
BUSS JA: The appellants, who are the second and third defendants in CIV 2006 of 2005, have applied to this Court for leave to appeal against the decision of Master Newnes to dismiss the appellants' application to strike out parts of the respondent's statement of claim in those proceedings.
The Estate Trust and the South Trust
By a deed dated 31 December 1975, a trust known as the Binningup Estate Unit Trust ("the Estate Trust") was created. Binningup Nominees Pty Ltd ("Binningup Nominees") is and at all material times has been the trustee of the Estate Trust.
By a deed dated 31 December 1975, a trust known as the Binningup South Unit Trust ("the South Trust") was created. Before 22 April 1997, Binningup (South) Pty Ltd ("Binningup South") was the trustee of the South Trust. On 22 April 1997, Binningup Nominees was appointed as the new and sole trustee of the South Trust. At all material times, Binningup Nominees, in its capacity as trustee of the Estate Trust, has been the registered holder of all of the issued units in the South Trust.
Binningup Nominees is the first defendant in CIV 2006 of 2005.
The trust deed of the South Trust
The relevant provisions of the South Trust, are these:
(a)By cl 3:
" … the Trustees HEREBY DECLARE that they will henceforth stand possessed of the Trust Fund and the income thereof upon the trusts and with and subject to the powers and provisions hereinafter expressed concerning the same."
(b)By cl 7(a) and (b):
"(a)THERE shall be a Committee (hereinafter referred to as 'the Advisory Committee') to which each Unit Holder shall be entitled to appoint one person as its representative unless otherwise specified in the First Schedule. The said appointment shall be effected by notice in writing addressed to the Trustees and any such Unit
Holder may from time to time by like notice remove any representative appointed by it and appoint another person to act as its representative in his stead.
(b)The Advisory Committee shall have the power to advise and/or direct the Trustees and the Trustees shall be obliged to seek prior advice from the Advisory Committee in relation to all matters arising in connection with any business carried on by the Trustees and as to the acceptance of cash and/or authorised investments into the Trust Fund or the method and manner of investing cash from time to time comprising the Trust Fund and dealing with all or any of the investments thereof and in particular but without limiting the generality of the foregoing the Advisory Committee may direct the Trustees to invest the Trust Fund in any specified investment as the Advisory Committee may in its absolute discretion deem fit. The rights powers authorities and discretions conferred on the Trustees under or by virtue of the provisions contained in this Deed howsoever expressed shall at all times by [sic] subject to the directions of the Advisory Committee."
(c)By cl 8(a) and (b):
"(a)THE beneficial interest in the Trust Fund as originally constituted and as existing from time to time shall be held by the Unit Holders for the time being in proportion to the units registered in their respective names and all units shall at any given time be of equal value.
(b)Each unit shall entitle the registered holder thereof equally with the registered holders of all other units to the beneficial interest in the Trust Fund as an entirety but subject thereto shall not entitle the Unit Holder to any particular security or investment comprised in the Trust Fund or any part thereof and save as herein expressly provided no Unit Holder shall be entitled to the transfer to him of any property comprised in the Trust Fund."
(d)By cl 10(a), relevantly:
" … the Trust created by these presents shall commence on the day mentioned in the First Schedule and shall terminate on the Vesting Day unless it has been terminated prior to that date under the provisions of this Deed."
(e)By cl 12(a) and (b):
"UPON the Trust terminating or being terminated under the provisions of Clauses 10 and/or 11 of this Deed and subject to any unanimous direction or directions of the representatives to [sic] the Advisory Committee the Trustees shall proceed as follows:‑
(a)The Trustees shall sell all investments in the Trust Fund and such sale shall be carried out by public auction. All investments and each of them shall be sold to the highest bidder. Any Unit Holder may bid at such public auction.
(b)The Trustees shall from time to time and as soon as is practicable distribute cash available in the Trust Fund to Unit Holders in proportion to units held until the assets of the Trust Fund have been completely turned into cash and distributed to Unit Holders PROVIDED ALWAYS that the Trustees shall retain full provision for all costs charges expenses claims and advertising costs and demands incurred or expected by the Trustees in the liquidation of the Trust."
(f)By cl 14:
"EACH person who becomes registered as a Unit Holder shall be deemed to have agreed to become a party to this Deed and any supplemental deed and shall be entitled to the benefit of and shall be bound by the terms and conditions of this Deed and any supplemental deed."
(g)By cl 21(a):
"THE Trustees shall in each Accounting Period until the Vesting Day or the date of the termination of the Trust whichever shall first occur pay apply or set aside the whole of the net income of the Trust Fund of that Accounting Period for the benefit of the Unit Holders in proportion to the number of units of which they are respectively registered as at the end of the said Accounting period."
(h)By cl 33:
"(a)THE Trustees or any of them may retire upon giving at least one month's notice in writing to the Advisory Committee provided however that such retirement shall not be effective until an appointment has been made pursuant to paragraph (b) of this Clause.
(b)In the event of a Trustee retiring in accordance with sub‑clause (a) of this Clause the Advisory Committee shall appoint a new Trustee and if the Advisory Committee is unable to agree upon an appointee then such appointment shall be effected by the retiring trustee without reference to the Advisory Committee.
(c)The Advisory Committee shall be entitled by instrument in writing at any time and from time to time to remove any Trustee hereunder or of the Trust Fund and to appoint any new or additional Trustee or Trustees hereunder or of the Trust Fund.
(d)A new Trustee so appointed shall execute a Deed in such form as is submitted by the Advisory Committee whereby such new Trustee shall undertake to the Unit Holders jointly and severally all of the obligations of the retiring Trustee hereunder and from the date of the Deed the retiring Trustee shall be released from all further obligations under this Deed."
(i)By cl 35:
"THE Trustees shall have the sole and absolute discretion in the exercise of all rights appertaining to the shares or other investments comprised in the Trust Fund and no Unit Holder shall save as is herein expressly provided have any right with respect to the Trust Fund to attend meetings of shareholders or to vote to take part in or consent to any corporate or shareholder action or save as expressly provided by this Deed to interfere with or question the exercise or non‑exercise by the Trustees of the rights and powers of the Trustees as the owners of the investments of the Trust Fund."
The trust deed of the Estate Trust
The trust deed of the Estate Trust contains provisions which are not materially different from those of the trust deed of the South Trust.
The deed appointing Binningup Nominees as the new and sole trustee of the South Trust
Binningup South retired as trustee, and Binningup Nominees was appointed as the new and sole trustee, of the South Trust pursuant to a deed dated 22 April 1997. That deed provides, relevantly:
"1.Pursuant to the powers contained in clause 33(c) of the Trust Deed the Advisory Committee hereby remove [sic] the Retiring Trustee from its office as trustee of the Trust Fund effective from the date of execution of this deed and appoint [sic] the New Trustee as trustee of the Trust Fund in place of the Retiring Trustee with effect from the date of execution of this deed.
2.The Retiring Trustee DECLARES that the estate and interest formerly held by him in the property of the Trust Fund shall henceforth vest in the New Trustee.
3.On and from the date of this deed the Retiring Trustee is discharged and released from further performance of its obligations and duties as trustee of the Trust Fund.
…
6.The New Trustee DECLARES that it will henceforth act as the trustee of the Trust Fund upon the terms of the Trust Deed as the same may be varied from time to time and the New Trustee assumes all the obligations and liabilities and rights, powers and duties and all the property and assets of the Trust Fund.
7.The New Trustee covenants that:
(a)it has not received a benefit of any kind out of or in connection with the Trust Fund and that all necessary resolutions have been passed and authority given for it to assume office as trustee of the Trust Fund;
(b)it will carry out its duties and obligations as trustee as required by the Trust Deed and by law and will not knowingly commence [sic] a breach of trust; and
(c)it will do all acts and things and execute all documents as may be necessary to give effect to this deed.
…
9.Save as herein modified varied or amended the trusts terms and conditions of the Trust Deed are hereby confirmed."
Paragraph 11 of the statement of claim
In par 11 of its statement of claim, the respondent pleads, in effect, that by reason of:
(a)Binningup Nominees, in its capacity as trustee of the Estate Trust, holding all of the issued units in the South Trust; and
(b)Binningup Nominees having become the sole trustee of the South Trust pursuant to the deed dated 22 April 1997,
since 22 April 1997 Binningup Nominees has held "the property which was or is or purports to be the trust property of the [South Trust] on the trusts of the [Estate Trust]".
The respondent then pleads, in subsequent paragraphs, in effect, that since 22 April 1997 Binningup Nominees has purported to act as trustee of the property of the South Trust without regard to, and in breach of, the terms of the Estate Trust.
The decision in Binningup Nominees Pty Ltd v Brogue Tableau Pty Ltd [2004] WASC 14
In Binningup Nominees Pty Ltd v Brogue Tableau Pty Ltd [2004] WASC 14, Binningup Nominees made an application in the Supreme Court which required the respondent in this appeal to show cause why an absolute caveat it had lodged over land ("the South Land"), apparently the subject of the South Trust, should not be removed. Pullin J (as his Honour then was) referred to Binningup Nominees' status as the sole trustee of and sole beneficiary under the South Trust, and also to its status as the sole trustee of the Estate Trust. His Honour then said, at [5]:
"The first observation which I make is that there is no trust involved in the [South] Trust. A trustee may be one of a number of beneficiaries but cannot be the sole beneficiary. If a trustee is the sole beneficiary, there is no trust because there is no separate equitable interest vested in the beneficiary. The legal and equitable interests merge into full ownership: DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties(NSW) (1982) 149 CLR 431 at 464 and 474. The result is that [Binningup Nominees] holds the trust fund of the [South Trust], including the South Land, on trust for the beneficiaries of the [Estate] Trust."
Pullin J held, however, at [29] ‑ [31], that the respondent had a caveatable interest in the South Land by virtue of its status as a unit holder in the Estate Trust. His Honour also held that the respondent was not entitled to lodge an absolute caveat, but was entitled to lodge a "notice" caveat. His Honour ordered that the respondent be directed to withdraw the absolute caveat, but have leave to lodge a "notice" caveat in a form approved by the Court. See [38] and [42] of his reasons.
The proceedings before Master Newnes
In the proceedings before the learned Master, the appellants challenged the correctness of Pullin J's conclusions, at [5] of his Honour's reasons, that:
(a)"there is no trust involved in the [South] Trust"; and
(b)"[Binningup Nominees] holds the trust fund of the [South Trust], including the South Land, on trust for the beneficiaries of the [Estate] Trust".
The learned Master summarised, at [16] ‑ [25], the appellants' submissions before him, as follows:
"On behalf of these defendants, it was submitted, first, that as these defendants were not parties to those earlier proceedings and the judgment was not one in rem, they are not bound by it, and secondly, that the reasoning of Pullin J in that case is inconsistent with the subsequent decision of the High Court in CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 79 ALJR 1724.
These defendants accepted that there are a number of authorities for the proposition that where there is a sole beneficiary under a trust and the trustee of the trust is the same person as the sole beneficiary, the equitable interest of the beneficiary merges in its legal interest as trustee and the trust is brought to an end. But it was submitted that that result will come about only where the beneficiary has an equitable interest in the trust property, and where its equitable interest as beneficiary and its legal interest as trustee in the trust property are equal and co-extensive. It was submitted that that was not the position in the present case.
Counsel for these defendants argued that in CPT Custodian (supra) the High Court had rejected the notion that unit holders in a unit trust must be considered the equitable owner of each asset of the trust. The Court had held (at [36]) that whether a unit holder is the equitable owner of the trust property depends upon the terms of the relevant trust deed.
It was submitted that, in the present case, the South Trust deed gives the trustee wide powers to invest moneys forming part of the trust fund and limits the involvement of unit holders in those matters. The only right conferred by the deed on a unit holder in the South Trust is to a proportionate share of the net income of the trust fund.
Counsel argued that, in respect of trust deeds containing similar provisions, it had been held in CPT Custodian (supra) that the trust deeds did not confer equitable ownership of the trust property on the unit holders. In this case, as in that case, the beneficial interest of the unit holder in the trust fund is not a proprietary interest, but a mere right to have the trust administered in accordance with the trust deed.
Counsel submitted that it was clear from CPT Custodian (supra) that equity will enforce the terms of a unit trust where the trustee is the same as the sole beneficiary, providing the rights and obligations of unit holders are not the same as the rights and obligations of the trustee or others under the unit trust.
It was argued that under the South Trust deed the rights and obligations of Binningup Nominees as unit holder were not the same as its rights and obligations as trustee. The trust was not only for the benefit of Binningup Nominees as the sole unit holder, but also for the benefit of Binningup Nominees in its capacity as trustee of the South Trust. Binningup Nominees' rights and obligations as unit holder in, and trustee of, the South Trust differed. For instance, Binningup Nominees as trustee has (in addition to other rights) a personal right to pay out of the trust fund costs, charges and expenses incurred by it in its management of the trust fund. That gives effect to the trustee's general right to reimbursement or exoneration for liabilities incurred in the administration of the trust.
In CPT Custodian (supra), the High Court had rejected the submission of the Commissioner of State Revenue that insofar as receipts may be applied by a unit trustee to persons other than as a unit holder, they must be seen as made on behalf of the unit holder. In this case, Binningup Nominees' right in its capacity as trustee to reimbursement or exoneration for liabilities incurred in the administration of the trust requires Binningup Nominees as trustee to retain possession of the trust property, receive the income earned by investment of the trust fund and deal with that income otherwise than simply by payment to the unit holder or unit holders of the South Trust.
It was submitted that as the rights and obligations of Binningup Nominees as beneficiary and trustee respectively were not the same, it followed that the South Trust was not extinguished by the appointment of Binningup Nominees as trustee but that it remained enforceable in equity.
Counsel for these defendants submitted that if the plea in par 11 of the statement of claim was rejected, the balance of the paragraphs of the statement of claim attacked by these defendants on this application must fall with it."
The learned Master held, at [52], that Pullin J's conclusion in Binningup NomineesPty Ltd v Brogue Tableau Pty Ltd that the South Trust had ceased to exist was not necessarily inconsistent with the High Court's decision in CPT Custodian Pty Ltd v Commissioner of State Revenue of the State of Victoria (2005) 224 CLR 98. The learned Master also held, at [52], that the respondent's claim was arguable. The appellants' strike‑out application was therefore dismissed.
The learned Master said, at [49] ‑ [51]:
"I do not need on this application to reach a concluded view as to whether or not the plaintiff's plea is correct in law and I will refrain from doing so. It is sufficient that I conclude, as I do, that it is arguable. Having regard to the matters which fell for consideration in CPT Custodian (supra), I do not accept that what was said there is necessarily decisive of the issue raised by par 11 of the statement of claim in this case and, in particular, that it means the plaintiff's plea as to the extinguishment of the South Trust is unarguable.
It does not seem to me clearly to follow from the decision in CPT Custodian (supra) that the extinguishment of a trust in the circumstances pleaded in par 11 of the statement of claim depends upon whether the beneficiary has an equitable interest in the trust property or that the decision is otherwise inconsistent with the plea in par 11.
In my view, it is arguable that even if Binningup Nominees, as the holder of all of the units in the South Trust, had no more than a right to have the trust duly administered, upon its appointment as trustee its rights as beneficiary (whether or not they involve a proprietary interest in the trust property) 'merged' with their legal ownership of the trust property, resulting in the legal ownership of the trust property becoming absolute. Put another way, however [Binningup Nominees'] rights as the beneficiary of the South Trust might be regarded, as sole unit holder and trustee it cannot have a right against itself to have the trust property administered in accordance with the trust instrument."
The grounds of appeal
The grounds of appeal are these:
"1.The [learned Master] erred in law in holding that the plea in paragraph 11 of the respondent's statement of claim is arguable, in that the [learned Master]:
1.1erred in law in holding it is arguable that the [South Trust] has ceased to exist by operation of the doctrine of merger;
1.2erred in law in holding that the doctrine of merger of estates can apply in circumstances where there is no separate legal and equitable estate in the trust property; and
1.3erred in law in failing to hold that the doctrine of merger cannot apply where the legal and equitable estate are vested in the same person but in different capacities.
2.The [learned Master] erred in law in failing to hold that the Honourable Justice Pullin's decision in Binningup Nominees Pty Ltd v Brogue Tableau Pty Ltd [2004] WASC 14 does not bind the appellants."
Leave to appeal is required
The learned Master's decision was interlocutory and leave to appeal is therefore required.
In general, an applicant for leave must demonstrate that the relevant decision was wrong or at least attended with sufficient doubt to justify the grant of leave, and that substantial injustice would occur if the decision were left unreversed. See Wilson v Metaxas [1989] WAR 285 at 294. It must be emphasised, however, that these are not rigid or exhaustive requirements, and leave may be granted if, in all the circumstances, it is in the interests of justice to grant leave. See TheState of Western Australia v Bond Corporation Holdings Ltd (1991) 5 WAR 40 at 56 ‑ 57.
The merits of the application
The appellants' submissions to this Court were similar to those made before the learned Master.
I am not persuaded that the learned Master's decision to dismiss the appellants' strike‑out application was wrong or attended with sufficient doubt to justify the grant of leave. Further, substantial injustice would not occur if the decision were left unreversed. The interests of justice do not require the grant of leave.
The respondent's contention that the South Trust ceased to exist upon Binningup Nominees becoming the new and sole trustee of the South Trust, pursuant to the deed dated 22 April 1997, is reasonably arguable. Its contention is supported by these propositions:
(a)As noted in Jacobs' Law of Trusts in Australia, 7th ed, at [101], a precise definition of a trust is elusive, if not impossible, and attempts at such definition vary markedly. Professor F W Maitland said he did not know where to find an authoritative definition of a trust. See F W Maitland, Equity, 1920, Lecture IV, at 43.
(b)Descriptions of a trust appear in Sir Frederick Jordan's Chapters on Equity in New South Wales, 6th ed, at 17, and Underhill and Hayton, Law of Trusts and Trustees, 16th ed, at 3. Sir Frederick Jordan said:
"A trust is an obligation enforceable in a Court of Equity, by which a person in whom the legal or equitable ownership of property is vested is bound to hold or apply the property or some interest in it for the benefit of another person or for some public purpose."
According to Underhill and Hayton:
"A trust is an equitable obligation, binding a person (called a trustee) to deal with the property owned by him (called trust property, being distinguished from his private property) for the benefit of persons (called beneficiaries, or, in old cases, cestuis que trust), of whom he may himself be one, and any one of whom may enforce the obligation."
(c)A trustee must be under a personal obligation to deal with the trust property for the benefit of the beneficiaries, and the obligation in question must be annexed to the trust property. See Jacobs' Law of Trusts in Australia, 7th ed, at [110], where it is stated:
" … the trustee must be under a personal obligation to deal with the trust property for the benefit of the beneficiaries, an obligation giving rise to correlative rights in the beneficiaries. The obligation must be annexed to the trust property. This is the equitable obligation proper. It arises from the very nature of a trust and from the origin of the trust in the separation of the common law and equitable jurisdiction in English legal history. The obligation attaches to the trustee in personam, but it also is annexed to the property, so that the equitable interest resembles a right in rem. It is not sufficient that the trustee should be under a personal obligation to hold the property for the benefit of another, unless that obligation is annexed to the property. Conversely, it is not sufficient that an obligation should be annexed to the property unless the trustee is under a personal obligation."
That passage, as it appeared in the third edition of Jacobs' Law of Trusts, was approved by Hope JA in DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 at 518 ‑ 519 [15]. His Honour then said, at 519 [16]:
"Several consequences follow. Firstly, an absolute owner in fee simple does not hold two estates, a legal estate and an equitable estate. He holds only the legal estate, with all the rights and incidents that attach to that estate. If he were to execute a declaration that he held the land in trust for himself absolutely, the declaration would be of no effect; it would give him no separate equitable rights; he would remain the legal owner with all the rights that a legal owner has. At least where co‑extensive and commensurate legal and equitable interests are concerned, ' … a man cannot be a trustee for himself.': Goodright v Wells ((1781) 2 Dougl 771 at 778; 99 ER 491 at 495), per Lord Mansfield. 'You cannot have a legal estate in trust for yourself.': Harmood v Oglander ((1803) 8 Ves Jun 106 at 127; 32 ER 293 at 301), per Lord Eldon. Secondly, although the equitable estate is an interest in property, its essential character still bears the stamp which its origin placed upon it. Where the trustee is the owner of the legal fee simple, the right of the beneficiary, although annexed to the land, is a right to compel the legal owner to hold and use the rights which the law gives him in accordance with the obligations which equity has imposed upon him. The trustee, in such a case, has at law all the rights of the absolute owner in fee simple, but he is not free to use those rights for his own benefit in the way he could if no trust existed. Equitable obligations require him to use them in some particular way for the benefit of other persons. In illustrating his famous aphorism that equity had come not to destroy the law, but to fulfil it, Maitland, op cit, at p 17, said of the relationship between legal and equitable estates in land: 'Equity did not say that the cestui que trust was the owner of the land, it said that the trustee was the owner of the land, but added that he was bound to hold the land for the benefit of the cestui que trust. There was no conflict here.'"
On appeal to the High Court, the decision of the Court of Appeal of New South Wales in DKLR Holding Co (No 2) was varied: DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (New South Wales) (1982) 149 CLR 431. See, however, the reasons of Aickin J at 463 ‑ 464 and Brennan J at 473 ‑ 474, which contain similar observations to those of Hope JA.
(d)A trustee may be one of the beneficiaries of the trust but cannot be the sole beneficiary. See the passages I have cited from the reasons of Hope JA and, on appeal, the reasons of Aickin and Brennan JJ in DKLR Holding Co (No 2).
(e)The termination of a trust when a sole beneficiary becomes the sole trustee is explained, in some of the authorities, by reference to the doctrine of merger of estates. Merger is described in Cheshire and Burn's, Modern Law of Real Property, 15th ed, at 915:
"The term merger means that, where a lesser and a greater estate in the same land come together and vest, without any intermediate estate, in the same person and in the same right, the lesser is immediately annihilated by operation of law. It is said to be 'merged', ie, sunk or drowned, in the greater estate."
At common law, merger operates irrespective of the intention of the parties. In equity, however, a merger at common law will not be recognised if it is contrary either to the actual or the presumed intentions of the parties. By s 18 of the Property Law Act 1969 (WA), equity now prevails. As noted in Ford and Lee, Principles of the Law of Trusts, at [5012], the doctrine of merger of estates provides no more than an incomplete analogy to explain the extinguishment of the beneficiary's equitable interest in the trust property when a sole beneficiary becomes the sole trustee. The authors advance three reasons for the incompleteness of the analogy:
"Firstly, there is no extinguishment of the beneficial ownership if the beneficiary's equitable ownership and the trustee's ownership are not co‑extensive: Brydges v Brydges (1796) 3 Vesey 120 at 126; 30 ER 926; Merest v James (1821) Madd 118; 56 ER 1037; Walsh Bay Developments Pty Ltd v FCT (1994) 29 ATR 311; 94 ATC 4682 (Fed Ct of Aust, Foster J) affirmed (1995) 130 ALR 415; 31 ATR 15. For example, there is no extinguishment where T holds on trust for L for life, remainder to R absolutely. Secondly, the doctrine of merger of one legal estate in another or one equitable estate in another operates only where the holder of the greater estate acquires the lesser estate in the same right. If A, the administrator of a deceased estate holding a lease grants a sub‑lease to L and later takes an assignment of the sub‑lease to himself beneficially, the sub‑lease does not merge in the head lease for the reason that A acquires the sub‑lease in one capacity and holds the head‑lease in a different capacity: Chambers v Kingham (1878) 10 Ch D 743. But if T holds property on trust for B and acquires all of B's equitable interest under the trust for himself beneficially, the fact that T has been a trustee will not prevent the extinguishment of the equitable interest. On the same reasoning where T purports to hold on trust for T who holds on a purported sub‑trust for B, there should be only one trust under which T holds for B. But see Commissioner for ACT Revenue v Perpetual Trustee Co (Canberra) Ltd (1993) 116 FLR 296; 27 ATR 439; 118 ACTR 1 reversed on other issues Perpetual Trustee Co (Canberra) Ltd v Commissioner for ACT Revenue (1994) 50 FCR 405; 28 ATR 307; 94 ATC 4403. Thirdly, there will be no merger of one legal estate in another or one equitable estate in another if the person in whom the two estates have become vested intends that there should be no merger and there will be a presumption against merger if it is to the interest of the person who had the greater estate to prevent it: Ingle v Vaughan Jenkins [1900] 2 Ch 368; Re Fletcher; Reading v Fletcher [1917] 1 Ch 339. But if T holds property on trust for B and acquires all of B's equitable interest under the trust for himself beneficially, no expression of intention can produce the result that T owes trust obligations to T."
[My emphasis]
(f)The true, or at least the preferable, rationale, for the extinguishment of the beneficiary's equitable interest in the trust property, when a sole beneficiary becomes the sole trustee, is not the doctrine of merger of estates, but rather the impossibility of rights and duties, which derive from a trustee's personal obligation, being vested in one person. See Underhill and Hayton at 273, where it is said:
" … a sole trustee cannot hold on trust for himself as sole beneficiary since it is impossible to have rights and duties at home in one person."
Also see Ford and Lee at [5012].
In summary, in the present case, it is reasonably arguable that there were no facts and circumstances which would require equity to hold that merger did not occur upon Binningup Nominees becoming the new and sole trustee of the South Trust. In particular, it is reasonably arguable that the relevant parties did not intend that there should not be a merger, and it is reasonably arguable that there was no relevant interest (of the kind that equity would protect: Ingle v Vaughan Jenkins [1900] 2 Ch 368; In re Fletcher; Reading v Fletcher [1917] 1 Ch 339) which would be destroyed by merger. Further, it is reasonably arguable that the South Trust has collapsed, notwithstanding that, at all material times, Binningup Nominees has held all of the issued units in the South Trust upon trust for the Estate Trust, and not for itself beneficially.
In CPT Custodian, there were two companies which held units in various unit trusts. In all but one trust, one of the companies held, or was taken to hold, all of the issued units. In the other trust, one of the companies held 50 per cent of the issued units. The trust fund of each trust included land. The question at issue was whether the companies were "owners" of the land held by the trustees of the trusts in which they were unit holders. Section 3(1) of the Land Tax Act 1958 (Vic), which was the relevant taxing statute, included in a definition of "owner", amongst others, "every person entitled to any land for any estate of freehold in possession". The High Court held that none of the units conferred an estate of freehold in possession in any land held by the trustees of the unit trusts and, therefore, none of the unit holders was assessable as the "owner" of that land within the definition in s 3(1) of the Act. Gleeson CJ, McHugh, Gummow, Callinan and Heydon JJ, in a joint judgment, rejected, at [25], the "dogma" that, where ownership is vested in a trustee, equitable ownership must necessarily be vested in someone else because it is an essential attribute of a trust that it confers upon individuals a complex of beneficial legal relations which may be called ownership. Their Honours approved the following observations of Griffith CJ in Glenn v Federal Commissioner of Land Tax (1915) 20 CLR 490 at 497:
"The respondent's argument is based on the assumption that whenever the legal estate in land is vested in a trustee there must be some person other than the trustee entitled to it in equity for an estate of freehold in possession, so that the only question to be answered is who is the owner of that equitable estate. In my opinion, there is a prior inquiry, namely, whether there is any such person. If there is not, the trustee is entitled to the whole estate in possession, both legal and equitable."
Gleeson CJ, McHugh, Gummow, Callinan and Heydon JJ considered and distinguished Charles v Federal Commissioner of Taxation (1954) 90 CLR 598 on the basis that the terms of the trust deed in Charles were materially different from the terms of the trust deeds in the appeal before them. Their Honours approved, at [37], the primary Judge's (Nettle J) characterisation of the interest of a unit holder under the trust deeds in question. Nettle J said, in Karingal 2 Holdings Pty Ltd v Commissioner of State Revenue (2002) 51 ATR 190, at 205 [61] ‑ [63]:
"It may well be that the income of the fund as finally constituted and distributed will include all of the rents and profits generated by a particular parcel of land within the fund. But it is distinctly possible that it will not. Each of the deeds gives power to the trustee to provide out of receipts for future and contingent liabilities; to apply receipts in the purchase of any property or business; to invest receipts in authorised investments and to deal with and transpose such investments; and the only right of the unit holder is to a proportionate share of the income of the fund for the year.
The Commissioner contends that the trustees' powers of disposition and transposition make no difference. He submits that insofar as receipts from particular properties may be applied in making payments other than to a unit holder, they must be seen as made on behalf of the unit holder and in that sense as received by the unit holder. He says that it is in principle no different to the case of a simple trust of land with only one beneficiary, under the terms of which the trustee is entitled to apply receipts in the payment of obligations and in the making of provisions in connection with the management of the land. The Commissioner contends that in such a case there can be no doubt that the beneficiary would be liable to tax as 'owner'.
But I think there is a difference. In the case of a simple trust of the kind instanced by the Commissioner the entitlement of the trustee to apply part of the receipts in defined ways determines the amount of the income which the beneficiary has a right to receive. Contrastingly, in a case of a complex unit trust of the kind with which I am concerned, the entitlement of the trustee to apply receipts in defined ways informs the nature of the income that the unit holders have a right to receive: not a total of all of the receipts derived from each asset the subject of the fund but rather such if any income as may be derived from the product of the application of gross receipts in various ways."
Gleeson CJ, McHugh, Gummow, Callinan and Heydon JJ considered Saunders v Vautier (1841) 49 ER 282 and held, at [49] ‑ [52], that at the material time it was not possible to say what each trust fund in question was, in that:
(a)the trustees and managers of each trust fund were interested in the administration of the trust and the companies in their capacity as unit holders were not the only persons or entities in whose favour the trust fund could be applied; and
(b)the trustees had an unsatisfied right of indemnity.
Accordingly, the companies in their capacity as unit holders did not have an absolute, vested and indefeasible interest in the trust fund and, as a result, they were not entitled, pursuant to the rule in Saunders v Vautier, to require the transfer of the trust fund to them.
I should record that in CPT Custodian the High Court noted, at [6], that no reliance was placed, by any party, at any stage of the litigation, upon the doctrine of merger of estates in circumstances where the trustee held all of the issued units in a unit trust of which it was trustee.
As I have mentioned, in the present case the learned Master held, at [49], that the decision in CPT Custodian, and the reasoning and observations of their Honours in that case, was not necessarily decisive of the issue raised by the respondent in par 11 of its statement of claim. In particular, the learned Master was of the view that CPT Custodian did not render the respondent's plea concerning the collapse of the South Trust unarguable. I agree, with respect, with the learned Master's conclusion.
It is unnecessary, in this application, to determine the other issues raised in the grounds of appeal, namely:
(a)whether the doctrine of merger of estates "can apply in circumstances where there is no separate legal and equitable estate in the trust property";
(b)whether merger "cannot apply where the legal and equitable estate are vested in the same person but in different capacities"; and
(c)whether Pullin J's judgment in Binningup Nominees v Brogue Tableau Pty Ltd created an issue estoppel in relation to his conclusion that the South Trust had ceased to exist and, if it did create an issue estoppel, whether the estoppel is binding upon the appellants.
It is sufficient, for the purposes of this application, to determine, as I have done, that the respondent has pleaded a reasonable cause of action, at least on the basis I have set out at [22] ‑ [26] above.
Finally, I note that, contrary to the appellants' submission, it is not appropriate for this Court, in the context of a strike‑out application, to purport to make a final determination upon the merits of the respondent's claim. It may be, however, that if all of the material facts are able to be agreed between the parties, the issues which the appellants have sought to agitate before the learned Master and this Court could properly be finally determined as a preliminary issue in the proceedings.
Conclusion
I would dismiss the application for leave to appeal.
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