Application by Ellasil Pty Ltd
[2023] VSC 69
•24 February 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2020 03996
| IN THE MATTER of an application by ELLASIL PTY LTD (ACN 005 918 187) as trustee of the DAYCOM COMMUNICATIONS PTY LTD SUPERANNUATION FUND under s 63 of the Trustee Act 1958 and r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 | |
| APPLICATION BY: | |
| ELLASIL PTY LTD (ACN 005 918 187) as trustee of the DAYCOM COMMUNICATIONS PTY LTD SUPERANNUATION FUND | Plaintiff |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 24 February 2023 |
CASE MAY BE CITED AS: | Application by Ellasil Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2023] VSC 69 |
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TRUSTS — Trustees — Judicial advice — Lost trust deed — Evidence of trust — Where original trust deed unavailable — Where deeds of amendment available — Whether trustee duly appointed — Whether trustee able to rely upon deeds of amendment — Where trustee justified in proceeding upon the basis that it was duly appointed — Where sufficient proof of contents of lost deed — Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 54.02.
EVIDENCE — Whether original trust deed existed — Whether original trust deed unavailable — Contents of original trust deed — Sufficient proof of contents of lost deed — Evidence Act 2008 (Vic) ss 48, 140.
SUPERANNUATION — Self managed superannuation fund — Binding death benefit nomination — Whether nomination binding — Nomination binding — Superannuation Industry (Supervision) Act 1993 (Cth) ss 17A, 17B — Hill v Zuda Pty Ltd (2022) 401 ALR 624 discussed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Doherty | Ballards Solicitors |
| As Contradictor | Mr R Boaden |
HER HONOUR:
Introduction
In its capacity as trustee of the Daycom Communications Pty Ltd Superannuation Fund (‘the fund’), the plaintiff Ellasil Pty Ltd (‘Ellasil’) has applied for guidance, directions and/or orders pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘the Rules’) and s 63 of the Trustee Act 1958 (Vic) (‘the Trustee Act’).
There is evidence that the fund was first established in 1979, under the name ‘Stewart Electronic Components Pty Ltd Superannuation Fund’. However, the original deed to the fund from 1979 cannot be located. Several amending instruments, the earliest of which is dated 9 October 1989, as well as a later document purporting to be a deed of trust in respect of the fund, likely prepared in 2015, are however available.
Several other documents relating to the conduct and administration of the fund are also available. This includes minutes of meetings, financial statements and a deed of appointment dated 1 July 1996 which purports to appoint Ellasil as trustee of the fund. In addition, various death benefit nominations purportedly made by the members of the fund over the course of its operation are in evidence.
Broadly, in light of the unavailability of the original deed of trust to the fund and issues surrounding the subsequent deeds and death benefit nominations, Ellasil seeks orders and directions as to the validity of the deed which appoints it as trustee of the fund, and of the later deed of trust to the fund. It also seeks the Court’s advice as to the validity of the death benefit nominations made by the members of the fund.
Background
It appears that the fund was intended to operate as a self managed superannuation fund (‘SMSF’) for the benefit of James Day (‘James’) and his wife, Jean Day (‘Jean’). James died in 2017, leaving his superannuation benefits to Jean. Jean died on 13 March 2019, leaving a will dated 11 August 2017 (‘the will’). James and Jean were survived by their three children, John Day (‘John’), Lynette Aird (‘Lynette’) and Janet Hall (‘Janet’).
On 30 May 2019, probate of the will was granted to Neville Windebank, a solicitor (‘Mr Windebank’), and Lynette. According to cl 6 of the will:
(a) Janet is gifted any benefits paid to Jean’s estate ‘by the trustees of [the fund] or the trustees of any superannuation fund, rollover fund, approved deposit fund or pooled superannuation trust’ of which Jean was a member at the time of her death or at any other time;
(b) Lynette is to receive the residuary estate; and
(c) no provision is made for John.
In April 2020, Janet commenced a separate proceeding seeking further provision from Jean’s estate, pursuant to Part IV of the Administration and Probate Act 1958 (Vic) (‘the Part IV proceeding’). In the Part IV proceeding, Lynette, Mr Windebank, Janet and Ellasil have entered into a deed of settlement which is stated to be subject to and conditional upon the Court giving judgment in this proceeding.
Jean was the sole director and shareholder of Ellasil in the 18 months prior to her death. Following Jean’s death, Mr Windebank and Lynette became Ellasil’s directors and shareholders, although Lynette has since resigned from her role as director. According to financial statements, as at 30 June 2022, the fund had net assets of $775,050.
Due to the issues the subject of this proceeding, Ellasil has not yet made full enquiries of relevant potential beneficiaries of the fund.
Evidence
Ellasil relies upon affidavits of Lynette, Mr Windebank and Leon Volovich (‘Mr Volovich’). Mr Volovich is a director of Volovich Partners Pty Ltd (‘Volovich Partners’), the accountants for the fund. Exhibited to these affidavits are various documents relating to the fund and death benefit nominations said to be made by James and Jean.
Evidence relating to the fund
During their lifetimes, James and Jean operated and derived income from an electronics business. Jean managed the couple’s financial matters.
Stewart Electronic Components Pty Ltd (‘Stewart Electronic’) was registered in 1961.[1] At that time, James, Jean and John were its directors. Ellasil was registered approximately twenty years later, with James and Jean as its directors.
[1]The business initially operated under the names ‘Chas E Tully Pty Ltd’ and ‘S & J Day Pty Ltd’ before becoming Stewart Electronic in July 1978.
A ‘deed of amendment’ relating to a superannuation fund entitled ‘the [Stewart Electronic] Superannuation Fund’, dated 9 October 1989 (‘the 1989 deed’), appears to have been signed by both James and Jean. The signing clause bears the common seal of Stewart Electronic, and James appears to have signed as ‘director’ while Jean signed as ‘secretary’.
The 1989 deed is made between Stewart Electronic as ‘principal employer’ and James and Jean as ‘trustees’. Recital B refers to a trust deed previously made between the principal employer and the trustees (‘the 1979 deed’). Relevantly, the schedule to the 1989 deed states that the date of the 1979 deed is 25 June 1979, and refers to deeds of amendment dated 12 February 1980, 18 May 1982, 16 June 1982 and 22 June 1982.
Recital D of the 1989 deed refers to cl A.13 of ‘the Deed’ granting the trustees the power to, among other things, amend, vary, revoke or replace all or part of its provisions. Cl 1 of the 1989 deed provides:
All of Clauses A1 to B1.13 (all inclusive) of the Deed are hereby revoked in their entirety and in lieu thereof the Trustees do hereby adopt all of the terms and conditions of Clauses 3 to 7, the Rules and the Schedules thereto contained in the copy Deed annexed hereto to the intent that those terms and conditions shall henceforth apply to the Fund.
Daycom Communications Pty Ltd (‘Daycom’) was first registered in September 1993. The following month, James and Jean became its directors.
By an undated document, Daycom sought admission as an associated employer to the ‘[Stewart Electronic] Superannuation Fund’. The document is expressed to bear the common seal of Stewart Electronic, and appears to have been signed by James and Jean as directors of Stewart Electronic. However, it appears that the common seal of Daycom has been affixed.
Another undated document, titled ‘[Stewart Electronic] Superannuation Fund’ states that ‘[i]n accordance with Clause 4.1 of the Trust Deed dated 9 October 1989, the Trustees admit as an Associated Employer [Daycom]’. The document appears to have been signed by James and Jean, each as ‘trustee’.
Minutes of a meeting of the directors of Daycom, dated 30 May 1994, indicate that Daycom resolved to accept its appointment as ‘Trustee of the [Stewart Electronic] Superannuation Fund’. The minutes specifically provide:
A Deed of Retirement and Appointment of Trustee, to which [Daycom] would be party in its capacity as New Trustee of the [Stewart Electronic] Superannuation Fund, was tabled for the purpose of [James] and [Jean] being retired as Trustees of the Fund and [Daycom] being appointed as Trustee of the Fund.
The minutes further provided that it was resolved that the name of the relevant fund be changed to ‘the [Daycom] Superannuation Fund’, being that of the fund. The minutes record that both James and Jean were present, and appear to be signed by James.
A deed of retirement and appointment of trustee, dated 1 July 1996 and made between Stewart Electronic as ‘principal employer’, Daycom as ‘retiring trustee’ and Ellasil as ‘new trustee’, purports to appoint Ellasil as the new trustee of the fund (‘the 1996 deed’). Among other things, the 1996 deed states:
A.By a Superannuation Trust Deed (‘the Deed’) known as [the fund] made the 25th day of June, 1979 between [Stewart Electronic] (‘the Principal Employer’) of the one part and [Daycom] (‘the Retiring Trustee’) of the other part, all sums of money, assets and things comprising the Fund established pursuant to the provisions of the Deed have been paid, expended, handed over, divided or applied by the Trustee upon the terms and conditions set forth in the Deed.
…
C.Clause 8.1.1 of the Deed provides that the Principal Employer of the Fund may from time to time appoint a new Trustee or Trustees of the Fund either in substitution for or in addition to any other Trustee or Trustees for the time being and that the Trustee must be a Constitutional Corporation.
The 1996 deed bears the common seals of Stewart Electronic, Ellasil and Daycom, and appears to have been signed by James and Jean in their capacities as director of each of the companies.
Two other documents dated 1 July 1996 were put in evidence, namely:
(a) a document recording Ellasil’s consent to its appointment as trustee of the fund. It bears the common seal of Ellasil and appears to have been signed by James as director and Jean as secretary; and
(b) a document entitled ‘Resolution of the Members’, which bears the common seals of Daycom and Ellasil, and provides that it was resolved that Ellasil replace Daycom as trustee of the fund, and that all shares and investments registered in the name of James and Jean were held on behalf of the fund, ‘which fund supersedes the [Stewart Electronic] Superannuation Fund’.
An annual statement provided by BZW Investment Management Australia Ltd (‘BZW’), dated 20 July 1996 and addressed to ‘JF Day and JES Day ATF Stewart Electronic Components Pty Ltd Superannuation Fund’, identifies holdings worth approximately $23,607 as at 30 June 1996.
By letter dated 14 October 1996, Davies French Pty Ltd (‘Davies French’) wrote to BZW with reference to the fund, enclosing a copy of the ‘Resolution of Members confirming change of trustee’. It appears that at that time, Michael Davies was James and Jean’s accountant (‘Mr Davies’). The subject line of the letter states, ‘Re: J.F. Day and J.E.S. Day ATF Daycom Superannuation Fund (Formerly [Stewart Electronic] Superannuation Fund)’.
Records of the Australian Securities and Investments Commission (‘ASIC’) indicate that from June 1998 to July 2001, Stewart Electronic was ‘under External Administration and/or Controller Appointed’.
James and Jean retired in approximately 2000, and at that stage there was no relevant employer under the fund. Mr Volovich deposes that the deed to the fund was ‘updated from time to time’ and at some point the fund was amended to become a SMSF without reference to a particular employer.
Stewart Electronic was deregistered in November 2001.
In November 2003, Volovich Partners acquired the practice of Mr Davies. Mr Volovich deposes that Volovich Partners acted for James and Jean and companies within their group of companies, including Ellasil. Jean is said to have been in charge of company documentation, and was the point of contact for accounting matters. Volovich Partners holds original copies of many of the aforementioned documents, including the 1989 deed and the 1996 deed. Since December 2003, Ellasil’s registered office has been that of Volovich Partners.
In May 2013, Alan Haintz of Haintz Actuarial Services Pty Ltd (‘Haintz Actuarial Services’) prepared an actuarial certificate for the fund. According to its terms, the certificate was requested by James and Jean as ‘trustees’ of the fund. The certificate identifies two members of the fund, namely James and Jean.
A further undated document entitled ‘Deed of Trust of [the fund]’ was made between James and Jean as members and Ellasil as trustee, likely in 2015 (‘the 2015 deed’). The cover page of the 2015 deed identifies that it was prepared by Abbots. It appears to be signed by James and Jean and witnessed by Lynette, and Jean appears to have also signed as both the ‘director’ and ‘secretary’ of Ellasil. While no date is identified in the schedule, affixed to the execution page is a pink, heart-shaped post-it note bearing the words ‘Signed & Witnessed 22-6-2015’. Schedule A of the 2015 deed identifies the date of commencement of the fund and date of execution of the original deed as 25 June 1979. It records that supplemental deeds were executed on 12 February 1980, 18 May 1982, 16 June 1982, 22 June 1982, 9 October 1989 and 1 November 1999.
In its recitals, the 2015 deed provides:
WHEREAS
The Member being the only member(s) of, and the Trustee, which is the present trustee of the Superannuation Fund named (herein called ‘the Fund’), which was established on the Commencement date and the conditions of which as amended to date provide that the relevant provisions may be amended, now wish to exercise the said powers to amend, and declare that from the date hereof the Fund shall be governed by the following provisions to the exclusion of those provisions previously applying.
Lynette does not recall witnessing the 2015 deed, although she acknowledges that she may have. She does not dispute that she and her parents signed the execution page, and deposes that the note affixed to the 2015 deed appears to be in Jean’s handwriting.
According to Mr Volovich, Volovich Partners ordered a trust deed through Abbots to update the fund’s deed. Mr Volovich deposes that in or about June 2015, the original copy of the updated deed was forwarded to Jean for execution, and that the 2015 deed appears to reflect what would have been sent to Jean. However, Volovich Partners did not retain a copy of the document sent to Jean, nor of the executed deed.
Undated minutes of a meeting of the members and trustees of the fund, signed by Jean, list James, Jean and Ellasil as attendees. The minutes note that ‘the provisions for the formation and administration of the fund as a complying [SMSF]’ needed to be amended. The minutes also record that it was resolved to change the rules of the fund to ‘those incorporated in an amending trust deed in the form before the meeting’, and that it was resolved that the deed be executed by James and Jean as members and Ellasil as trustee. A pink, heart-shaped post-it note is affixed to the minutes, identifying a spelling mistake in Jean’s middle name as written in the resolution. According to Lynette, she found the minutes and the 2015 deed at Jean’s house in a pile of spare carpet tiles, apart from Jean’s usual papers, which were kept in her study.
Daycom was deregistered in November 2006.
After James’ death in 2017, Jean became the sole director and shareholder of Ellasil. As noted above, subsequent to Jean’s death on 13 March 2019, Mr Windebank and Lynette became Ellasil’s directors, however, Lynette resigned from her role as director in November 2022.
Binding death benefit nominations
Two documents appear to reflect death benefit nominations purportedly made by James in respect of the fund. First, an undated document entitled ‘[the fund] Death Benefit Nomination Form’ identifies James under the heading ‘Member Details’. Under the statement, ‘[p]lease nominate to whom you wish your benefits to be paid in the event of your death’, Jean is nominated as the beneficiary of 100 per cent of James’ interest in the fund. The document appears to be signed by James and is witnessed by two individuals.
Secondly, a document appearing to be signed by James and dated 3 December 2006, which nominates Jean as James’ sole beneficiary under the fund. The document is addressed to ‘the Trustee of [the fund]’ and identified to be from James, and is titled ‘Superannuation Fund Allocated Pension’ with a prominent subheading ‘Nominated Beneficiary’.
Several documents reflecting death benefit nominations purportedly made by Jean were also in evidence. First, an undated document titled ‘[the fund] Death Benefit Nomination Form’, identical in nature to the undated nomination made by James, identifies Jean under the heading ‘Member Details’ (together with the undated nomination made by James, ‘the undated nominations’). Under the statement, ‘[p]lease nominate to whom you wish your benefits to be paid in the event of your death’, James is nominated as the beneficiary of 100 per cent of Jean’s interest in the fund. It appears to have been signed by Jean and witnessed by two individuals.
After Jean’s death, Lynette found the following documents in a filing cabinet in Jean’s study:
(a) a document which appears to be signed by Jean and is dated 3 December 2006, nominating James as Jean’s sole beneficiary under the fund (together with the nomination made by James on the same date, ‘the 3 December 2006 nominations’). The document is addressed to ‘the Trustee of [the fund]’ and titled ‘Superannuation Fund Allocated Pension’ with a prominent subheading ‘Nominated Beneficiary’;
(b) a document which appears to be signed by Jean and is dated 7 December 2006, which nominates James as Jean’s sole ‘binding nominated beneficiary’ under the fund (‘the 7 December 2006 nomination’). The 7 December 2006 nomination further provides that, in the event James predeceases Jean,[2] Janet is to be Jean’s sole ‘binding nominated beneficiary’. The 7 December 2006 nomination is addressed to ‘the Trustee of [the fund]’ and titled ‘Superannuation Fund Allocated Pension’. A handwritten note on the document states: ‘are these two still current or require updating? 12/3/2013’; and
(c) a note, which appears to be in Jean’s handwriting, which refers to binding nominations only lasting for three years and sets out further notes as to distributions and allocations from the fund.
[2]It should be noted that the document in fact states, ‘BUT IN THE EVENT JEAN FRANCES DAY has predeceased me, then my Binding Nominated Beneficiary under the Fund is as follows…’.
Mr Volovich deposes that Volovich Partners prepared each of the above forms relating to the death benefit nominations, and that he would have personally forwarded or delivered them to James and Jean to sign.
Additionally, a document titled ‘[the fund] Death Benefit Nomination Form’ and dated 11 August 2017 purports to nominate Janet as the sole beneficiary of Jean’s benefits under the fund (‘the 2017 nomination’). On the cover page of the 2017 nomination, a box is checked next to the description ‘update an existing non-lapsing binding death benefit nomination’. Janet is subsequently identified as the recipient of 100 per cent of Jean’s benefits under the fund, under the statement, ‘[p]lease nominate to whom you wish your benefits to be paid in the event of your death’. The 2017 nomination appears to have been signed by Jean and witnessed by two individuals on the same day. According to Mr Volovich, Volovich Partners would also have prepared this document and forwarded it to Jean for execution.
A record of a search of the Australian Taxation Office portal conducted by Mr Volovich, appearing to be in relation to the years 2017 and 2018, identifies the fund as a SMSF and the relevant trustee as Ellasil.
Sometime in 2018, Mr Volovich had at least two discussions with Jean during which she is said to have made clear that she intended for the assets of the fund to pass to Janet. He did not make file notes of these discussions, nor is he able to provide more detail as to when they occurred.
According to Lynette, Jean stated on numerous occasions that Janet was to receive ‘the super’ and Lynette was to ‘receive everything else’.
Further enquiries
The documents in evidence have chiefly been provided by Mr Volovich and Lynette. Mr Windebank deposes to having made enquiries with the law firm that succeeded Fraser Woolrich (which previously prepared wills for James and Jean), banks with which Jean and the fund had dealings, Abbots and Volovich Partners. Correspondence sent to the Commonwealth Bank of Australia, ANZ Banking Corporation, One Path Ltd (a division of ANZ), and Westpac sought to clarify whether each institution held any accounts and documents on behalf of the fund. No further documents relevant to the fund have been identified as a result of these searches.
Lynette has made thorough searches of the property at which Jean resided at the time of her death, and has not been able to locate any further documents regarding the fund.
Mr Volovich deposes that he has made thorough searches of the files of Volovich Partners and has been unable to locate any other files of documents relevant to the fund or nominations by James or Jean. Additionally, he deposes that he spoke with Mr Davies, who advised that he did not retain any files or documents with respect to the fund.
Upon the Court’s request, Mr Windebank sought affidavit evidence from Mr Davies, with the aim of better understanding the circumstances surrounding the deeds relating to the fund and any update to the documents in 1999. However, in late 2022 Mr Davies advised that he was unable to give evidence due to concerns surrounding his capacity.
Issues
By its originating motion filed 21 October 2020, Ellasil seeks guidance, directions and/or orders from the Court in relation to the following questions:
…
3. In respect of [Ellasil]:
(a)can it proceed on the basis that it was validly appointed as trustee of the fund by [the 1996 deed];
(b)if the answer to question 3(a) is no, orders and directions as to the status of, and conduct of, the fund.
4. In respect of the 2015 deed:
(a)can [Ellasil] proceed on the basis that the 2015 deed is valid;
(b)if the answer to question 4(a) is no, orders and directions as to the terms of, and conduct of, the fund.
5. In respect of the death benefit nominations:
(a)are any of the nominations set out in paragraph 20 [of the originating motion] valid;[3]
[3]The nominations referred to in paragraph 20 of Ellasil’s originating motion are the undated nominations, the 3 December 2006 nominations, the 7 December 2006 nomination and the 2017 nomination.
(b)is the trustee bound by any one or more of the nominations set out in paragraph 20 [of the originating motion].
6. In the event that:
(a)the trustee is not bound by any nomination in paragraph 20 [of the originating motion];
(b)the 2015 deed applies;
[Ellasil] seeks orders and directions as to the proper construction of clauses 23(b)(3) and 23(b)(4) of the 2015 deed.
7. In the event that the trustee of the fund is not bound to make payment of the death benefit in accordance with a death benefits nomination and has a discretion as to payment of the death benefits, [Ellasil] seeks orders and directions:
(a)authorising it to exercise the discretion to make payment of the death benefit despite any position of conflict of interest of its directors;
(b)alternatively, directions as to the manner in which [Ellasil] may exercise the discretion to pay the death benefit.
…
The Court received submissions on each of the above issues from both Ellasil and a court-appointed contradictor.[4]
[4]By orders dated 27 October 2021, Mr Richard Boaden of counsel was appointed contradictor.
For the following reasons, the Court has determined that Ellasil is justified in proceeding on the basis that it is trustee of the fund, the 2015 deed is valid, and the 2017 nomination is binding.
Can Ellasil proceed on the basis that it was validly appointed as trustee of the fund by the 1996 deed?
Applicable principles
The Court’s jurisdiction under r 54.02 of the Rules is available upon application of the trustee of a trust.[5] Among other things, a proceeding may be brought to determine any question that could be determined in an administration proceeding, including any question in the execution of a trust.[6] Order 54 allows the Court to give personal and private advice to trustees, having regard to the context and type of trust involved.[7] The principal purpose of the advice is to ‘determine what ought to be done in the best interests of the trust estate’.[8]
[5]See Daicos v Daicos [2018] VSC 18, [24]–[28] (Ierodiaconou AsJ).
[6]Rules, r 54.02. See Longboat Holdings Groupno3 v Zacole Pty Ltd [2021] VSC 280, [54]–[58] (M Osborne J); Morris v Smoel [2013] VSCA 11, [24] (Maxwell P, Whelan JA agreeing); Re Centro Retail Australia Ltd (2012) 35 VR 512, 515–6 [13]–[14] (Almond J); Application by Perenna Nominees (2022) 66 VR 246, 253–4 [31]–[34] (McMillan J).
[7]Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 (‘Macedonian Church’), 91–2 [64]–[67] (Gummow ACJ, Kirby, Hayne and Heydon JJ, Kiefel J agreeing).
[8]Ibid 102–3 [105]–[107] (Gummow ACJ, Kirby, Hayne and Heydon JJ, Kiefel J agreeing); Application by Permanent Custodians Limited [2017] NSWSC 1618, [35] (Slattery J).
When making an application, the trustee must ‘place all relevant material before the Court and seek judicial advice as to whether, in those circumstances, the trustee would be justified in taking a certain course’.[9] In giving an opinion, advice, or direction pursuant to r 54.02, any order made by the Court is usually permissive,[10] that is, that the trustee would be ‘justified’ in acting in a particular way.
[9]Re Care Super Pty Ltd [2021] VSC 805, [24] (Lyons J) (‘Care Super’).
[10]Baymill Investments Pty Ltd v Drewlock Pty Ltd [2019] VSC 827, [80] (Sloss J), quoting Application of NSW Trustee and Guardian [2014] NSWSC 423, [24] (Kunc J).
Trustees have previously used r 54.02 or analogous provisions to obtain advice in circumstances where original deeds of trust have been lost.[11]
[11]Application by South Melbourne Continental Pty Ltd [2018] VSC 398; Application by Barry McMahon Nominees Pty Ltd [2021] VSC 351 (‘Barry McMahon Nominees’); Application of M & L Richardson [2021] NSWSC 105 (‘M & L Richardson’); Barp Nominees Pty Ltd [2016] NSWSC 990; Application of Brailey Holdings Pty Ltd [2018] NSWSC 1493.
As provided in s 48(4) of the Evidence Act 2008 (Vic) (‘the Evidence Act’):
A party may adduce evidence of the contents of a document in question that is not available to the party, or the existence and contents of which are not in issue in the proceeding, by—
(a)tendering a document that is a copy of, or an extract from or summary of, the document in question; or
(b)adducing from a witness evidence of the contents of the document in question.
A document is taken to be ‘not available’ to a party if it cannot be found after reasonable inquiry and search by the party.[12]
[12]Evidence Act 2008 (Vic) Dictionary, Pt 2, cl 5(a).
A line of authority has developed, following Maks v Maks, [13] whereby the Court must be satisfied that the original copy of a deed of trust is lost or unavailable, and secondary evidence must provide ‘clear and convincing proof’ of both the deed’s existence and its contents. In Maks v Maks, McLelland J reasoned that such an approach was consistent with requirements under the Statute of Frauds concerning a declaration of trust over land, and principles in relation to the rectification of written instruments.[14] As Gorton J discussed in Re Cleeve Group Pty Ltd, it may be that such an approach really forms ‘part of the notion referred to in Briginshaw v Briginshaw[15] that the standard of proof (or … level of satisfaction) required will naturally vary in accordance with the seriousness or importance of the issue’.[16] These factors are reflected in s 140(2) of the Evidence Act.
[13](1986) 6 NSWLR 34, 36 (McLelland J). See, eg, Mantovani v Vanta Pty Ltd (No 2) [2021] VSC 771, [62]–[70] (McMillan J); Barry McMahon Nominees (n 11) [12] (McMillan J); M & L Richardson (n 11) [3]–[4] (Kunc J).
[14]Ibid 35–6 (McLelland J).
[15](1938) 60 CLR 336, 343–4 (Latham CJ).
[16]Re Cleeve Group Pty Ltd [2022] VSC 342, [34] (Gorton J).
In Orlanski v Spiegel,[17] Ginnane J accepted that deeds of confirmation were valid, in circumstances where original trust deeds were thought to be lost. Of relevance were principles concerning deeds of confirmation or affirmation. In relation to the relevant exercise of power, Ginnane J stated:
The Deeds of Confirmation do not state the power under which they were made. That is understandable as the original Deeds of Trust were lost. But the power to ‘revoke, add to or vary’ was sufficient to permit the execution of the Deeds of Confirmation. The parties may well have assumed that there was such a power. It was unnecessary that the power that was relied on be expressly referred to.[18]
However, it appears that the original trust deed, which had been found five years after the deeds of confirmation were executed, was also before the Court.
[17][2015] VSC 662.
[18]Ibid [62] (Ginnane J).
In cases where the original trust deed is available, but supplementary deeds are missing, the presumption of regularity has been of relevance.[19] In Re Thomson,[20] the Court applied the presumption of regularity to order that the operative trust deed was an unsigned copy of an undated deed of trust. In Re Care Super Pty Ltd, the presumption was relied upon to support a finding that consolidating deeds of trust contained the terms of the original deeds of trust, as amended from time to time, in circumstances where the amending deeds could not be located.[21] In determining that a consolidating deed and subsequent deed of amendment should together be considered the operative trust deed, Lyons J expressed the relevant question as follows:
… in order to provide the judicial advice sought, in the circumstances set out above, the Court must be satisfied to a reasonable degree of satisfaction of the existence of the trust deed and that the terms of the Trust Deed which the trustee seeks to rely upon are consistent with the contents of the trust deed as amended from time to time.[22]
[19]Re Thomson [2015] VSC 370, [12]–[24] (McMillan J); Care Super (n 9) [62], [83]–[87] (Lyons J).
[20]Re Thomson (n 19).
[21]Care Super (n 9) [83]–[89] (Lyons J).
[22]Ibid [84] (Lyons J).
According to the presumption of regularity, ‘where an act is done which can be done legally only after the performance of some prior act, proof of the later carries with it a presumption of the due performance of the prior act’.[23] It is based upon ‘inference from probabilities, and on policy considerations of public and commercial convenience for the smooth operation of business’.[24] In Mallock v Tabak,[25] it was stated that the presumption of regularity can extend to matters of substance, as well as those of detail and form.[26] However, more recent authority has emphasised the presumption’s application to formal acts or ‘mere formalities’, rather than ‘substantive issues’.[27]
[23]McLean Bros & Rigg Ltd v Grice (1906) 4 CLR 835, 850 (Griffith CJ, Barton and O’Connor JJ agreeing) quoting Knox County v Ninth National Bank (1893) 147 US 91, 97 (Brewer J).
[24]Re Thomson (n 19) [13], citing Carpenter v Carpenter Grazing Co Pty Ltd (1987) 5 ACLC 506, 514 (Hope JA, Samuels and Priestley JJA agreeing); Morris v Kanssen [1946] AC 459, 475 (Lord Simonds, Viscount Simon and Lords Thankerton, Porter and Uthwatt agreeing); Hardess v Beaumont [1953] VLR 315, 320 (Dean J).
[25][1977] VR 78.
[26]Ibid 84 (Lush J).
[27]Burnside v Mulgrew; Re Estate of Grabrovaz [2007] NSWSC 550, [25] (Brereton J); Chase v Chase [2020] NSWSC 1689, [33]–[34] (Rein J); Bale v Kimberley Developments Pty Ltd [2022] NSWSC 820, [413] (Ward P); Re Thomson (n 19) [17] (McMillan J); Mantovani v Vanta (n 13) [82]–[84] (McMillan J); Twigg v Twigg (2022) 402 ALR 119, 128 [26] (Brereton JA, Bell CJ and Payne JA agreeing).
Section 63 of the Trustee Act gives the Court a discretionary power to authorise dealings with trust property where the relevant dealing is in the management or administration of such property, considered expedient, and not otherwise able to be effected by the trustee. The statutory jurisdiction to authorise a variation of trust recognises that trust instruments and the general law ‘may prove inadequate to clothe the trustees with the requisite powers to manage and administer trust estates’.[28] However, in the context of an analogous provision in New South Wales, a transaction in the ‘management and administration’ of the trust property has been interpreted as not extending to amending the trust deed itself.[29]
[28]LexisNexis, Halsbury’s Laws of Australia (online at 16 February 2023) 430 Trusts, ‘3 Administration of Trusts’ [430-5125].
[29]Re Dion Investments Pty Ltd (2014) 87 NSWLR 753 (‘Dion Investments’), 774 [97]–[100] (Barrett JA, Beazley P and Gleeson JA agreeing).
A trustee de son tort is considered a trustee by their own wrong; the common case being a person who mistakenly thinks that they have been appointed a new trustee.[30] The person takes it upon themselves to act as trustee and discharge the duties of trustee on behalf of others. [31] In both Jacobs’ Law of Trusts in Australia and Ford and Lee’s Principles of the Law of Trusts, a trustee de son tort is recognised as a species of constructive trustee.[32] They are accountable for trust property ‘to the same extent as if they had been validly appointed as express [trustee]’.[33]
[30]See Westlaw AU, Ford and Lee: The Law of Trusts (online at 16 February 2023) [22A.1560].
[31]Dubai Aluminium Co Ltd v Salaam [2003] 1 All ER 97, 130 [138] (Lord Millett, Lords Hutton and Hobhouse agreeing), quoted in Nolan v Nolan [2004] VSCA 109, [27] (Ormiston JA).
[32]LexisNexis, Jacobs’ Law of Trusts in Australia (online at 16 February 2023) [13-03]; Westlaw AU, Ford and Lee: The Law of Trusts (online at 16 February 2023) [22A.1560]. See also Nolan v Nolan (n 31) [26]–[29] (Ormiston JA); Twigg v Twigg (n 27) 134–8 [47]–[57] (Brereton JA, Bell CJ and Payne JA agreeing).
[33]Plummer v Attorney General of NSW [2018] NSWSC 869, [134] (Slattery J). See also Westlaw AU, Ford and Lee: The Law of Trusts (online at 16 February 2023) [8.260], citing Pearce v Pearce (1856) 22 Beav 248.
Finally, specifically concerning the appointment of trustees, s 60(2) of the Superannuation Industry (Supervision) Act 1993 (Cth) (‘the SIS Act’) appears to place certain limitations on the amendment of the governing rules of regulated superannuation funds, namely that amendments cannot be made so that the trustee of the fund is not a constitutional corporation unless the rules provide that the sole or primary purpose of the fund is the provision of old-age pensions.
Ellasil’s submissions
Ellasil submits that a trustee has a fundamental duty to ascertain and uphold the terms of the trust,[34] and further, that a trustee who proceeds without appropriate guidance from the Court can be at ‘serious risk’.[35]
[34]Citing Hallows v Lloyd (1888) 39 Ch D 686, 691 (Kekewich J); Commissioner of Taxation v Interhealth Energies Pty Ltd as trustee of the Interhealth Superannuation Fund [2012] FCA 120, [13] (Logan J).
[35]Citing Wooster v Morris [2013] VSC 594, [91]–[96] (McMillan J).
It acknowledges that there is an inconsistency in that the 1996 deed refers to a power given under cl 8.1.1 of the 1979 deed, while the 1989 deed does not have any corresponding r 8.1.1. Although this may not have made any practical difference, a possibility arises that there may have been clauses outside A1 to B1.13 in the 1979 deed that were not revoked and replaced by the 1989 deed. In contrast, the 2015 deed purports to amend the whole deed.
Ellasil asserts that the material shows that since mid-1996, the fund has proceeded on the basis that Ellasil was validly appointed as trustee, that is, subsequent conduct supports its position as trustee. Additionally, the correspondence of BZW dated 20 July 1996 suggests that it may have had to regularise at least some of the fund’s asset portfolio to show legal ownership by Ellasil. The potential exception in the evidence is the Haintz Actuarial Services certificate of 15 May 2013, which names James and Jean as 'trustees’ of the fund. However, it is submitted that overall, the Court should be satisfied of Ellasil’s due appointment as trustee. Insofar as any documentation is missing, it is said that the presumption of regularity ought apply.[36]
[36]Citing Re Thomson (n 19).
Ellasil also recognises the application of the SIS Act to the fund. It contends that at the time of James’ death, if Jean was an individual trustee (rather than a director of a corporate trustee), another trustee would had to have been appointed.[37] On Jean’s death, the fund remained a compliant SMSF if her legal personal representative was a trustee of the fund or a director of a company trustee of the fund, with a window of six months provided for regularisation if these conditions were not met.[38]
Contradictor’s submissions
[37]Citing SIS Act, s 17A(2)(b).
[38]Citing SIS Act, s 17A(3)(a), (4); Corporations Act 2001 (Cth) s 201F.
The contradictor contends that although a copy of the 1979 deed cannot be located, its existence is not seriously doubted. The 1979 deed is said to have been replaced in its entirety ten years later, at a time of flux concerning private superannuation fund regulation. It is submitted that during this period many schemes were varied by the adoption of complete replacement pro forma trust deeds, prepared by solicitors and accountants specialising in superannuation regulation. There is no reason to doubt, as set out in the preamble to the 1989 deed, that the 1979 deed provided a power to replace the current deed.
The contradictor suggests that the annual statement from BZW is incorrectly addressed to James and Jean as trustees. The subsequent letter of Davies French on 14 October 1996 with the enclosed resolution, combined with the documents from 1994 and similarity of language between the letter and undated resolution, are said to support the inference that the letter notified BZW of Ellasil’s appointment as trustee.
Consequently, the contradictor accepts Ellasil’s valid appointment as trustee, and that the trust deed governing the fund at the time of the appointment was the 1989 deed. Regarding the reference in the 1996 deed to cl 8.1.1 of the 1979 deed being the source of the principal employer’s power to appoint a new trustee (which power was actually contained in r 2 of the 1989 deed), it is not suggested that this mistaken reference vitiates Ellasil’s appointment.
The contradictor also accepts that since 1996, the fund has proceeded on the basis that Ellasil is trustee. The 2015 deed and minutes of meeting appear to be contemporaneous both from their content and the pink post-it notes. As to the certificate provided by Haintz Actuarial Services, it is submitted that it is incorrect, or no more than ambiguous.
Although the presumption of regularity is described as ‘not straightforward’, the contradictor does not object to its application in the current circumstances.[39] In Application of M & L Richardson Pty Ltd,[40] Kunc J held that the administration of a trust in accordance with an unexecuted copy of the trust deed was sufficient proof of the terms of the trust,[41] and the same would apply regarding the appointment of Ellasil as trustee. Moreover, even if Ellasil was not validly appointed as trustee, its predecessor trustee, namely Daycom, was deregistered in 2006. If Ellasil has acted as trustee de son tort since 1996, the contradictor submits it would be accountable as such.
Consideration
[39]Specifically, the contradictor did not advance submissions based upon Mantovani v Vanta (n 13) [86] (McMillan J) that the presumption of regularity ought not apply here.
[40]M & L Richardson (n 11).
[41]Ibid [8] (Kunc J).
The Court’s jurisdiction under r 54.02 is engaged when an applicant points to a question regarding the management or administration of trust property, or the interpretation of a trust instrument.[42] Rule 54.02 has previously extended to questions concerning an apparent trustee’s appointment.[43] Here, the Court is satisfied that the necessary jurisdictional bar has been met.
[42]Macedonian Church (n 7) 89–90 [58] (Gummow ACJ, Kirby, Hayne and Heydon JJ, Kiefel J agreeing).
[43]See, eg, Re McGowan & Valentini Trusts (2021) 63 VR 449.
The uncertainties arising in the current circumstances stem from the loss of the 1979 deed. As set out in [57], in order to draw inferences concerning the content of the 1979 deed, it is first necessary to conclude that it existed, but is not now available.
Did the 1979 deed exist?
Based upon the references in the 1989 deed, the 1996 deed and the 2015 deed, it can be accepted that in or around 25 June 1979 a deed of trust establishing the fund was executed. This is also consistent with the name of the company being changed to Stewart Electronic in July 1978, and the fund’s original name being the ‘[Stewart Electronic] Superannuation Fund’.
Is the 1979 deed ‘not available’?
The evidence of Mr Volovich, Mr Windebank and Lynette sets out the searches and inquiries that have been made for the 1979 deed. The Court is satisfied that the 1979 deed is not available, particularly as Jean’s house has been searched, financial institutions have been contacted, Mr Volovich has searched his records and it is no longer possible for Mr Davies to provide evidence.
Is there satisfactory evidence of the 1979 deed’s content, as amended from time to time, concerning trustee appointments?
The unavailability of the 1979 deed raises considerable issues of uncertainty. ASIC records indicate that the office of Davies French was the registered office of Stewart Electronic from 1961 to 2001, when the company was deregistered. However, there is no evidence of Mr Davies’ usual practice regarding trust deeds at relevant times, specifically concerning any precedents that may have been used. Consequently, reliance must be placed upon later documents, particularly those up to 1996 when it appears that Ellasil may have been appointed. Of relevance in this regard are r 2 of the 1989 deed and recital H of the 1996 deed.
Clause 1 of the 1989 deed adopts cls 3 to 7, the schedules and the rules contained in an annexed copy deed. Clause 6 of the copy deed states that ‘the power of appointing and removing Trustees shall be as provided in the Rules’, with ‘Rules’ defined as the rules attached to the 1989 deed, as amended from time to time, which were to have effect as if set out in the body of the copy deed. Rule 2 states, among other things:
2.1 Until the date determined pursuant to Rule 2.2 the Trustees shall be comprised of either at least two individuals or a sole corporation appointed by notice in writing from the Principal Employer the directors of which are appointed and have their proceedings governed, in a manner which complies with the Relevant Requirements and is agreeable to both the Principal Employer and the Members. The Trustees may be removed and replaced in accordance with the Rules and in compliance with the Relevant Requirements.
2.2 As from such date as the Principal Employer may, having regard to the Relevant Requirements, determine, the Trustees shall comprise either:
….
(b)a sole corporation, appointed by notice in writing from the Principal Employer, the directors of which are appointed, and have their proceedings governed, in a manner which complies with the Relevant Requirements.
…
2.4 Where the Trustee is a corporation appointed pursuant to Rule 2.2(b) it may be removed by notice in writing from the Principal Employer provided that any Trustees appointed in its place shall meet the requirements of Rule 2.2.
‘Relevant requirements’ is defined as the requirements imposed under the Occupational Superannuation Standards Regulations 1987 (Cth) or any other law, or by the relevant responsible authority, which must be satisfied by the fund to qualify for the maximum available income tax concessions.
Of additional note, the recitals to the 1989 deed refer to cl A.13 of ‘the Deed’ granting the trustee a power to ‘inter alia rescind, add to, amend, modify, revoke or replace from time to time all or part of the provisions of the Deed’, provided that it does not prejudice the rights of (or impose any further liability on) any member. As noted earlier, cl 1 of the 1989 deed revokes ‘[a]ll of Clauses A1 to B1.13’ of ‘the Deed’. ‘The Deed’ is defined as the trust deed made between the principal employer and trustees, and any duly executed amendments or variations thereto. This would therefore encompass the 1979 deed, and possible amendments dated 1980 and 1982.
Recital C of the 1996 deed refers to ‘[c]lause 8.1.1 of the Deed’ providing that ‘the Principal Employer of the Fund may from time to time appoint a new Trustee or Trustees of the Fund either in substitution for or in addition to any other Trustee or Trustees for the time being and that the Trustee must be a Constitutional Corporation’. According to recital A of the 1996 deed, ‘the Deed’ refers to a superannuation trust deed made 25 June 1979 between Stewart Electronic and Daycom to establish the fund.
Based upon the references in the 1996 deed, the purpose of the fund as a superannuation fund, and the terms of the 1989 deed, the Court is prepared to infer that the 1979 deed both contained a power of amendment and afforded the principal employer the power to appoint a trustee. While, as Ellasil acknowledges, a degree of uncertainty is raised by the 1996 deed referring to cl 8.1.1 of the 1979 deed rather than r 2 of the 1989 deed, the two are not necessarily incompatible. It can be inferred that both grant a power of appointment to the principal employer and aim to ensure compliance with overarching superannuation regulatory requirements. Rule 2.2 of the 1989 deed further specifies that the appointment of a new trustee must be ‘in writing’. Relevantly, the 1996 deed satisfies the requirements of r 2 of the 1989 deed.
Additionally, the consent of Ellasil, resolution of members and correspondence from Davies French dated 14 October 1996 further support Ellasil’s valid appointment as trustee of the fund in 1996. This evidence, in combination with the minutes of meeting of Daycom dated 30 May 1994, outweighs the reference in the Haintz Actuarial Services certificate to James and Jean as ‘trustees’ of the fund. On balance, the combined weight of the available documents provides satisfactory evidence as to the terms of the 1979 deed in relation to the appointment of new trustees.
In any event, the data from the Australian Taxation Office portal, the schedule to the 2015 deed and the undated minutes of a meeting of members and trustees of the fund demonstrate that Ellasil has acted as trustee of the fund, and by its own evidence, holds benefits of $775,050 in this capacity. In such circumstances, even if Ellasil’s appointment under the 1996 deed was considered to be not valid, it could arguably be considered a trustee de son tort, accountable on the same basis as an express trustee of the fund. As such, if Ellasil were now to proceed on the basis that it is not trustee, it would risk being in breach of trust. Ultimately, Ellasil is justified in proceeding on the basis that it is trustee of the fund.
Is Ellasil justified in proceeding on the basis that the 2015 deed is valid?
Applicable principles
A trustee is bound by multiple duties, including becoming familiar with and adhering to the terms of the trust.[44] In the context of a SMSF, the SIS Act also sets out multiple covenants that are taken to form part of a fund’s governing rules, if the governing rules do not already contain covenants to the same effect.[45]
[44]Hallows v Lloyd (n 34) 691 (Kekewich J); Halford v Halford [2022] WASCA 1, [132] (Quinlan CJ, Murphy JA and Tottle J); Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484, 498 [32] (Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ). See also Westlaw AU, Ford and Lee: The Law of Trusts (online at 16 February 2023) [9.2010]; LexisNexis, Jacobs’ Law of Trusts in Australia (online at 16 February 2023) [17-01], [17-04].
[45]SIS Act, s 52B.
The law concerning missing trust deeds and the presumption of regularity has been set out earlier in these reasons. ‘A trustee’s function is “to take the trusts as it finds them and to administer them as they stand”’.[46] However:
… a trust deed may contain an express power of variation. Most modern trust deeds contain an express power which enables the trusts and the provisions of the trust deed to be varied, but the nature, form and extent of the permitted variations depend, in general, upon the language and apparent purpose of the variation clause in the context of the trust deed as a whole.[47]
[46]Mercanti v Mercanti (2016) 50 WAR 495, 517 [81] (Buss P), quoting Dion Investments (n 29) 773 [94] (Barrett JA, Beazley P and Gleeson JA agreeing).
[47]Ibid 518 [82] (Buss P).
Separately, a trustee can apply to the Court to authorise conduct that may otherwise constitute a breach of trust.[48]
[48]See LexisNexis, Halsbury’s Laws of Australia (online at 16 February 2023) 430 Trusts, ‘3 Administration of Trusts’ [430-4995]; Trustee Act 1958 (Vic) s 63.
As to the construction of superannuation trust deeds, in FSS Trustee Corporation v Eastaugh (‘FSS Trustee’),[49] the Court of Appeal stated as follows:
A superannuation trust deed is a commercial document and should be given a business like interpretation, which requires attention to be paid to the language used in the deed, the commercial circumstances which the deed addresses, the context in which it operates and the objects it is intended to secure. It is necessary to consider what a reasonable person would understand by the language used in the deed and the rules. The [r]ules must be interpreted to give the words used their ordinary and fair meaning. When questions arise as to the meaning of words used in the [r]ules they are ‘to be answered in a practical and realistic way, not in a way which adopts an overly fine or theoretical approach that is alien to commercial agreements.’ The words or terms used are to be understood in the context and in relation to the circumstances in which they are used. A practical and purposive approach should be applied to the interpretation of superannuation schemes.[50]
[49][2017] VSCA 218 (‘FSS Trustee’).
[50]Ibid [61] (Keogh AJA, Tate and Santamaria JJA agreeing). See also Schreuders v Grandiflora Nominees Pty Ltd [2016] VSCA 93, [12]–[22] (Kyrou, Ferguson and McLeish JJA); Butler v Kenny [2022] VSCA 102, [27] (Kyrou, McLeish and Walker JJA).
At common law, the traditional rule is that a deed can only be varied by another deed.[51] However, at equity, an agreement for consideration can be effective in varying a deed.[52]
Ellasil’s submissions
[51]Berry v Berry(No 2) [1929] 2 KB 316, 319 (Swift J); Hawcroft General Trading Co Pty Ltd v Hawcroft [2017] NSWCA 91, [35] (Leeming JA).
[52]Ibid. See also Sara Stockham Pty Ltd v WLD PracticeHoldings Pty Ltd [2021] NSWCA 51, [15] (Leeming JA, Gleeson JA and Emmett AJA agreeing).
Ellasil identifies multiple issues with the execution of the 2015 deed. First, it notes the default position that ‘only a deed can vary another deed’.[53] However, by its terms, James and Jean have only ‘signed’ the 2015 deed rather than ‘signed, sealed and delivered’ it. As such, Ellasil asserts that the 2015 deed would not be deemed sealed by James and Jean under s 73A of the Property Law Act 1958 (Vic). However, the 2015 deed may possibly be considered ‘sealed’ on account of either the pink note affixed by Jean, or the impression made from the pen-marks. Alternatively, Ellasil asserts that the Court ought to treat the 2015 deed as rectified, so that the words ‘and sealed’ or ‘sealed and delivered’ are added nunc pro tunc after the word ‘signed’.
[53]Citing ING Funds Management Ltd v ANZ Nominees Ltd (2009) 228 FLR 444, 457–8 [72]–[76] (Barrett J); Bendigo and Adelaide Bank Ltd v DY Logistics Pty Ltd [2018] VSC 558, [21]–[24], [26]–[27] (Croft J).
The second issue identified by Ellasil concerning execution is that Ellasil’s company seal is not affixed, and Jean has executed the 2015 deed as both secretary and director of Ellasil. While s 127 of the Corporations Act 2001 (Cth) permits a company to execute a document via signatures of a director and secretary, Ellasil doubts that this can be the same person. Additionally, although cl 67 of Ellasil’s articles of association allows for the appointment of an attorney of Ellasil, there is no evidence that a formal power of attorney was executed. There is, however, the minutes of meeting that were found with the 2015 deed, which may support an argument that Jean was authorised to execute the deed on behalf of Ellasil. It is also said to be strongly arguable that Jean was the guiding mind of Ellasil, and that the element of ‘delivery’ in relation to the 2015 deed was satisfied.[54]
[54]Citing Lewski v Australian Securities and InvestmentsCommission (2016) 246 FCR 200, 252 [164]–[166] (Greenwood, Middleton and Foster JJ).
Ellasil accepts that the presumption of regularity cannot assist regarding the 2015 deed, as irregularities are contained on the face of the document itself. However, the presumption may be available to the Court in respect of the deed of amendment purportedly executed in November 1999. Such an approach is said to be supported by the terms of the 2015 deed, Mr Volovich’s evidence, and because the 1999 deed may have facilitated lapsing nominations.
Finally, it is submitted that as at 2015, James and Jean were in the ‘pension phase of their funds’ and co-directors of Ellasil. They were also the sole beneficiaries of the fund, and apart from the corporate execution clause they followed the mode of execution set out in the documents. It is asserted that in such circumstances the Court can potentially, under s 63 of the Trustee Act, authorise Ellasil to proceed on the basis that the 2015 deed is valid.
Contradictor’s submissions
The contradictor agrees that a deed can generally only be varied by another deed. However, he submits that as at June 2015, the fund was governed by the 1989 deed. Page 1 of the operative part of the 1989 deed provides that the fund is to be managed and administered according to the rules set out within the copy deed, and that provisions of the deed might be amended in the manner set out in the rules. As provided in r 5.12(a):
… the Trustees with the approval of the Principal Employer may at any time by resolution or by instrument in writing amend all or any of the provisions of the Rules including this Rule 5.12.
According to the contradictor, r 5.12(a) should be construed as giving the trustee and the principal employer power to ‘vary’ as well as to ‘amend’.
The contradictor disagrees that the correct analysis is that the 2015 deed was a variation of the 1989 deed. Rather, the 2015 deed was an exercise of the power reserved in r 5.12(a) of the 1989 deed. As such, it is submitted that it is not necessary that the 2015 deed be a formal deed in order to vary the 1989 deed, effect the appointment of a new trustee, or vary the existing terms of trust by replacing them with entirely new terms of trust. The power in r 5.12(a) is said to be sufficiently wide to enable the trustee, with the approval of the principal employer, to replace the 1989 deed with the 2015 deed. The 2015 deed was signed ‘for and on behalf of’ Ellasil by its two directors, even if James only signed in his capacity as a member.
To construe the words ‘with the approval of the Principal Employer’ as imposing a condition precedent is said to fly in the face of the practical and purposive approach to be taken to construction of a superannuation trust deed recognised in FSS Trustee.[55] Insofar as any consent was required, the only persons with any interest in the fund in June 2015 were its members, James and Jean, and by passing the resolution, they evinced their approval of the 2015 deed. Moreover, if the minutes of meeting do not constitute an ‘instrument in writing’, they satisfy the requirement of a ‘resolution’.
[55]FSS Trustee (n 49) [61] (Keogh AJA, Tate and Santamaria JJA agreeing).
According to the contradictor, as James and Jean were the only persons with any beneficial interest in the fund, the absence of some information about supplemental deeds executed between 1980 and 1999 should not detract from the conclusion that Ellasil had the power conferred by r 5.12(a) of the 1989 deed. There is no reason to speculate that later deeds might have altered or restricted the power in the 1989 deed.
Consideration
In order to adhere to its duties as trustee of the fund, Ellasil needs to become familiar with the terms of the trust. Here, uncertainties exist concerning Ellasil’s ability to rely upon the 2015 deed due to the unavailability of the 1979 deed and some of the subsequent ‘amending deeds’, and certain issues as to execution.
Consistent with the contradictor’s position, the Court considers that a key question is whether the making of the 2015 deed was a valid exercise of power. Exploring this question requires analysis of the ‘chain of deeds’ that may exist and the likely content of the 1979 deed.
Reflecting the fact that the 2015 deed was sourced from Abbots, its recitals are couched in broad language, and give no indication of the specific clause relied upon as the source of power for the deed. Further, the recitals to the 2015 deed refer to ‘the conditions of which as amended’, raising the issue of amendments to the fund’s governing instrument between 1979 and 2015.[56] Although the contradictor submits that the 2015 deed stemmed from the exercise of a power within the 1989 deed, the evidence before the Court appears to weigh in favour of a finding that the 2015 deed relied upon a power in a deed executed in 1999.
Did a 1999 deed exist?
[56]See [31] above.
The schedule to the 2015 deed refers to a ‘supplemental deed’ executed on 1 November 1999 (‘the 1999 deed’). Additionally:
(a) while certain procedural issues are evident concerning the formal execution of the 2015 deed and the document supporting Daycom’s admission to the fund, all of the documentation before the Court appears to have been drafted with reference to the correct parties;
(b) the recitals and execution page of the 2015 deed do not refer to any involvement of the ‘principal employer’;
(c) Mr Volovich deposes that the trust deed was amended at some point to become a SMSF without reference to a particular employer, and further that James and Jean had retired in 2000 and there was no relevant employer at that time;
(d) Stewart Electronic, the principal employer under the 1989 deed, was deregistered in November 2001; and
(e) in 2006, James and Jean appear to have signed death benefit nominations that are expressed to be ‘binding’, although by rr 10.8 and 10.9, the 1989 deed only contemplates non-binding nominations.
In 1999 and 2000, significant regulatory changes concerning SMSFs occurred.[57] While not relied upon, it may be that such changes prompted anticipatory changes in the fund instrument. On the whole, the reference in the 2015 deed and surrounding circumstances support the inference that the 1999 deed existed.
Is the 1999 deed ‘not available’?
[57]Namely, they became regulated by the Commissioner of Taxation: see Superannuation Legislation Amendment Act (No 3)1999 (Cth).
Given the enquiries that have been made by Mr Windebank, in addition to the searches of Mr Volovich and Lynette, the Court is satisfied that the 1999 deed is not available.
What was the content of the 1999 deed?
The preamble of the 2015 deed references the ‘conditions’ of the fund providing that the provisions may be amended, and that ‘the Member’ and ‘Trustee’ wish to exercise the ‘said powers to amend’. While the exact scope of the power is uncertain, its existence is consistent with references to powers of variation in:
(a) Recital D of the 1989 deed, which refers to a power in the 1979 deed granted to the trustee to amend ‘all or part of the provisions’ of the 1979 deed so long as the rights of any member are not prejudiced; and
(b) Rule 5.12 of the 1989 deed, which grants the trustee a power, with the approval of the principal employer, to amend ‘all or any of the provisions of the Rules’, by way of ‘resolution or instrument in writing’.
Additionally, cl 2 of the 2015 deed grants the trustee the power to amend the provisions applying to the fund ‘by deed or resolution in writing’.
Such broad powers of amendment are consistent with a key purpose of the fund: to comply with the applicable regulatory scheme and obtain concessional tax benefits. In order to achieve this purpose, flexibility as to the terms of the trust instrument is required. The inference is that the 1999 deed contained a power to amend, exercisable at least by the trustee, subject to the same or similar limits as in the 1989 deed and the 2015 deed. Further, in order to maximise flexibility and consistently with the 1989 deed, it is more likely than not that such a power in the 1999 deed was exercisable ‘by resolution in writing’ as an alternative to a formal deed or ‘instrument’. In the current circumstances, at the very least, the minutes of a meeting of the members and trustee of the fund, which the Court accepts were signed by Jean in or around June 2015 and contemporaneously with the 2015 deed, is a ‘resolution in writing’.
In drawing such an inference, the Court is comforted by the fact that there is no suggestion of fraud in the current circumstances. Rather, Lynette recognises her parents’ signatures on the 2015 deed, and their signatures were witnessed.
On the whole, the conclusion can be drawn that Ellasil is justified in proceeding on the basis that the 2015 deed is valid. Such an approach is in the best interests of the fund.
Insofar as the contradictor suggests that the 1989 deed is the source of power for the 2015 deed, two points can be made. First, as already identified, the evidence leans toward the trust instrument being significantly amended between 1989 and 2015. It appears unlikely that James and Jean, assisted by Mr Volovich, would have executed an amending deed in 2015 in the absence of a principal employer, in circumstances where the 1989 deed was located at the offices of Mr Volovich.
Secondly, even if the evidence of the 1999 deed is placed to one side and the focus is on the powers within the 1989 deed, in 1989 the principal employer of the fund was Stewart Electronic. In accordance with r 11 of the 1989 deed, among other things, the fund ceases and terminates if the principal employer decides that it will permanently cease contributing to the fund and no other principal employer takes its place, or if an order is made or an effective resolution passed for the purpose of winding up the principal employer and no other principal employer takes its place. From June 1998, Stewart Electronic was under external administration and/or had a controller appointed, with a managing controller’s final accounts being received by ASIC in April 1999. By November 2001, it was deregistered. If the trust instrument was not varied prior to 2001, a real question arises as to whether there is evidence of another principal employer or termination of the fund.
For completeness, it is noted that r 11 of the 1989 deed, and other rights and obligations of the principal employer set out therein, lean against the construction of r 5.12(a) favoured by the contradictor. That is, given the role of the principal employer in the 1989 deed, the purpose of the phrase ‘the Trustees with the approval of the Principal Employer’ appears to be to place a check on the trustees’ power of variation, in circumstances where variations may alter the principal employer’s rights and obligations. To interpret r 5.12(a) as not requiring the approval of the principal employer in circumstances where a principal employer is not appointed, or no longer exists, appears inconsistent with r 11.2, which contemplates circumstances in which the principal employer ceases contributing to the fund and no other principal employer takes its place. Although in Capital Cranfield Trust Corporation Ltd v Sagar[58] the power of the trustee was considered unqualified upon dissolution of a principal employer (which otherwise had to give its approval), the clause in question there related to a power to be exercised after the termination of a superannuation scheme.
[58][2002] OPLR 151. See also Davis v Richards and Wallington Industries [1990] 1 WLR 1511, in which the issue was the making of a deed by a principal company without the approval of dissolved associated companies. See further Geraint Thomas, Thomas on Powers (2nd ed, Oxford University Press, 2012) [7.108].
Further, although a similarly worded power of variation was varied by the Court to remove the reference to the principal employer in Bowmil Nominees Pty Ltd,[59] the approach taken in that case has since been questioned.[60]
[59][2004] NSWSC 161.
[60]See Dion Investments (n 29) 774 [100] (Barrett JA, Beazley P and Gleeson JA agreeing).
As to Ellasil’s concerns that a deed can only be varied by deed, even if the power of amendment had to be exercised by way of a deed, complexities arise concerning equity’s recognition of the covenants in the context of ‘valuable consideration’. Without determining the issue, on one view, Jean may have provided consideration in the form of her contributions.[61]
Is Ellasil justified in proceeding on the basis that any of the death benefit nominations are valid, and that it may be bound by them?
Applicable principles
[61]That is, on one view she was not a volunteer. See LexisNexis, Jacobs’ Law of Trusts in Australia (online at 16 February 2023) [29.53]; Australasian Annuities Pty Ltd (in liq) v Rowley Super Fund Pty Ltd (2015) 318 ALR 302, 331 [121] (Warren CJ).
A trustee is generally obliged to act personally and not delegate the exercise of its powers, except to the extent permitted by the trust instrument or legislation.[62] The trust instrument for a SMSF may permit members to direct the trustee as to the payment of benefits upon the member’s death.
[62]See LexisNexis, Halsbury’s Laws of Australia (online at 16 February 2023) 430 Trusts, ‘3 Administration of Trusts’ [430-4175], [430-4385], citing McMillan v McMillan (1891) 17 VLR 33, 38–9 (Hodges J).
To enjoy certain tax benefits, SMSF arrangements must comply with the SIS Act.[63] Under that act, a superannuation fund is a ‘regulated superannuation fund’ if it has a trustee which is a constitutional corporation (or the fund is a pension fund), and the trustee has elected by written notice that the SIS Act applies to the fund.[64] A single-member SMSF is a regulated superannuation fund if, inter alia, the trustee is a body corporate and the member is the sole director of the body corporate.[65]
[63]SIS Act, s 3(2). See also Hill v Zuda Pty Ltd (2022) 401 ALR 624, 626 [5] (Kiefel CJ, Gageler, Keane, Gordon, Edelman, Steward and Gleeson JJ); Cantor Management Services Pty Ltd v Booth (2017) 106 ATR 615 (‘Cantor v Booth’), 620 [21] (Kourakis CJ, Peek and Nicholson JJ agreeing).
[64]SIS Act, s 19.
[65]SIS Act, 17A(2).
Section 55A of the SIS Act provides that the governing rules of a regulated superannuation fund ‘must not permit a fund member’s benefits to be cashed after the member’s death otherwise than in accordance with standards prescribed for the purposes of section 31’. Regulation 6.21(1) of the Superannuation Industry (Supervision) Regulations 1999 (Cth) (‘the SIS Regulations’) provides that a member’s benefits in a regulated superannuation fund must be cashed as soon as practicable after the member dies. In accordance with reg 6.22, a benefit upon death is to be paid to the member’s legal personal representative or dependants.[66] Both regs 6.21 and 6.22 apply to SMSFs.[67]
[66]Regulation 6.22 is subject to several exceptions, none of which apply in the present circumstances.
[67]Hill v Zuda (n 63) 627–8 [14] (Kiefel CJ, Gageler, Keane, Gordon, Edelman, Steward and Gleeson JJ).
As summarised in Cantor Management Services Pty Ltd v Booth, s 59 of the SIS Act and reg 6.17A of the SIS Regulations prescribe ‘the form of a death benefit nomination and provide that the trustee must pay a benefit to the person mentioned in the nominations and the notice given to the trustee’.[68] Such notice ceases to have effect after three years.[69]
[68]Cantor v Booth (n 63) 621 [29] (Kourakis CJ, Peek and Nicholson JJ agreeing) (original emphasis).
[69]SIS Regulations, reg 16.17A.
In Hill v Zuda Pty Ltd, which was delivered after written submissions were received in this proceeding, the High Court affirmed that s 59 and reg 6.17A do not apply to SMSFs.[70] Rather, the relevant trust deed will govern the form in which a binding nomination may be given.[71]
Ellasil’s submissions
[70]Hill v Zuda (n 63) 630–1 [30] (Kiefel CJ, Gageler, Keane, Gordon, Edelman, Steward and Gleeson JJ).
[71]Cantor v Booth (n 63) 622 [30] (Kourakis CJ, Peek and Nicholson JJ agreeing).
Ellasil notes that there are multiple relevant death benefit nominations:
(a) the undated nominations;
(b) the 3 December 2006 nominations;
(c) the 7 December 2006 nomination; and
(d) the 2017 nomination.
Ellasil submits that it is appropriate for it to seek advice as to whether these nominations are binding, particularly given the potential consequences for trustees. It also submits that there can be debate as to whether a binding death benefit nomination under a SMSF is subject to the requirements of the SIS Act,[72] by way of incorporation into the trust deed.
[72]Citing Donovan v Donovan [2009] QSC 26; Munro v Munro (2015) 306 FLR 93, 99–100 [35]–[39] (Mullins J); Cantor v Booth (n 63) 622 [30] (Kourakis CJ, Peek and Nicholson JJ agreeing); Re Narumon [2019] 2 Qd R 247, 262 [45] (Bowskill J).
Ellasil submits that cl 23(b) of the 2015 deed appears to allow the making of a binding nomination, but does not prescribe a form for such. It further notes that the 2017 nomination purports to update an existing non-lapsing binding death benefit nomination. While the wording of the 2017 nomination refers to a ‘wish’, Ellasil submits that context and language otherwise support the construction that it was intended to be binding.
Alternatively, if the 2015 deed does not apply, but there is sufficient evidence to conclude that the 1999 deed provided for binding lapsing nominations, Ellasil submits that the Court could potentially rule that the 2017 nomination was a binding lapsing nomination. Further, the 2017 nomination appears to have satisfied the requirements of reg 6.17A of the SIS Regulations.
Contradictor’s submissions
The contradictor submits that as each of the death benefit nominations made by James and Jean dealt with 100 per cent of their death benefit, by implication and operation they supplanted and replaced earlier nominations. It is submitted that the complete replacement of the 1989 deed with the 2015 deed would ‘very probably have supplanted any existing nomination’ that had been made pursuant to the earlier deed.
It is also submitted that Jean had the power under cl 23(b)(1) of the 2015 deed to nominate a ‘dependant’ to which her death benefit would become payable. By application of s 10 of the SIS Act, Janet fell into this category. Although the 2017 nomination uses the word ‘wish’, the contradictor agrees that the evidence supports the conclusion that it was intended to have legal effect. It appears to be valid, and was made according to the terms of the 2015 deed and in favour of a permitted dependant.
It is said to be unnecessary to determine the applicability of the SIS Act. However, if it does apply to the 2017 nomination, the contradictor submits that the requirements under the SIS Act have been satisfied.
Consideration
Clause 23 of the 2015 deed provides:
(a) Upon the death of a Member the benefit payable under the Fund shall be an amount equal to the Death Benefit of the Member, or Category of Member as the case may be.
(b)(1) Each applicant for membership or any Member at any time, may nominate which dependants he would like the Trustee to pay any Death Benefit payable upon his death and may indicate the proportions in which it is to be divided between several nominees or may direct that part or the whole of such benefit shall be paid to the legal personal representative administering his estate.
(2)Notwithstanding the preceding paragraph, if at the time of the Member’s death there is a current binding direction in accordance with the provisions of the Law, the Trustee shall act in accordance with such direction.
(3)If there is no current binding direction the Trustee shall consider any other nomination which the Member may have made but such nomination shall not be binding on the Trustee and if the Trustee believes that the Member’s dependants have not been taken into consideration adequately due to changes in circumstances or inadvertence the Trustee may divide the Death Benefit amongst dependants and the estate of the Member as the Trustee in its unfettered discretion may think appropriate.
(4)Subject to paragraphs (1), (2) and (3), any benefit payable on the death of a Member shall be paid as a lump sum to the surviving Dependants of that Member in such shares and proportions as the Trustee in its absolute discretion may determine PROVIDED THAT if in the Trustee’s opinion there is no Dependant of the Member living at the date of his or her death or if the Trustee considers it inappropriate to pay the whole of the benefit to any such Dependant then the whole or the balance of the benefit shall in the absolute discretion of the Trustee be paid to the Member’s legal personal representative or if there is no legal personal representative may be applied in accordance with the provisions of the law.
Evidently, cl 23(b) contemplates a member nominating payment to their ‘dependants’ or legal personal representative. Under cl 1 of the 2015 deed, ‘dependants’ takes on the meaning provided in the SIS Act and regulations made thereunder. It therefore includes ‘the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship’.[73]
[73]SIS Act, s 10 (‘dependant’).
As set out in cl 23(b)(2), the trustee ‘shall’ act in accordance with a ‘current binding direction in accordance with the provisions of the Law’, albeit that ‘the Law’ is undefined. Additionally, Schedule C to the 2015 deed provides a ‘Nominated Beneficiary’ form, which on its face notes that it is not binding, and stipulates that if a member wishes to make a binding direction to the trustee, it should be made in the form and with due execution ‘as prescribed by law’.
Consequently, while as a matter of statutory interpretation compliance with reg 6.17A is not required for SMSFs, the terms of the 2015 deed may have contemplated as much. Alternatively, similar to Munro v Munro[74] and Re Narumon,[75] the language ‘in accordance with the provisions of the Law’ and ‘as prescribed by Law’, may have the effect of incorporating only those provisions of the law that apply. Such a construction perhaps gains support from cl 4 of the 2015 deed, which states:
The parties hereto intend the provisions governing the Fund to conform with the requirements of [the SIS Act] and the standards and requirements prescribed by the relevant laws regulations standards and requirements as in force from time to time are deemed to be included as if incorporated herein and if inconsistent with any specific provisions of this Deed the said laws regulations standards and requirements shall take precedence and be observed by the Trustee. Where this deed provides for a restriction or prohibition to comply with the Act and the Act states that certain situations which would otherwise be prohibited or restricted are unaffected or may continue to a specified extent then any such situation in respect of the Fund shall likewise be unaffected or may continue to the same extent as provided in the Act.
[74]Munro v Munro (n 72).
[75]Re Narumon (n 72).
In any event, it is unnecessary to decide the point. The 2017 nomination is titled ‘Death Benefit Nomination Form’. A ticked box indicates that it serves to ‘[u]pdate an existing non-lapsing binding death benefit nomination’. Further, amongst other things, the ‘Member’s Declaration’ signed by Jean and witnessed by two witnesses states:
…
· This non-lapsing binding nomination does not expire and does not need to be updated, unless my circumstances or preferences change.
· I may at any time cancel or change a binding death nomination notice in accordance with Fund’s procedures.
· If my nomination is invalid (for example, it is not correctly signed and witnessed or any of the people nominated dies before me or no longer falls within one of the permitted categories), the Trustee will use its discretion to determine how my benefit should be paid.
…
While the form also directs the signatory to ‘[p]lease nominate to whom you wish your benefits to be paid in the event of your death’,[76] the Court accepts that on balance, the 2017 nomination should be construed as a current binding nomination. In making this determination, the Court is comforted by the fact that the 2017 nomination accords with Jean’s testamentary intentions as recorded in the will, as well as statements made by Jean to both Mr Volovich and Lynette prior to her death.
[76]Emphasis added.
To the extent that it needed to be made ‘in accordance with the provisions of the Law’, the 2017 nomination complies with the SIS Act in that it is made to a dependant of Jean’s, namely Janet. Further, if the requirements of reg 6.17A were somehow incorporated into the 2015 deed, the proportion of benefit is readily ascertainable and the notice was written and signed in the presence of two witnesses with the requisite declaration. If Ellasil had to provide Jean with information it reasonably believed she needed regarding a binding nomination, it can be accepted that as the sole director of Ellasil, Jean was aware of any such information and the notice. Additionally, the notice remained in effect at the time of Jean’s death.
In the Court’s view, Ellasil is therefore justified in proceeding on the basis that the 2017 nomination is binding.
For completeness, it is noted that the 1989 deed did not provide for binding nominations, and although the 7 December 2006 nomination is expressed to be binding, there is no evidence concerning the relevant power of nomination in the 1999 deed. It is not possible to draw inferences as to the validity of the 7 December 2006 nomination and as such, Ellasil would not be justified in acting in accordance with it.
In the event that Ellasil is not bound by any nomination and the 2015 deed applies, what is the proper construction of cls 23(b)(3) and 23(b)(4)?
Given the conclusions above regarding the application of the 2015 deed and the validity of the 2017 nomination, it is unnecessary to provide advice on this question.
If the nominations do not apply, can the Court authorise a distribution in light of Mr Windebank and Lynette’s position of conflict?
Similarly, as the 2017 nomination is valid and binding, it is unnecessary to provide advice on this question.
Conclusion
Based on the information before the Court, Ellasil is justified in acting in accordance with the following answers to the questions raised in its originating motion:
3. In respect of [Ellasil]:
(a)can it proceed on the basis that it was validly appointed as trustee of the fund by [the 1996 deed];
Yes. Ellasil is justified in proceeding on the basis that it was validly appointed as trustee of the fund. In any event, in the circumstances it may be considered a trustee de son tort and may risk being in breach of trust were it not to proceed to act as trustee.
(b)If the answer to question 3(a) is no, orders and directions as to the status of, and conduct of, the fund.
Unnecessary to decide.
4. In respect of the 2015 deed:
(a)can [Ellasil] proceed on the basis that the 2015 deed is valid;
Yes. Ellasil is justified in proceeding on the basis that the 2015 deed is valid.
(b)if the answer to question 4(a) is no, orders and directions as to the terms of, and conduct of, the fund.
Unnecessary to decide.
5. In respect of the death benefit nominations:
(a)are any of the nominations set out in paragraph 20 [of the originating motion] valid;
Yes. Ellasil is justified in proceeding on the basis that the 2017 nomination is valid.
(b)is the trustee bound by any one or more of the nominations set out in paragraph 20 [of the originating motion].
Yes. Ellasil is justified in proceeding on the basis that the 2017 nomination is binding.
6. In the event that:
(a)the trustee is not bound by any nomination in paragraph 20 [of the originating motion];
(b)the 2015 deed applies;
(c)[Ellasil] seeks orders and directions as to the proper construction of clauses 23(b)(3) and 23(b)(4) of the 2015 deed.
Unnecessary to decide.
7. In the event that the trustee of the fund is not bound to make payment of the death benefit in accordance with a death benefits nomination and has a discretion as to payment of the death benefits, [Ellasil] seeks orders and directions:
(a)authorising it to exercise the discretion to make payment of the death benefit despite any position of conflict of interest of its directors;
(b)alternatively, directions as to the manner in which [Ellasil] may exercise the discretion to pay the death benefit.
Unnecessary to decide.
Costs
Applicable principles
The Court of Appeal has summarised the approach to costs where a trustee seeks the advice of the Court as follows:
In general, a trustee is justified in seeking advice and directions from the Court, and will be indemnified out of the trust fund for his or her costs incurred in doing so. That is confirmed by statute, rules of court, and authority. However, the right of indemnity is confined to expenses properly incurred.[77]
[77]Wales v Wales [2015] VSCA 345, [41], see also [55] (Kyrou and McLeish JJA and Ginnane AJA) (citations omitted).
Within the definition of ‘self managed superannuation fund’ in the SIS Act, s 17A(2)(d) provides that if the trustee of a fund is a body corporate, a condition of being a SMSF is that no director of the body corporate receives any remuneration for any duties or services performed in relation to the fund. An exception exists under s 17B(2) if:
(a)the director performs the duties or services other than:
(i) in the capacity of director; and
(ii)in connection with the body corporate’s capacity of trustee; and
(b)the director is appropriately qualified, and holds all necessary licences, to perform the duties or services; and
(c)the director performs the duties or services in the ordinary course of a business, carried on by the director, of performing similar duties or services for the public; and
(d)the remuneration is no more favourable to the director than that which it is reasonable to expect would apply if the director were dealing with the relevant other party at arm’s length in the same circumstances.
There does not appear to be any case law specifically construing s 17B. The language of s 17A(2)(d) is broad, prohibiting ‘any remuneration’ from a fund or ‘any person’ for ‘any duties or services performed in relation to’ the fund. In contrast, the requirements of the exception in s 17B(2) are relatively specific. The relevant explanatory memorandum states that the purpose of the restriction on remuneration is to ‘ensure that trustee remuneration is not used by trustees to obtain access to their superannuation benefits before they are eligible’.[78]
[78]Explanatory Memorandum, Tax Laws Amendment (2011 Measures No 9) Bill 2011 (Cth) 111.
In Bell Lawyers Pty Ltd v Pentelow (‘Bell Lawyers’),[79] the High Court determined that an exception to the general rule that a ‘self‑represented litigant may not obtain any recompense for the value of his or her time spent in litigation’ known as the Chorley exception should not be recognised as part of the common law of Australia. Previously, a self-represented litigant who happened to be a solicitor was able to recover their professional costs of acting in the litigation under the Chorley exception. In Bell Lawyers, an argument was raised that without the Chorley exception, an incorporated legal practice ‘operating through a sole director, would be prevented from recovering costs for professional legal services rendered by employed solicitors’. After noting the approach to in-house solicitors generally as involving an indemnity of the employer, the plurality left open the question concerning ‘a solicitor employed by an incorporated legal practice of which he or she is the sole director’. In this regard it was noted that ‘[i]t might be queried whether such a solicitor has sufficient professional detachment to be characterised as acting in a professional legal capacity when doing work for the incorporated legal practice’.[80]
[79](2019) 269 CLR 333 (‘Bell Lawyers’).
[80]Ibid 352 [51]–[52] (Kiefel CJ, Bell, Keane and Gordon JJ).
In United Petroleum Australia Pty Ltd v Herbert Smith Freehills (‘United Petroleum’),[81] the Court of Appeal determined that a claim by a firm of solicitors (operating by way of a partnership) to recover costs for the work of its employees fit within the general rule as to self-represented litigants, and did not fit within the ‘well-established understanding’ relating to employed solicitors.[82]
[81][2020] VSCA 15 (‘United Petroleum’).
[82]Ibid [97], [119] (Whelan, McLeish and Niall JJA).
At issue in Guneser v Aitken Partners was whether an incorporated legal practice acting for itself could recover costs in respect of work done by its employee solicitors.[83] Macaulay J took a similar approach to the Court of Appeal in United Petroleum in asking whether ‘an incorporated legal practice fit within the general exclusionary rule for self-represented litigants’, and if so, whether the claim fell within the ‘employed solicitor rule’ so that its costs were recoverable.[84] His Honour determined that the general exclusionary rule applied and that the ‘employed solicitor rule’ (in other words, the ‘well-established understanding’) did not apply, that is, an incorporated legal practice acting for itself could not recover costs in respect of work done by its solicitors.[85]
Ellasil’s submissions
[83][2020] VSC 329 (‘Guneser’).
[84]Ibid [56] (Macaulay J).
[85]Ibid [73] (Macaulay J).
Ellasil seeks its costs of the application on an indemnity basis from the fund, noting that a trustee’s right of indemnity is confined to expenses properly incurred.[86] It submits that by their terms, both the 1989 deed and the 2015 deed empower the trustee to institute legal proceedings and obtain legal advice. The 2015 deed also specifically authorises Ellasil to retain the services of professionals and pay expenses and costs ‘properly payable’ out of the fund, and to charge fees for its services as trustee. However, Ellasil raises two specific issues regarding costs, the first concerning the SIS Act and the second in relation to Bell Lawyers.
[86]Wales v Wales (n 77) [41]–[42] (Kyrou and McLeish JJA and Ginnane AJA).
Ellasil observes that the SIS Act prohibits directors of corporate trustees of SMSFs from receiving remuneration,[87] except in circumstances where the director performs duties or provides services in accordance with s 17B(2).[88] Noting that Mr Windebank is the sole director of the solicitors appearing on the record for Ellasil, Ballards Solicitors Pty Ltd (‘Ballards’), Ellasil submits that on one view the prohibition may not apply, alternatively, that the work of Mr Windebank has been performed in terms that comply with s 17B(2).
[87]SIS Act, s 17A(1)(g).
[88]SIS Act, s 17B(2).
Regarding Bell Lawyers, Ellasil notes a lack of subsequent decisions concerning an incorporated trustee paying the legal expenses of solicitors it has retained in circumstances where a director of the trustee is also the director of the solicitors retained by the trustee.[89] While it submits that the costs of Ballards should be paid from the fund, it seeks guidance on the issue.
Consideration
[89]Citing Guneser (n 83) [27], [33], [58] (Macaulay J).
In the current circumstances, Ellasil is justified in seeking the Court’s advice, and should be indemnified from the fund for expenses properly incurred. With regards to s 17A(2)(d) of the SIS Act, a question may arise as to whether the phrase ‘any duties or services performed by the director in relation to the fund’ encompasses Mr Windebank receiving remuneration from Ballards. However, the point is unnecessary to resolve, as the Court accepts that Mr Windebank’s professional services as a solicitor meet the requirements of the exception in s 17B(2).
As to Bell Lawyers, the circumstances here are distinct. Ellasil is the party to the application, not Ballards or Mr Windebank personally. Ballards is representing Ellasil, the directors of which, for the majority of this proceeding, were both Lynette and Mr Windebank. That is, Ellasil is not ‘unrepresented’ in the sense discussed in Bell Lawyers,[90] and costs which it incurs are payable to Ballards. The general exclusionary rule as to ‘self-represented litigants’ does not appear to apply. Further, Mr Windebank is not personally interested in the outcome of the application,[91] the application is not contentious, and by virtue of s 17B(2), remuneration must be viewed through an ‘arm’s length’ lens. In such circumstances, ‘the risk of a lack of objectivity or professional detachment’[92] appears limited.
[90]Bell Lawyers (n 79) 367 [92] (Edelman J).
[91]Cf Lissenden v Dellios [2021] VSC 520, [71]–[74] (Englefield JR).
[92]United Petroleum (n 81) [117] (Whelan, McLeish and Niall JJA).
It should also be noted that in April 2019, Ballards provided Ellasil with a disclosure statement and costs agreement. At that time, costs and disbursements of $6,050 were estimated. In September 2019, Mr Windebank and Lynnette took the step of instructing DBA Lawyers. It was only after a costs estimate for making an application was received from DBA Lawyers (at that stage, $45,000 inclusive of counsel’s fees) that Mr Windebank and Lynette decided that briefing counsel through Ballards was the more economical option.
Mr Windebank deposes that the aim of briefing counsel directly through Ballards was to avoid the ‘doubling up of the costs’ that would have occurred had he provided instructions to DBA Lawyers, who then would have instructed counsel. However, care needs to be taken in this regard. In providing instructions to another firm, Mr Windebank and Lynette would have been acting reasonably in their capacity as directors of Ellasil, and not as ‘instructing solicitors’. As such, legal professional costs would not have ‘doubled up’ had this course been pursued.
Additionally, it appears that the initial instructions from Ballards to DBA Lawyers were provided as lawyers acting ‘on behalf of the estate’, even though advice was sought as to ‘how the trustees should proceed’, and DBA Lawyers looked to confirm that it was in fact Ellasil who would be their client. These circumstances serve as a reminder that practitioners wearing multiple hats need to be especially aware of which role they are performing at any given time, given the costs ramifications and matters of conflict.
On the whole, however, Ellasil should receive its expenses properly incurred from the fund, including the professional legal fees of Ballards. Mr Windebank deposes to the amount of costs as follows:
(a) Counsel invoices in the sum of $22,600;
(b) Ballards invoices in the sum of $16,796.62, plus a further sum of $23,357.95 for work in progress and disbursements (excluding counsel fees) of $1,461.43; and
(c) Contradictor’s fees of $13,750, paid directly from the fund.
Consequently, Ballards’ total costs are approximately $40,154.57, with disbursements of $24,016.43.
As to whether these costs were properly incurred, a review of Ballards’ invoices and ‘work in progress’ documents raises two issues. First, at times Ballards appears to have charged for work done that would reasonably fall within Mr Windebank’s role as director of Ellasil, rather than constituting professional legal work. This includes, for example: communicating with the fund’s accountant concerning tax returns; reviewing the ‘trustee declaration’; organising the sale of shares; and reviewing investments. Such administrative tasks would appear to fall within the scope of s 17A(2)(d) of the SIS Act, but not the exception provided in s 17B(2), in the sense that they do not require professional skill. In any event, these tasks should not be charged at Mr Windebank’s hourly rate as a solicitor.
Secondly, the work in progress document references emailing the Court regarding the progress ‘of application’ and advising regarding ‘further Directions in Part IV’. It is unclear whether the reference to advising in relation to the Part IV proceeding should be chargeable as being performed on behalf of Ellasil, as a participant in the settlement of that proceeding, or should more appropriately be charged to Jean’s estate.
In light of these issues, Ellasil is required to review and revise its claim for expenses properly incurred in the proceeding and provide the Court with its revised claim of expenses.
Answers and orders
The Court answers the questions as follows:
1.The plaintiff, Ellasil Pty Ltd, is justified in proceeding on the basis that it was validly appointed as trustee of the Daycom Communications Pty Ltd Superannuation Fund by the deed of retirement and appointment of trustee dated 1 July 1996 and made between Stewart Electronic Components Pty Ltd (as ‘principal employer’), Daycom Communications Pty Ltd (as ‘retiring trustee’) and Ellasil Pty Ltd (as ‘the new trustee’).
2.The plaintiff is justified in proceeding on the basis that the undated document entitled ‘Deed of Trust of the Daycom Communications Pty Ltd Superannuation Fund’, likely executed in 2015 by James Day, Jean Day and the plaintiff, is valid.
3.The plaintiff is justified in proceeding on the basis that the death benefit nomination signed by Jean Day and dated 11 August 2017 in respect of her benefits under the Daycom Communications Pty Ltd Superannuation Fund is valid and binding.
The Court orders that on or before 17 March 2023, the plaintiff file a revised claim of its expenses properly incurred in the proceeding.
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