Application by Perenna Nominees Pty Ltd
[2022] VSC 193
•14 April 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2021 02249
| IN THE MATTER of a trust created by deed of settlement dated 11 August 1969 (‘Mingot Family Trust’) | |
| -and- | |
| IN THE MATTER of an application pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 for the determination of questions arising in the execution of the trust and pursuant to section 63 and 63A of the Trustee Act 1958 (Vic) | |
| Perenna Nominees Pty Ltd (ACN 004 786 181) (as trustee for the Mingot Family Trust) | Plaintiff |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 19 November 2021 |
DATE OF JUDGMENT: | 14 April 2022 |
CASE MAY BE CITED AS: | Application by Perenna Nominees Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2022] VSC 193 |
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TRUSTS – Application for judicial advice – Perpetuity period applicable to trust – Rule against perpetuities – Statutory modification of perpetuity period – Whether trust deed contained a ‘date certain’ – Meaning of ‘date certain’ – Application for approval of arrangement to extend vesting date of a trust – Power of the Court to approve the arrangement – Where beneficiaries consent to arrangement – Whether vesting date for the benefit of minor and unborn beneficiaries should be extended of – Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 54.02 – Perpetuities and Accumulations Act 1968 (Vic) s 5(3) – Trustee Act 1958 (Vic) s 63A.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr P Bender | Rigby Cooke Lawyers |
| As Contradictor | Mr P Pascoe |
HER HONOUR:
Introduction
The plaintiff, Perenna Nominees Pty Ltd, is the trustee of a discretionary trust known as the Mingot Family Trust (‘the Trust’), established by a deed of settlement dated 11 August 1969 (‘the Trust Deed’).
By way of amended originating motion, the plaintiff applies for certain judicial advice pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘the Rules’), and further seeks orders under s 63 and/or s 63A of the Trustee Act 1958 (Vic) (‘the Trustee Act’) for approval of an arrangement to extend the vesting date of the Trust in one of four alternative manners.
Background
Louis Mingot (‘Louis’) and his wife, Nerina Mingot (‘Nerina’), are 88 and 83 years old respectively. Louis and Nerina have three children: Maria Mingot (‘Maria’), born 19 March 1963; Susan Mingot (‘Susan’), born 12 January 1965; and Livio Mingot (‘Livio’), born 3 March 1969. Maria is married to Hiroyuki Mukai (‘Hiroyuki’), Susan is in a domestic partnership with Maurice Thaung (‘Maurice’), and Livio is married to Yu Hsiu Huang (‘Yu’). Louis and Nerina’s only grandchild is Livio and Yu’s son, Louis Benjamin Mingot (‘Louis Jr’), who was born in 2018.
Louis and Nerina started a construction and property development business in 1963, which they initially operated as sole traders until the plaintiff was incorporated in 1969. Louis and Nerina were appointed directors and sole shareholders of the plaintiff on its establishment. Though Louis and Nerina retain their directorships today, effectively they have retired from the day-to-day operations of the business.
Susan and Livio both commenced working for the family business in or around 1992, and were appointed directors of the plaintiff sometime afterwards. Susan and Livio continue to manage and operate the business on a day-to-day basis and have retained their directorships of the plaintiff. Maria has never been involved in the business.
Establishment of the Trust
In 1969, Louis and Nerina were advised by their accountants to set up the plaintiff and establish a trust through which to operate the family business. Accordingly, the Trust Deed was prepared by solicitors appointed by Louis and Nerina’s accountants, and the Trust was settled by execution of that deed on 11 August 1969.
In his affidavit sworn 18 June 2021, Louis deposed that, at the time the Trust Deed was executed, he did not know what a trust was, but trusted his advisors and implemented what was recommended to him by them. Louis further deposed that he understood that the Trust Deed’s terms were standard terms, that he thought that the Trust would operate indefinitely and that, to the best of his knowledge, the terms of the Trust Deed were never discussed with or explained to him.
Louis deposed that the purpose of setting up the Trust was to benefit him, Nerina, their children and their further descendants. That intent is also recorded in recital (A) of the Trust Deed, which refers to the settlor wishing to make provision for Louis and his family.
The Trust Deed
The Trust Deed names the plaintiff as trustee and Kurt Behnke, a friend and employee of Louis and Nerina, as settlor. The settlement sum is identified as fifty dollars. Recital (A) identifies Louis as ‘the Father’, and he is referred to as such throughout the Trust Deed.
The Trust Deed makes clear that the Trust is discretionary. For example, recital (E) of the Trust Deed describes the settlor’s intention that the plaintiff have absolute discretion in relation to the administration of the Trust and the making of any distributions to its beneficiaries. Likewise, cl 1(d) of the Trust Deed defines the expression ‘as the Trustee thinks fit’ as conferring upon the plaintiff ’the widest and most absolute and unexaminable discretion permitted by the laws relating to trusts’.
Beneficiaries of the Trust
Clause 1(c) of the Trust Deed defines the class of beneficiaries as follows:
(c) the term ’the beneficiaries’ shall refer to such of the Father and the wife of the Father from time to time and (if there be such) the widow of the Father and the descendants of the Father and the spouses (including any widow or widower) of any such descendants as are alive from time to time, and the term ‘any beneficiary’ shall have a corresponding meaning.
Accordingly, other than Louis and Nerina, the beneficiaries of the Trust currently include Maria, Susan, Livio, Hiroyuki, Maurice, Yu and Louis Jr.
Vesting date of the Trust
Clause 1(b) of the Trust Deed, which defines the ‘Day of Distribution’, sets out the vesting date for the Trust as follows:
(b)the expression ‘the Day of Distribution’ shall mean the day of the last to occur of:
(i) the death of the Father;
(ii)the death of such person (if any) as shall be the wife of the Father at the death of the Father, if such person is living at the date of execution hereof;
(iii) the fortieth anniversary of the execution of this deed;
or such earlier day as the Trustee by instrument in writing with the consent of the Father if he is living and physically and mentally able to give or withhold such consent… shall nominate as the Day of Distribution.
As the Trust Deed was executed on 11 August 1969, the fortieth anniversary of this date was 11 August 2009. Given that this date has now passed, the vesting date of the Trust is the date of the death of either Louis or Nerina, depending on which falls later in time.
Clause 4 of the Trust Deed provides the trustee with a discretion only exercisable prior to the vesting date to determine which of the beneficiaries of the Trust to distribute the trust corpus to, and to make such distributions accordingly. If Louis is alive at the time of such a distribution, his consent is required. If this discretion is not exercised prior to the vesting date, cl 4(ii) provides that, at the vesting date, the trust corpus is to be distributed in equal shares between Maria, Susan and Livio. If any of Maria, Susan or Livio is deceased at the vesting date, their descendants are to take that child’s share on a per stirpes basis.
The trustee is granted a power of variation with respect to the terms of the Trust Deed under cl 7(ii), in the following terms:
the Trustee may at any time or times and from time to time as it thinks fit —
…
(ii) By deed vary any of the provisions contained in clause 8 hereof, provided that no such variation shall provide for or increase any commission payable to a Trustee who is a Trustee at the date of such provision or variation or diminish the liability of the Trustee as prescribed herein or otherwise operate to the personal benefit of the Trustee
However, the exercise of this power of variation is limited to the matters set out in cl 8 of the Trust Deed. Clause 8 sets out various further powers and discretions of the trustee, but relevantly does not include the making of any variations to the vesting clause or the definition of the Day of Distribution. As such, cl 7(ii) of the Trust Deed does not empower the plaintiff to extend the vesting date of the Trust.
Assets of the Trust
The primary assets of the Trust are six properties located in Victoria. Two of these properties, purchased in 1976 and 1977, are rural properties that are currently used as farming land. Another two properties, purchased in 1988 and 1989, are residential lots that have since been sub-divided into three residential units. One property purchased in 1993 is a commercial lot that has since been subdivided into two separate commercial units. The final property, purchased in 2016, is also a residential lot. All three of the residential lots, as well as the commercial premises, are currently leased and generate rental income for the Trust.
According to the Trust’s financial statements for the financial year ending 30 June 2020, other assets and liabilities of the Trust include cash, a bank loan, and unpaid beneficiary entitlements.
Vesting or extension of the Trust
Louis was diagnosed with cancer some years ago and it is likely that if the application is unsuccessful, the Trust will vest in the not-too-distant future.
In his affidavit, Louis deposed that both he and Nerina wish for the vesting date of the Trust to be extended to enable his children to continue to operate the family business after their deaths. Louis further deposed that he wishes for the Trust to continue in order for the beneficiaries to avoid or defer the detrimental taxation consequences and liabilities that may arise upon the vesting of the Trust, based on taxation advice provided to him by the plaintiff’s solicitors.
As set out in a letter of advice dated 23 December 2020, the disposal or in specie distribution of the Trust’s assets that would occur upon the vesting of the Trust would likely cause each beneficiary to incur significant capital gains tax liabilities in respect of the four Trust properties that were acquired after 20 September 1985 (and are therefore post-capital gains tax assets). In addition, the vesting of the Trust would cause the two properties purchased prior to 20 September 1985 to lose the benefit of their pre-capital gains tax status.
Similarly, Livio deposed in his affidavit dated 18 June 2021 to his desire for the Trust to continue so as to enable he and Susan to continue to operate and manage the family business following the death of his parents. Livio expressed concern that if the vesting date of the Trust were not to be extended, the family business would effectively be forced into a winding up, and likewise made reference to the potentially detrimental taxation consequences of the vesting of the Trust.
The plaintiff’s application
By its amended originating motion filed 25 October 2021, the plaintiff applies for certain judicial advice pursuant to r 54.02 of the Rules. Specifically, the plaintiff requests that the Court determine the following questions in respect of the Trust:
(a) Within the meaning of s 5(3) of the Perpetuities and Accumulations Act 1968 (Vic) (‘the Perpetuities and Accumulations Act’), is there a ‘date certain’ specified in the Trust Deed such that the Trust is deemed to have a perpetuity period equal to that specified ‘date certain’?
(b) If the answer to (a) is ‘yes’, does the Court still have the power pursuant to s 63 and/or s 63A of the Trustee Act to extend the perpetuity period of the Trust by extending the vesting date of that trust and/or specifying a new perpetuity period?
In addition, the plaintiff seeks orders pursuant to s 63 and/or s 63A of the Trustee Act for approval of an arrangement to extend the vesting date of the Trust. More specifically, the plaintiff seeks orders empowering or authorising an arrangement which amends or varies the vesting date set out in the Trust Deed, and/or consenting to such an arrangement on behalf of any minor and unborn beneficiaries of the Trust, and/or specifying a perpetuity period for the Trust. In this respect, the plaintiff proposes four different formulations for such an arrangement, each differing in the way that the vesting date and/or perpetuity period are defined. The plaintiff attaches different degrees of preference to each.
A contradictor (‘the contradictor’) was appointed by order of the Court dated 6 August 2021, and a hearing was held on 19 November 2021. Following the hearing, the plaintiff and the contradictor provided the Court with proposed orders in the following form, reflecting the plaintiff’s first preference for the formulation of an arrangement for variation of the Trust Deed:
1.Pursuant to section 63A of the Trustee Act 1958 (Vic), the Court approves on behalf of the minor beneficiary, Louis Mingot, and the unborn beneficiaries under the deed of settlement of the Mingot Family Trust, dated 11 August 1969 (Trust Deed), an arrangement for the variation of the terms of the Trust Deed by substituting for the existing clause 1(b) in the Trust Deed the following provision:
(b)(i)the expression ‘the Day of Distribution’ shall mean twenty-one years after the death of the last living child of the Father born on or before 11 August 1969 or such earlier day as the Trustee by instrument in writing with the consent of the Father if he is living and physically and mentally able to give or withhold such consent (which consent the said Father shall have an absolute discretion whether to give or withhold without thereby incurring any liability) shall nominate as the Day of Distribution;
(ii)The perpetuity period applicable to this deed is also twenty-one years after the death of the last living child of the Father born on or before 11 August 1969.
Although the application is brought by the plaintiff in its capacity as trustee, the plaintiff provided evidence of consent from each of the Trust’s sui juris beneficiaries — that is, Louis, Nerina, Maria, Susan, Livio, Hiroyuki, Maurice and Yu — to an arrangement which varies the terms of the Trust Deed to extend the vesting date of the Trust. This consent is provided for an arrangement in any of the four alternate formulations set out in the plaintiff’s amended originating motion, or in any other similar manner the Court considers appropriate.
In support of its application, the plaintiff relies upon evidence in the form of affidavits of Louis Mingot, Livio Mingot and Rachael Grabovic.
Questions for determination
The ability of the Court to provide the advice and make the orders sought in the plaintiff’s application requires consideration of a series of discrete questions, namely:
(a) Question 1: Does r 54.02 of the Rules empower the Court to provide advice of the nature sought?
(b) If yes to Question 1 — Question 2: Does the Trust Deed specify a ‘date certain’ within the meaning of s 5(3) of the Perpetuities and Accumulations Act, such that the perpetuity period of the Trust is set by reference to that specified date?
(c) If yes to Question 2 — Question 3: If the Trust Deed does specify a ‘date certain’ such that the Trust’s perpetuity period is set by statute, does the Court still have the power to extend the Trust’s perpetuity period by making an order under s 63 and/or s 63A of the Trustee Act which approves an arrangement for the extension of the Trust’s vesting date?
(d) Question 4: Should the Court exercise its power under s 63A of the Trustee Act to make an order approving the proposed arrangement to extend the vesting date of the Trust?
(e) If no to Question 4 — Question 5: In the alternative, should the Court instead exercise its power under s 63 of the Trustee Act to make an order authorising the trustee to vary the vesting date of the Trust?
(f) If yes to either Question 4 or Question 5 — Question 6: Which of the plaintiff’s proposed formulations for an arrangement to extend the vesting date of the Trust ought to be approved by the Court, and reflected in orders made?
Each of these questions will be addressed separately below.
Question 1: Judicial advice pursuant to r 54.02
The applicant’s request for judicial advice invokes the jurisdiction of the Court under r 54.02, which enables the personal representative of a deceased estate, or the trustee of a trust, to seek the advice and direction of the Court. [1] Couched in very wide and general terms, r 54.02 permits applications for any kind of relief relating to the administration or execution of an estate or a trust, including the determination of questions and the making of various orders. The provision also sets out a non-exhaustive list of the types of questions or relief that may fall within its scope.[2]
[1]Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 54.02.
[2]Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 54.02(2). See also Daicos v Daicos [2018] VSC 18, [24] (Ierodiaconou AsJ).
The function of this provision, as is evident from the language of r 54.02 itself, is:
to enable a trustee or executor to obtain the direction or opinion of the Court on a matter of administration or management, or as to the construction of the will or trust instrument, without the need to commence an administration suit with all its attendant delay and cost.[3]
It has been recognised that the Court ought to adopt a ‘wide and facilitative, rather than a narrow or strict’ approach to applications under r 54.02, to promote the intent and function of the rule.[4]
[3]Morris v Smoel [2013] VSCA 11, [22] (Maxwell P and Whelan JA).
[4]Re Fast [2015] VSC 780, [14] (Digby J).
In Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (‘Macedonian Church’),[5] the High Court made eight general observations about the power of the Court to give judicial advice in this context.[6] For present purposes, relevant among these observations are that implications are not to be read into this power;[7] that there are no implied limitations on the power to give advice;[8] that there are no implied limitations on discretionary factors;[9] that the power operates not as a dispute resolution mechanism but a facility for the Court to give a trustee ’private and personal advice’;[10] and that regard should be had to the context and type of trust involved in any application of the power.[11]
[5](2008) 237 CLR 66 (‘Macedonian Church).
[6]Ibid 89-95 [54]-[76] (Gummow ACJ, Kirby, Hayne and Heydon JJ).
[7]Ibid 89 [55] (Gummow ACJ, Kirby, Hayne and Heydon JJ).
[8]Ibid 89 [56] (Gummow ACJ, Kirby, Hayne and Heydon JJ).
[9]Ibid 90 [59] (Gummow ACJ, Kirby, Hayne and Heydon JJ).
[10]Ibid 91 [64]-[66] (Gummow ACJ, Kirby, Hayne and Heydon JJ).
[11]Ibid 92 [67] (Gummow ACJ, Kirby, Hayne and Heydon JJ).
It is worth noting that, rather than rules of court, Macedonian Church concerned an application for advice under s 63 of the Trustee Act 1925 (NSW). While this particular provision has no equivalent under the Trustee Act, the High Court made reference to functionally equivalent rules of court (including r 54.02) in discussing applicable principles.[12] As such, it has been held that the principles enumerated in Macedonian Church will apply equally to applications made under r 54.02.[13]
[12]Ibid 85 [41]-[42] (Gummow ACJ, Kirby, Hayne and Heydon JJ).
[13]Re Centro Retail Australia Ltd (2012) 35 VR 512, 515-6 [13] (Almond J).
Evidently, the present application — the purpose of which is to obtain judicial advice and direction on questions concerning the interpretation and construction of a deed of trust — falls within the scope of r 54.02, such that the Court’s power to provide the advice sought is enlivened.
Question 2: Construction and interpretation of cl 1(b) of the Trust Deed
Having established that the plaintiff’s application falls within the scope of the Court’s power to provide advice under r 54.02, the first question to be considered is the vesting provision set out in cl 1(b) of the Trust Deed specifies a ‘date certain’ within the meaning of s 5(3) of the Perpetuities and Accumulations Act, such that the Day of Distribution provides the perpetuity period applicable to the Trust.
Answering this question necessarily involves an examination of the vesting provision within the Trust Deed itself, but also requires considering the interpretation and application of s 5(3) generally, and more specifically, the phrase ‘date certain’. As such, it is useful to first set out the relevant statutory provision and its history and background, as well as provide an overview of the common law rule against perpetuities, upon which s 5 is based.
History and background of the Perpetuities and Accumulations Act
The origins of the common law rule against perpetuities can be traced as far back as the Duke of Norfolk’s Case,[14] but its modern formulation, as delineated in Cadell v Palmer,[15] provides that in order to be validly created, any interest in property which does not vest upon its creation must vest no later than 21 years after the termination of a life in being at the time that the interest was created.[16] The rule places a temporal limitation on the period between the creation of a contingent future interest and the time at which that contingent interest will vest, in order to prevent the making of dispositions which tie up assets indefinitely and stand in the way of the free sale and transmission of property.[17]
[14](1682) 22 ER 931.
[15](1833) 6 ER 956.
[16]See also Air Jamaica Ltd v Charlton [1999] 1 WLR 1399, 1408-9. See further, J C Gray, The Rule Against Perpetuities (4th ed, 1942).
[17]John Glover, ‘The Rule Against Perpetuities and its Application to Unit and Discretionary Trusts’ (2007) 14 Australian Property Law Journal 225, 228.
In Victoria, the common law rule against perpetuities continues to apply, but its operation has been considerably modified by the enactment of the Perpetuities and Accumulations Act, the provisions of which apply to any instrument taking effect after 10 December 1968.[18] The object of the Act has been described, in essence, as upholding the essential purpose of the common law rule against perpetuities, while alleviating certain obstacles and practical difficulties that its application can present.[19] As detailed in the Second Reading Speech for the Perpetuities and Accumulations Bill 1968 (Vic) (‘the Perpetuities and Accumulations Bill’):[20]
The [common law rule against perpetuities] represents an attempt to balance two competing interests — on the one hand, the reasonable desire of a man to leave his property to his descendants in the way he feels it would do most good; and, on the other hand, the evident undesirability of having property, particularly land, controlled for centuries by the desires of men long since dead. Although the rule was formulated in a rather unscientific manner, it has been found to be a remarkably happy compromise in principle.
However, while the rule fulfils its essential purpose quite well, it gives rise in practice to a number of difficulties. For example, each interest must be seen at the time of its creation — I emphasize those words — to be required to vest within the perpetuity period; it is not possible to wait and see what happens in fact. The interest must be tested by strict consideration of logical possibilities; the rule takes no account of what are the overwhelming probabilities, even in respect of such well-known matters as the upper and lower limits of child-bearing age. The prescribed period, on the other hand, is expressed in terms of human lives, and may, in practice, turn out to be very much longer or shorter than the person disposing of his property expects.
These and other problems have been the subject of much study by distinguished lawyers in recent years, and legislative attempts to overcome them have been made both in Commonwealth countries and in the United States. The reform of the rule in Commonwealth countries has been influenced very considerably by the 1956 report of the United Kingdom Law Reform Committee. Since then, the operation of the rule has been modified in Western Australia, the United Kingdom, New Zealand and the Canadian Province of Ontario. The Bill proposes reform of the rule as it is applied in Victoria in order to overcome the several difficulties to which it gives rise.
[18]Perpetuities and Accumulations Act 1968 (Vic) s 3(1).
[19]Victoria, Parliamentary Debates, Legislative Assembly, 10 April 1968, 4218-9 (G O Reid, Attorney-General for the State of Victoria).
[20]Ibid.
In this way, the function of the statute is not to abrogate or abolish the common law rule, but rather to act as a ‘gloss’ on it, clarifying the application of the rule against perpetuities and modifying some aspects of its operation.[21] Likewise, a report prepared by the Queensland Law Reform Commission shortly before a similar statute was enacted in Queensland[22] recognised that the common law rule against perpetuities ‘performs a useful social function,’ and is ‘fundamentally sound though overdue for reform in certain particulars,’ but nevertheless ‘remains a necessary aspect of a soundly based system of property law.’[23]
[21]See further, P Hogg and H Ford, ‘Victorian Perpetuities Law in a Nutshell’ (1969) 7 Melbourne University Law Review 155.
[22]Being the short-lived Perpetuities and Accumulations Act 1972 (Qld), the substance of which was transposed and consolidated into pt 14 of the Property Law Act 1974 (Qld) shortly afterwards.
[23]Queensland Law Reform Commission, The Law Relating to Perpetuities and Accumulations (Report No 7, 24 May 1971) 2.
Relevantly for present purposes, s 5 of the Perpetuities and Accumulations Act sets out the following in relation to the perpetuity period applicable to an instrument:
5 Power to specify perpetuity period
(1) Save as in this Act otherwise provided where the instrument by which any disposition is made so provides the perpetuity period applicable to the disposition under the rule against perpetuities instead of being of any other duration shall be such number of years not exceeding eighty as is specified in the instrument as the perpetuity period applicable to the disposition.
…
(3) If no period of years is specified in an instrument by which a disposition is made as the perpetuity period applicable to the disposition but a date certain is specified in the instrument as the date on which the disposition shall vest the instrument shall, for the purposes of this section, be deemed to specify as the perpetuity period applicable to the disposition a number of years equal to the number of years from the date of the taking effect of the instrument to the specified vesting date.
Thus, following the introduction of the Perpetuities and Accumulations Act, the perpetuity period applicable to any disposition made within an instrument can be set in one of three ways. First, under s 5(1), an instrument may expressly specify a period of less than 80 years as the perpetuity period which applies to a disposition. Secondly, as per s 5(3), if an instrument does not expressly specify a perpetuity period, but does specify a ‘date certain’ at which a disposition will vest, then that ‘date certain’ will be deemed to set the perpetuity period which applies. Finally, if an instrument specifies neither a perpetuity period nor a ‘date certain’ for vesting, then the common law rule against perpetuities will apply.[24]
[24]Re Lauer; Corby & Anor v Lyttleton [2017] VSC 728, [102] (McMillan J); Yeomans v Yeomans [2006] 1 Qd R 390, 395 [21] (McMurdo J). See also, H Ford and W Lee, Principles of the Law of Trusts (Law Book Company, 1983).
The following was said as to the function of s 5 specifically during the Second Reading Speech for the Perpetuities and Accumulations Bill:[25]
Clause 5 relates to power to specify perpetuity period. At present the maximum perpetuity period allowed, leaving aside the complication which arises when an unborn child has to be taken into account, is a life or lives in being and 21 years; but where no lives are specified the perpetuity period is only 21 years.
Sub-clause (1) offers the alternative of specifying a fixed perpetuity period of not more than 80 years. The opportunity to choose a fixed, readily understood perpetuity period of sufficient duration should prove attractive to draftsmen, and assist in overcoming the difficulty of drafting wills or settlements which can at the one time give effect to their clients’ wishes and not be defeated by the rule against perpetuities.
[25]Victoria, Parliamentary Debates, Legislative Assembly, 10 April 1968, 4220 (G O Reid, Attorney-General for the State of Victoria) (emphasis added).
The Queensland Law Reform Commission report provides the following explanation of s 5, making specific reference to the function of s 5(3):[26]
5. Power to specify perpetuity period
At common law the perpetuity period is 21 years after any life or reasonable number of lives in being, to which are added actual periods of gestation.
…
In this century a practice, based on conveyancing precedents, has grown up of using a ‘royal lives’ clause, i.e., of using as the measuring life the survivor of all the lineal descendants of, e.g., Queen Victoria or King George V. … It is however not a desirable practice since the task of tracing the survivor of the lineal descendants of a European monarch may well be difficult as well as expensive, and there is a danger that it may prove impossible in some cases with consequential invalidity for the disposition in question.
Clause 5, whist not preventing the continued use of a royal lives clause for the purpose of specifying the relevant period, represents an attempt to discourage draftsmen from using this device. An alternative is offered by cl. 5(1) which proposes to allow the inclusion in an instrument of a clause to the effect that the perpetuity period applicable to a disposition shall be such number of years not exceeding eighty as may be specified in the instrument. The period of eighty years, which is presumably an approximation in round figures of the common law period, has now been adopted in England and New Zealand, as well as in Western Australia and Victoria. Clause 5(3) makes provision for the case where no period of years is specified as the applicable period but a date certain is specified as the date on which the disposition is to vest, in which event the applicable period is deemed to be that equal to the number of years between the date on which the instrument takes effect and the specified vesting date.
[26]Queensland Law Reform Commission, The Law Relating to Perpetuities and Accumulations (Report No 7, 24 May 1971) 4-5 (emphasis added).
Meaning of ‘date certain’ under s 5(3)
The proper interpretation and application of s 5(3) of the Perpetuities and Accumulations Act, and specifically the meaning of ‘date certain’ in this context, does not appear to ever have been the subject of judicial consideration, nor do the equivalent provisions found in perpetuities legislation in Queensland[27] or Tasmania.[28] Neither the plaintiff nor the contradictor referred to any judicial authority on the application of the provision.
[27]Property Law Act 1974 (Qld) s 209(3).
[28]Perpetuities and Accumulations Act 1992 (Tas) s 6(3).
Furthermore, little guidance in relation to the interpretation of the phrase ‘date certain’ can be sourced from extrinsic legislative material. No reference is made to s 5(3) in the Second Reading Speech for the Perpetuities and Accumulations Bill, and the excerpt from the Queensland Law Reform Commission report set out above does not elucidate the proper interpretation of the term ‘date certain’, beyond indicating that it represents a specification of the date on which a disposition is to vest. Moreover, the phrase ‘date certain’ appears to have only been included in a handful of other statutory provisions in Australia throughout history,[29] none of which have been the subject of judicial consideration or analysis.
[29]In addition to the perpetuity provisions in Victoria, Queensland and Tasmania referred to above, the phrase ‘date certain’ appears in s 180(2) of the Property Law Act 1974 (Qld) and s 164(4) of the Law of Property Act 2000 (NT), both references being in relation to the making of a court order on statutory rights of users in respect of land. The phrase also appeared in s 26(3) of the now-repealed Mines Regulation Act 1964 (Qld).
Furthermore, none of the perpetuity period provisions within analogous statutes in other Australian jurisdiction contain a section comparable to s 5(3),[30] nor does such a provision appear in the Perpetuities and Accumulations Act 1964 (UK).[31] Interestingly, when the Perpetuities Act 1964 (NZ) was first passed, it included an analogous provision within s 6, which takes largely the same form as s 5 of the Victorian Perpetuities and Accumulations Act. Like s 5(3), this subsection — s 6(4) — permitted the setting of a perpetuity period through specifying a ‘date certain’ for the vesting of an interest. Shortly after the enactment of the New Zealand Act, however, the Perpetuities Amendment Act 1966 (NZ) was passed, the primary function of which was to make significant amendments to s 6, including repealing subsection (4) in its entirety. However, the catalyst for this quick repeal is unclear, and thus no guidance can be taken from the New Zealand context.
[30]Perpetuities and Accumulations Act 1985 (ACT) s 8; Perpetuities Act 1984 (NSW) s 8; Law of Property Act 2000 (NT) s 187(1); Property Law Act 1969 (WA) s 101.
[31]Perpetuities and Accumulations Act 1964 (UK) s 1.
The plaintiff’s submissions
In its submissions, the plaintiff submits that the vesting provision set out in cl 1(b) of the Trust Deed ought to be considered to specify a ‘date certain’ for the purposes of s 5(3), for two reasons.
First, the plaintiff contends that the discretion afforded to the trustee under cl 1(b) to bring the vesting date forward is not inconsistent with a finding that the Trust Deed specifies a ‘date certain’. In support of this contention, the plaintiff draws upon extrinsic legislative material and commentary relating to perpetuities law reform in various jurisdictions to argue that the purpose of requiring a ‘date certain’ to be specified is to define an outer limit for the perpetuity period. As such, the plaintiff posits, there is no necessary inconsistency between the existence of a ‘date certain’ at which a trust must vest, and a discretion on the part of the trustee to bring forward that vesting date. Such a discretion, the plaintiff contends, merely means that the trust might vest sooner than the vesting date, but does not change the fact that there is a date by which the trust definitely must vest.
Secondly, the plaintiff submits that the fact that cl 1(b) does not specify one vesting date, but instead provides that the Trust is to vest upon the latest to occur of three events — being 40 years from the date of execution of the Trust Deed, the death of Louis, and the death of Nerina — does not prevent the Trust from having a ‘date certain’ for vesting within the meaning of s 5(3).
In support of this submission, the plaintiff suggests that, on its proper interpretation, the wording of cl 1(b) of the Trust Deed can be understood as specifying a ‘date certain’ such that s 5(3) will apply in one of three alternative ways:
(a) Each of the three eventualities — that is, the 40 year anniversary of the Trust Deed’s execution, the death of Louis, and the death of Nerina — are properly understood as a ‘date certain’. Such an interpretation is premised on the notion that it is possible to specify multiple ‘dates certain’ within an instrument, and s 5(3) can operate to deem alternative perpetuity periods for each, depending on which of these ‘dates certain’ occurs last.
(b) The forty year anniversary provides a ‘date certain’ for the purposes of s 5(3), such that a statutory perpetuity period of 40 years applies to the Trust, while the reference to Louis and Nerina’s deaths invokes the common law perpetuity period by implication, which operates in conjunction with the statutory period. This ‘hybrid’ operation of common law and statute results in the outer limit of the perpetuity period being defined by whichever the last of those events is to occur.
(c) The 40 year anniversary alone constitutes a ‘date certain’ for the purposes of s 5(3), such that a perpetuity period of 40 years applies.
Any of these options, according to the plaintiff, would result in a finding that the Trust Deed contains a ‘date certain’ for the purposes of s 5(3). However, the plaintiff submits that as the third of these options would give rise to a perpetuity period which is shorter than the vesting date prescribed in cl 1(b), it is inconsistent with the intention set out in the Trust Deed and therefore should not be adopted. Accordingly, the plaintiff advances various arguments in favour of and against the adoption of each of the first two options but ultimately expresses no preference between the two.
As regards the first option, the plaintiff submits that as the term ‘date certain’ has not been defined, it need not be restricted to refer only to specific dates that are precise and ascertainable in advance. Instead, the plaintiff submits, the term can be interpreted to also encompass an event of which the occurrence is certain, such as a death, even if the precise date is not known in advance. Such an interpretation, the plaintiff contends, would be consistent with the history of the rule against perpetuities at common law, and is not specifically prohibited by or inconsistent with the text of s 5(3). However, the plaintiff acknowledges that such an interpretation is also not explicitly provided for under s 5(3).
In terms of the second option, the plaintiff suggests that a ‘hybrid’ approach such as this, which attaches both a statutory and a common law perpetuity period to the various potential vesting dates set out under cl 1(b) of the Trust Deed, would be consistent with the operation of s 5(3) and the common law, as well as the operation and functioning of the Trust Deed. However, the plaintiff acknowledges that there is some uncertainty as to how the common law rule against perpetuities interacts with s 5(3) in such a scenario, and therefore recognises that this option may present issues.
The contradictor’s submissions
In contrast, the contradictor contends that on its proper construction, the Trust Deed cannot be interpreted as specifying a ‘date certain’ for the purposes of s 5(3). In support of this proposition, the contradictor provides a series of Oxford English Dictionary definitions for the words ‘date’ and ‘certain’. Some examples listed for ‘date’ include ‘the day of the month, the month or the year of an event’; ‘the time or period at which something is to happen’; ‘term of life or existence ... duration’; and ‘the limit or end of a period of time or the duration of something’. For ‘certain’, examples include ‘settled, sure’; ‘determined, fixed, not variable, definite, precise, exact’; and ‘sure, inevitable, unfailing’. On the basis of these definitions, the contradictor submits that the term ‘date certain’ can only refer to a fixed date that is specified by day, month and year, about which there can be no doubt.
In support of this submission, the contradictor also refers to an article[32] in which the author expresses a view that a vesting date which is capable of alteration by a trustee in its discretion is unlikely to qualify as a ‘date certain’ for the purposes of s 5(3) or its interstate counterparts. The contradictor cites an analysis of the vesting provision in Re Arthur Brady Family Trust[33] provided within this article in support of this claim.
[32]Michael Flynn, ‘Extending the Life of a Discretionary Trust’ (2018) 92 Australian Law Journal 438.
[33][2015] 2 Qd R 172 (‘Re Arthur Brady Family Trust’).
In applying this interpretation to the Trust Deed, the contradictor argues that, rather than a ‘date certain’, the vesting date set out under cl 1(b) is a date which is capable of becoming certain. The contradictor submits that, until the date of death of the last to die of Louis and Nerina, or such earlier date as the trustee nominates with Louis’ consent, the vesting date cannot be ascertained or known, and is therefore not a ‘date certain’ within the meaning of s 5(3).
On this basis, the contradictor submits that the first question set out in the plaintiff’s application ought to be answered in the negative.
The plaintiff’s submissions in reply
In response to the submissions made by the contradictor as to the proper interpretation of ‘date certain’, the plaintiff notes that the article relied upon by the contradictor is merely one author’s opinion, and provides no authority for a narrow interpretation of the term ‘date certain’.
Moreover, the plaintiff argues that various parts of the dictionary definitions cited by the contradictor for both ‘date’ and ‘certain’ could plainly encompass an event such as the death of a person. Specifically, the plaintiff refers to the following in respect of the definition of ‘date’: ‘the time at which something is to happen’; ‘term of life or existence ... duration’; and ‘the limit or end of a period of time or the duration of something’. In relation to ‘certain’, the plaintiff refers to the inclusion of ‘sure, inevitable, unfailing’ in the definitions provided by the contradictor, and contends that a person’s death is both sure and inevitable.
The plaintiff further contends that the contradictor’s submissions fail to take into account the history and policy of the rule against perpetuities, and overlook the legislative purpose of s 5 and the Perpetuities and Accumulations Act more broadly. The plaintiff contends that a construction of legislation which promotes its underlying purpose or objective is always to be preferred, and notes that regard ought also be had to legislative history and the particular mischief a statute was intended to remedy.
In this regard, the plaintiff submits that the purpose of the rule against perpetuities is to achieve certainty that interests will vest at a defined point in time, and that the mischief which this rule is intended to overcome is a disposition being tied up for an indefinite period of time. It is for this reason that, at common law, perpetuity periods were defined by reference to a life in being, given the inevitability of those lives ending. Accordingly, the plaintiff argues that defining a perpetuity period by reference to a person’s death is not contrary to the policy objective of the Perpetuities and Accumulations Act, given the certainty of such an event.
Consideration
Evidently, determining whether the Trust Deed specifies a ‘date certain’ for the purposes of s 5(3) of the Perpetuities and Accumulations Act turns on an interpretation of the term ‘date certain’, and an application of such to cl 1(b) of the Trust Deed. In the absence of any judicial authority or guidance on the meaning of ‘date certain’ in the context of s 5(3), general principles of statutory interpretation are to be relied upon. As such, the central focus must be on the text of the provision, with its words given their natural and ordinary meaning unless a contrary legislative intent is plain.[34] The text of the provision must be also considered in context, including by having regard to the surrounding Act and its purpose and object, and any relevant extrinsic material.[35] As submitted by the plaintiff, a construction of legislation which promotes its underlying purpose or objective is always to be preferred over one that does not.[36]
[34]Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, 384 [78] (Brennan CJ, McHugh, Gummow, Kirby and Hayne JJ); Masson v Parsons (2019) 266 CLR 554, 572 [26](Kiefel CJ, Bell, Gageler, Keane, Nettle and Gordon JJ).
[35]CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384, 408 (Brennan CJ, Dawson, Toohey and Gummow JJ); Project Blue Sky Inc v Australian Broadcasting Authority (n 34).
[36]Interpretation of Legislation Act 1984 (Vic) s 35(a).
For the reasons that follow, I am not satisfied that cl 1(b) of the Trust Deed invokes the operation of s 5(3) on its proper interpretation. While I accept the plaintiff’s submission that the discretion to bring forward the vesting date which is bestowed upon the trustee is not necessarily incompatible with the existence of a ‘date certain’, the Trust’s specified vesting date of ‘the day of the last to occur of the death of the Father … the death of … the wife of the Father … and the fortieth anniversary of the execution of this deed’ does not constitute a ‘date certain’ for the purposes of s 5(3), neither on the plain and ordinary meaning of the term nor on its contextual interpretation.
In first considering the plain meaning of the words ‘date certain’, the dictionary definitions provided by the contradictor offer an effective starting point. In addition to those set out above, the primary definition of ‘date’ in the Macquarie Dictionary includes ‘a particular day, as denoted by some system for marking the passage of time,’[37] while ‘certain’ is defined as ‘fixed, agreed upon’.[38] Although this particular definition is the fourth listed for ‘certain’, its contextual example sentence, ‘on a certain day’, is clearly more appropriate and relevant to an understanding of the plain meaning of ‘certain’ in the context of s 5(3) than those supplied for the first to third listed definitions, and those for the fifth to eighth listed definitions. While there is some merit to the plaintiff’s submission that certain aspects of the definitions for both words can be understood to encompass an event such as death, the better view is that, when the terms are used conjunctively, the term ‘date certain’ refers to a fixed, ascertainable or specified day or time period on its plain and ordinary meaning.
[37]Macquarie Dictionary (8th ed, 2020) ‘date’.
[38]Ibid ‘certain’.
An examination of the common usage of the term supplements this conclusion. Although it is not commonly found in Australian statutes, a number of American legislative instruments employ the term ‘date certain’. Consistent with the plain meaning of the words, as elaborated above, its usage invariably connotes a fixed, definite and specific date at which an action is to be done.[39] Relatedly, ‘date certain’ is a term sometimes employed in a contractual context, where its function is to denote a specific and exact date on or by which a contract or term of a contract is to be completed, in order to provide the parties with certainty of their respective obligations under the agreement. In this vein, Black’s Law Dictionary defines ‘date certain’ as ‘the date actions are to be done. It is legally binding.’[40] Thus, like the plain and ordinary meaning of the words ‘date certain’, the common usage of the term is in conflict with the plaintiff’s proposed interpretation.
[39]See, eg, 12 USCA § 1787 (2014); 12 USCA § 4113 (1999); 25 USCA § 4162 (1997).
[40]Black’s Law Dictionary (10th ed, 2014) ‘date certain’.
In support of this interpretation, the related phrase ‘term of years certain’ found a place in English leasing vernacular for a number of years, and continues to feature in various provisions of the Landlord and Tenancy Act 1954 (UK).[41] In Pemberton v Roe,[42] the Court of King’s Bench considered whether a lease given ‘for 99 years, if the tenants A, B and C should live that long’ was covered by a statutory provision which applied to holdings for ‘any term or number of years certain, or from year to year.’ Importantly, the Court held that a tenancy for a number of years determinable on lives was not a holding for a term of years certain, and accordingly found that the tenancy in question did not come within the operation of the statute. By logical and natural extension of this reasoning to an interpretation of the term ‘date certain’, and particularly in light of the clear similarities between the framing and language adopted in the lease in this case and that which is employed in cl 1(b) of the Trust Deed, a vesting clause which is determinable by reference to human lives cannot amount to a ‘date certain’ for the purposes of s 5(3).
[41]See, eg, Landlord and Tenancy Act 1954 (UK) ss 2, 26, 27, 33, 38A.
[42](1827) 108 ER 625 (‘Pemberton v Roe’).
In addition to being inconsistent with the plain meaning and common usage of the term, the plaintiff’s posited interpretation of ‘date certain’ sits uncomfortably with the clear intention of Parliament in enacting the Perpetuities and Accumulations Act. As is evident from the excerpts of the Second Reading Speech for the Perpetuities and Accumulations Bill set out above, the function of s 5 is not to abrogate or abolish the common law rule against perpetuities, but instead to ‘supplement’ its operation by providing drafters of instruments with the option of defining a fixed perpetuity period which is to apply to a disposition.[43] This option can be taken up through specifying a period of years less than 80, in accordance with s 5(1), or by specifying a ‘date certain’ at which a trust is to vest, from which a perpetuity period is then inferred under s 5(3). But in either alternative, it serves as no more than an ‘option’ — or, to adopt the language used in the Second Reading Speech, an ‘opportunity’ — which is available to drafters should they choose to take advantage of the possibility of defining a ‘fixed, readily understood’ statutory perpetuity period. A broad and expansive interpretation of s 5(3), which overlaps with the common law’s continued operation and would encompass situations where there is no evidence that a drafter sought to take advantage of this ‘option’, is not reflective of the legislative intent which underpins the provision.
[43]See Glover (n 17) 227-8.
Moreover, and relatedly, one of the expressly stated purposes of the Perpetuities and Accumulations Act — and specifically s 5 — is to provide an avenue for overcoming the difficulties and ambiguities which arise at common law when perpetuity periods are expressed in terms of human lives.[44] As a logical corollary of this, s 5(3) also serves to incentivise against the use of vesting clauses which use human lives as their referential. This function is hindered, not advanced, by a construction of s 5(3) such as that contended by the plaintiff. As such, it cannot be said that by including the term ‘date certain’ in s 5(3), Parliament intended to encompass language in a provision which makes vesting of an interest contingent on an event which is inherently uncertain in its timing, such as death.
[44]Victoria, Parliamentary Debates, Legislative Assembly, 10 April 1968, 4219 (G O Reid, Attorney-General for the State of Victoria).
Instead, based on the plain meaning of the words and evidence of their common usage, and in light of the provision’s surrounding context, the term ‘date certain’ in the context of s 5(3) ought properly be understood to denote either a fixed and specified date (for example, ‘1 May 2040’), or a particular and defined time period (for example, ‘sixty years’). Accordingly, s 5(3) covers dispositions with a vesting date defined in either of those manners, but has no operation in circumstances where an instrument’s vesting date is defined by reference to a person’s death. Indeed, to interpret s 5(3) in any other way would make little sense, when the provision’s surrounding context and the broader function and purpose of the Perpetuities and Accumulations Act are taken into consideration.
For these reasons, the ambit of s 5(3) does not extend to a provision such as cl 1(b) of the Trust Deed, which rather than specifying a fixed and ascertainable date or time period for vesting, makes the vesting date of the Trust contingent upon multiple events, the timing of which is unspecified and cannot be known from the outset. Neither the plain meaning of the term ‘date certain’ nor its common usage suggest that it extends to cover a date or time period that is determinable by reference to a human life or lives. Such a conclusion is consistent with the interpretation afforded to the related phrase ‘term of years certain’ in Pemberton v Roe,[45] and is particularly strong given the close resemblance between the framing, language and structure of the leasing clause considered in that case and that which is adopted in cl 1(b) of the Trust Deed.
[45]Pemberton v Roe (n 42).
Moreover, I do not accept the plaintiff’s submission that the inclusion of a specified time period — being 40 years from the date of the Trust Deed’s execution — as one of the possible vesting dates under cl 1(b) invokes the operation of s 5(3), or a hybrid operation of statute and common law. While, when viewed in isolation, the period of 40 years clearly constitutes a ‘date certain’ for the purposes of s 5(3), cl 1(b) does not specify such a period in isolation, but instead identifies that period as but one of three potential vesting dates for the Trust. Whether this 40 year period will, in actuality, dictate the vesting of the Trust is contingent upon the necessarily uncertain and unascertainable timing of Louis and Nerina’s deaths. For this reason, its inclusion in cl 1(b) offers no greater specificity or certainty as to the vesting date of the Trust so as to specify a ‘date certain’ and invoke the operation of s 5(3).
Furthermore, s 5(3) stipulates that, if a ‘date certain’ for vesting is specified within an instrument, that ‘date certain’ also sets the perpetuity period which is applicable to the Trust. For that reason, if the Court were to find that s 5(3) were enlivened by the reference to a 40 year period, it would necessarily also be required to find that the Trust’s perpetuity period ended on 11 August 2009, being the fortieth anniversary of the execution of the Trust Deed. It cannot find, as the plaintiff suggests in its submission that a hybrid operation of statute and common law may apply to the Trust, such that the disposition is covered by statute, but its perpetuity period is defined in some other manner. The two concepts are necessarily mutually exclusive — the Court cannot conclude that the Perpetuities and Accumulations Act applies to a disposition, but that its perpetuity period is set by something other than the ‘date certain’ which invokes the application of the Act in the first place.
Accordingly, I find that cl 1(b) of the Trust Deed does not contain a ‘date certain’ within the meaning of s 5(3) of the Perpetuities and Accumulations Act. The perpetuity period which applies to the Trust is thus that set by the common law — being 21 years after the death of a life in being at the time at which the interest was created. The relevant measuring lives for ascertaining this period are Louis and Nerina, as both individuals are expressly mentioned in the Trust Deed.
Question 3: Power of the Court to extend a statutory perpetuity period
Having established that the perpetuity period of the Trust is governed by the common law, it is not necessary to address the plaintiff’s second question, namely whether the Court has the power to make an order under s 63 and/or s 63A of the Trustee Act to extend the vesting date of the Trust. As the function of judicial advice under r 54.02 is to provide private and personal advice or direction to a trustee,[46] it is unnecessary and inappropriate to engage in a hypothetical consideration of the issues raised by this question when it has been found to be extraneous to the plaintiff’s application. Moreover, the plaintiff explicitly made its request for advice in respect of this question contingent on Question 2 being answered in the affirmative, for clear reasons. The Court’s power to approve an arrangement extending the vesting date of a trust with a perpetuity period set by the common law, such has been found in the present case, is well established.[47]
[46]Macedonian Church (n 5) 91 [64]-[66] (Gummow ACJ, Kirby, Hayne, Heydon and Kiefel JJ).
[47]See, eg, Thomas Hare Investments Ltd v Hare (2012) 34 VR 656; Re Plator Nominees Pty Ltd [2012] VSC 284 (Davies J); Re Holt’s Settlements [1969] 1 Ch 100, 120 (Megarry J). See further, Flynn (n 32) 446-7.
Further, given that the formulation of the arrangement to extend the Trust’s vesting date which the plaintiff has identified as its first preference also invokes a common law perpetuity period, it is unnecessary for the Court to consider the related question of whether it has the ability to substitute a statutory perpetuity period for the Trust’s existing common law perpetuity period. Had the plaintiff instead identified as its first preference one of the formulations which propose the insertion of a new perpetuity period into the Trust Deed by reference to the statutory period made available by s 5 of the Perpetuities and Accumulations Act, it may have been necessary to address the issues raised by this question.[48] However, given the conclusions reached in respect of Question 6, this is likewise an extraneous and unnecessary inquiry.
Question 4: Exercise of power under s 63A of the Trustee Act
[48]See the discussion of Re Holt’s Settlements (n 47) in Wyndham v Egremont [2009] EWHC 2076, [17] (Blackburne J).
The plaintiff’s application further requests that the Court exercise its power under s 63A of the Trustee Act to make an order authorising or approving one of four proposed amendments to cl 1(b) to the Trust Deed, with a view to extending the vesting date of the Trust. As noted above, each of the beneficiaries of the Trust with legal capacity to provide consent for such an arrangement have done so. In considering whether to make the orders sought, it is necessary to consider the principles which apply to an exercise of the Court’s power under s 63A.
Applicable principles
Section 63A provides that the Court is empowered to vary a trust as follows:
63A Power of Court to vary trusts
(1) Where property, whether real or personal, is held on trusts arising, whether before or after the commencement of this Act, under any will settlement or other disposition, the Court may if it thinks fit by order approve on behalf of—
(a) any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts who by reason of minority or other incapacity is incapable of assenting; or
(b) any person (whether ascertained or not) who may become entitled, directly or indirectly, to an interest under the trusts as being at a future date or on the happening of a future event a person of any specified description or a member of any specified class of persons, so however that this paragraph shall not include any person who would be of that description, or a member of that class (as the case may be) if the said date had fallen or the said event had happened at the date of the application to the Court; or
(c) any person unborn; or
(d) any person in respect of any discretionary interest of his under protective trusts where the interest of the principal beneficiary has not failed or determined—
any arrangement (by whomsoever proposed and whether or not there is any other person beneficially interested who is capable of assenting thereto) varying or revoking all or any of the trusts, or enlarging the powers of the trustees or managing or administering any of the property subject to the trusts:
Provided that except by virtue of paragraph (d) of this subsection the Court shall not approve an arrangement on behalf of any person unless the carrying out thereof would be for the benefit of that person.
The history and premise of s 63A were recently summarised by Moore J in McNee v Lachlan McNee Family Maintenance Pty Ltd[49] as follows:
Section 63A replicates s 1(1) of the Variation of Trusts Act 1958 (UK)… s 63A, like the UK legislation, was passed in response to the decision in Chapman v Chapman, where the House of Lords rejected the contention that a court has inherent jurisdiction to approve variations to a trust on behalf of minor, unborn and unascertained beneficiaries merely on the ground that the variation is for their benefit. The remedial legislation, it has been said, overcomes this limitation by enabling the court to give approval to an arrangement on behalf of persons who are unable by their incapacity to give such approval. The court in effect supplies the capacity which the beneficiary lacks.[50]
[49][2020] VSC 273 (‘McNee v Lachlan McNee Family Maintenance Pty Ltd’).
[50]Ibid [104] (Moore J).
In a similar vein, in Faye v Faye,[51] Lavan J described the exercise of the relevant power in the following terms:
A function of the Court on an application of this nature is to act as a substitute for the persons who are incapable either because they lack capacity or because they are not born to signify their consent. Its jurisdiction is limited to authorizing an arrangement which such beneficiaries themselves could have authorized if they had all been ascertained and sui juris.[52]
[51][1973] WAR 66 (‘Faye v Faye’).
[52]Ibid 71-2.
From this, two important observations can be made in relation to the scope, purpose and operation of s 63A. First, the proposed arrangement must be consented to by everyone that is or will be affected by its imposition. For those affected individuals unable to supply consent, such as minor or potential unborn beneficiaries, consent must be supplied by the Court on their behalf. Secondly, and as a corollary, in exercising its power under s 63A, the Court is not itself varying or amending the trust, but instead approving or authorising the arrangement on behalf of those beneficiaries that lack capacity to provide consent. As explained by Lord Reid in Inland Revenue Commissioners v Holmden:[53]
Under the [Variation of Trusts Act 1958 (UK)] the court does not itself amend or vary the trusts of the original settlement. The beneficiaries are not bound by variations because the court has made the variation. Each beneficiary is bound because he has consented to the variation. … So the arrangement must be regarded as an arrangement made by the beneficiaries themselves. The court merely acted on behalf of or as representing those beneficiaries who were not in a position to give their own consent and approval.
So we have an alteration of the settlement which was not made by the settlor or by the court as being empowered to make it, but which was made by the beneficiaries quite independently of the settlor or of any power, express or implied given or deemed to have been given by him.[54]
[53][1967] AC 685.
[54]Ibid 701-2.
A number of principles and considerations underpin the exercise of the power in s 63A. These principles were summarised by the Victorian Court of Appeal in Perpetual Trustees Victoria Ltd v Barns,[55] which involved a trustee’s application for an order under s 63A approving a variation to the relevant trust on behalf of the trust’s only beneficiary, who lacked capacity to consent to the arrangement. The Court found that approval should be provided for the arrangement, and in doing so, considered the state of the relevant authorities and offered the following guidance as to the exercise of the power under s 63A:
In determining whether an order under s 63A(1)(a) should have been made and now should be made, the court must first be satisfied that the arrangement was and is both for [the beneficiary’s] benefit and a fair and proper one overall. It must take into account the purpose of the trusts and the intention of the testator. The court should engage in a ‘businesslike consideration of the arrangement, including the total amounts of the advantages which the various parties obtain, and their bargaining strength’.[56]
[55](2012) 34 VR 387 (‘Perpetual Trustees Victoria Ltd v Barns’).
[56]Ibid 395 [36] (Williams AJA, with whom Buchanan and Bongiorno JJA agreed) (citations omitted).
Thus, the relevant considerations in determining whether to exercise the power set out under s 63A can be summarised as follows:
(a) Whether the arrangement would be for the benefit of the beneficiaries who are unable to supply consent.[57] In this regard, it has been noted that benefit is not restricted to financial benefit and can encompass other non-financial benefits, such as social, familial, moral or educational benefits.[58]
(b) Whether the arrangement is by its nature a fair and proper one overall,[59] taking into account the particular advantages which the various parties will gain from the arrangement, and their respective bargaining strength.[60]
(c) Whether the arrangement is consistent with the purpose of the trust and the testator’s intention in establishing it.[61]
[57]Ibid; George v Kollias [2007] VSC 46, [41] (Hansen J); Re Remnant’s Settlement Trusts [1970] 1 Ch 560, 565 (Pennycuick J).
[58]George v Kollias (n 57) [45] (Hansen J); Re Remnant’s Settlement Trusts (n 57) 566 (Pennycuick J); Re Weston’s Settlements [1969] 1 Ch 223, 245 (Lord Denning MR).
[59]Perpetual Trustees Victoria Ltd v Barns (n 55) 395 [36] (Williams AJA, with whom Buchanan and Bongiorno JJA agreed); George v Kollias (n 57) [41]-[42] (Hansen J); Re Remnant’s Settlement Trusts (n 57) (Pennycuick J).
[60]Perpetual Trustees Victoria Ltd v Barns (n 55) 395 [36] (Williams AJA, with whom Buchanan and Bongiorno JJA agreed); Goulding v James [1997] 2 All ER 239, 249 (Mummery LJ); Re Van Gruisen’s Will Trusts [1964] 1 WLR 449, 450 (Ungoed-Thomas J).
[61]Perpetual Trustees Victoria Ltd v Barns (n 55) 395 [36]; Re Keysborough Blue Danube Soccer Club [2003] VSC 119, [35] (Ashley J); Re Burney’s Settlement Trusts [1961] 1 WLR 545, 550 (Lord Wilberforce).
A review of some cases in which the power under s 63A (or analogous provisions in other states) has been exercised offers insight into the application of these considerations, and the particular factors that courts have taken into account when making an assessment of an arrangement to vary a trust.
The case of Coote v Clark[62] concerned an application made under s 90 of the Trustees Act 1962 (WA) — the Western Australian equivalent of s 63A — for the Court’s approval on behalf of certain infant beneficiaries of an arrangement to extend the vesting date of a family trust by a period of 45 years. In making the orders sought, Hasluck J accepted the plaintiff’s submissions that the arrangement would be of benefit to the infant beneficiaries on the basis of their continued contingent entitlement to dividends from the profits of the business owned and operated through the trust, as well as the ‘real prospect of capital gains tax being avoided’ if vesting were to be deferred.[63] His Honour also accepted the plaintiff’s submissions that the arrangement would be of no foreseeable detriment to the infant beneficiaries.[64]
[62][2007] WASC 97 (‘Coote v Clark’).
[63]Ibid [33] (Hasluk J).
[64]Ibid [34] (Hasluk J).
In Thomas Hare Investments Ltd v Hare,[65] Habersberger J made orders approving an arrangement for the extension of the vesting date of a family trust under s 63A of the Trustee Act. Each of the trust’s sui juris beneficiaries consented to the arrangement, but there was an unascertained class of potential beneficiaries on behalf of which the Court was asked to supply consent. Amongst the reasons provided by his Honour for approving the arrangement were that the extension could only benefit the potential beneficiaries, by extending the period of time during which they could become a beneficiary, and that the extension would effect a deferral of capital gains tax implications which would also clearly be of benefit to the trust’s beneficiaries.[66] Habersberger J accepted the notion that ‘the court should not decline to exercise its power to approve a variation, if it be otherwise appropriate to do so, merely because one of the objects of the variation was to obtain some tax advantage’.[67]
[65]Thomas Hare Investments Ltd v Hare (n 47).
[66]Ibid 666 [39] (Habersberger J).
[67]Ibid 666 [36]-[37] (Habersberger J).
Finally, in Re Plator Nominees Pty Ltd,[68] Davies J considered an application under s 63A for an order extending a trust’s vesting date to a date not later than 21 years after the death of the last of a particular beneficiary’s living relatives born on or before the settlement date of the trust. Her Honour, in choosing to exercise the power under s 63A, noted four relevant factors weighing in favour of making the order sought. First, there was evidence that the settlors of the trust intended for it to continue after their deaths for the benefit of their children, and extending the vesting date would give effect to that intention.[69] Secondly, each of the sui juris beneficiaries consented to the arrangement, and the contradictor appointed to represent the interests of beneficiaries not sui juris was of the view that the extension was in their best interests.[70] Thirdly, the vesting date bore no specific relevance, nor was there any identifiable reason why the trustee’s otherwise extensive powers of variation did not include the ability to extend the vesting date.[71] Finally, her Honour recognised that the vesting of the trust would give rise to significant capital gains tax liabilities, and some of the trust’s assets would lose their pre-capital gains tax status, and affirmed this ought not to weigh against the making of an order under s 63A.[72]
[68]Re Plator Nominees Pty Ltd (n 47).
[69]Ibid [11] (Davies J).
[70]Ibid [12] (Davies J).
[71]Ibid [13] (Davies J).
[72]Ibid [14]-[15] (Davies J).
The plaintiff’s submissions
The plaintiff submits that the Court ought to exercise its power under s 63A to approve an arrangement for extending the vesting date of the Trust on the basis that such an extension would be beneficial to Louis Jr, as a minor beneficiary, and potential unborn beneficiaries of the Trust. In support of this submission, the plaintiff puts forward the following contentions:
(a) Extending the vesting date of the Trust would allow more time for potential unborn beneficiaries to come into existence and thereby benefit from income and capital of the Trust.
(b) Extending the vesting date of the Trust would provide Louis Jr more time to benefit from his right to be considered for potential future income distributions.
(c) All sui juris beneficiaries of the Trust have consented to the extension of the Trust’s vesting date.
(d) The Trust was established as a vehicle for Louis and Nerina’s construction business, and it is, and always has been, Louis’ intention for his children to continue running the business through the trust following his and Nerina’s deaths. Extending the vesting date of the Trust would give effect to this intention, while allowing the Trust to vest would be contrary to that intention, in that it would effectively bring the business to an end.
(e) Louis gave evidence that the Trust was drafted using standard terms, and that he was unaware that the Trust would come to an end at the time the Trust Deed was settled, and instead thought it would continue indefinitely. Accordingly, there is no specific reason why, on the evidence available, the vesting clause was drafted in the manner it was, or the trustee’s powers of amendment did not extend to the vesting date.
(f) The vesting of the Trust will have significant taxation consequences for the default beneficiaries due to the capital gains tax payable upon the disposal or in specie distribution of the Trust assets. Moreover, the Trust’s two pre-capital gains tax properties will lose the benefit of this status upon vesting. In contrast, there will be no capital gains tax implications if the Court approves the extension of the Trust’s vesting date pursuant to s 63A. Deferring the Trust’s vesting would thus preserve the Trust assets and result in significant taxation benefits for all beneficiaries, including the minor beneficiary and potential unborn beneficiaries.
(g) The Court’s approval of the arrangement would facilitate the continuation of the existing trust, rather than the creation of a new trust,[73] and as such there will be no stamp duty or other duties payable.
[73]Citing Re McGowan & Valentini Trusts [2021] VSC 154 (Macaulay J).
The plaintiff submits that many of these factors are comparable to those that were deemed relevant to the exercise of the discretion under s 63A in Re Plator Nominees Pty Ltd[74] and other similar cases, and that for this reason, the arrangement to extend the vesting date of the Trust ought to be approved.
[74]Re Plator Nominees Pty Ltd (n 47).
The contradictor’s submissions
The contradictor, relying on the test set out in Perpetual Trustees Victoria Ltd v Barns,[75] submits that the Court’s exercise of the power under s 63A is to be based upon an assessment of whether the arrangement is for the benefit of the minor and potential unborn beneficiaries of the Trust, followed by a determination of whether it is a fair and proper one overall.
[75]Perpetual Trustees Victoria Ltd v Barns (n 55).
In first considering the ‘benefit’ test, the contradictor submits that it is a ‘permissible direct inference’ for the Court to draw that the arrangement will be of benefit to potential unborn beneficiaries of the Trust, as it will afford such unborn beneficiaries a longer time to come into existence. In respect of the Trust’s minor beneficiary, the contradictor recognises that the arrangement may be prima facie disadvantageous to Louis Jr in that it could potentially widen the class of beneficiaries, but submits that this must be considered in the wider context of the various advantages to be gained by other beneficiaries if the vesting date of the Trust were to be extended.
To make such an assessment, the contradictor then considers whether a ‘businesslike’ assessment of the arrangement shows that it is fair and proper overall. The following submissions are made in this regard:
(a) Louis did not intend for the Trust to come to an end upon his and Nerina’s deaths;
(b) Louis, Susan and Livio all intend for the business operated by the Trust to continue in the future;
(c) The extension of the vesting date of the Trust will defer the crystallisation of substantial capital gains tax liabilities for its beneficiaries; and
(d) The arrangement sought by the plaintiff is not likely to give rise to capital gains tax or transfer duty imposts.
Considered in light of these factors, the contradictor submits that a businesslike assessment of the arrangement establishes it is a fair and proper one overall. The contradictor also notes that these considerations elucidate additional benefits that the arrangement may have for Louis Jr and potential unborn beneficiaries of the Trust, namely that it will allow the business carried on by the Trust to continue to operate and generate income, and will allow the Trust to preserve assets and capital which would otherwise be paid in tax.
Based on this assessment, the contradictor submits that the plaintiff’s proposed arrangement to extend the vesting date of the Trust is of benefit to Louis Jr and potential unborn beneficiaries, and is a fair and proper one overall. Accordingly, the contradictor likewise submits that the exercise of the Court’s power to approve the arrangement under s 63A is appropriate in the circumstances.
The plaintiff’s submissions in reply
In its submissions in reply, the plaintiff responds to the contradictor’s reference to the prima facie disadvantage the arrangement may present for Louis Jr by potentially widening the class of beneficiaries. The plaintiff contends that the possibility of future beneficiaries is not necessarily a detriment to Louis Jr, and offers two reasons in support of this contention.
First, the plaintiff submits that extending the vesting date would allow more time for Louis Jr to potentially benefit from distributions through future generation of income by the Trust, and is thus financially advantageous to Louis Jr overall.
Secondly, the plaintiff submits that as the Trust is discretionary in nature, the possibility of future beneficiaries does not necessarily disadvantage Louis Jr, as each of the beneficiaries only possesses a right to due administration of the Trust prior to vesting. Thus, the plaintiff contends, the potential for future beneficiaries does not necessarily mean a reduction in the quantum of future distributions for Louis Jr, as this is a matter which falls entirely within the trustee’s discretion.
Consideration
The principles and factors which the Court is to have regard in determining whether to exercise its discretionary power under s 63A to approve the proposed arrangement for extending the vesting date of the Trust on behalf of its minor and potential unborn beneficiaries are well-established.
The first task for the Court is to consider whether the proposed arrangement to extend the Trust’s vesting date is for the benefit of the minor and potential unborn beneficiaries of the Trust. As submitted by both the plaintiff and the contradictor, extending the vesting date of the Trust is of clear benefit to its potential unborn beneficiaries, in that it will provide more time for such potential beneficiaries to come into existence. While, as the contradictor submits, Louis Jr may be disadvantaged by the widening of the class of potential beneficiaries to some extent, I accept the plaintiff’s submission that an extension is also of significant benefit to Louis Jr, by providing him an opportunity to benefit from the Trust’s future income by way of distribution. On balance, I find that an extension would offer more advantage to the minor and potential unborn beneficiaries of the Trust than it would disadvantage. This conclusion is bolstered by the fact that the contradictor likewise concludes that on the whole, an extension of the vesting date is beneficial to the Trust’s minor and potential unborn beneficiaries.
Furthermore, when assessed in a businesslike manner, the arrangement is a fair and proper one overall. Relevant in this regard is the fact that each of the Trust’s sui juris beneficiaries have consented to the proposed arrangement, and will have the opportunity to benefit from future income distributions if the vesting date of the Trust is extended. Moreover, Livio deposed to his and Susan’s desire for the family business to continue operating following the death of his parents. Extending the vesting date of the Trust will allow this to occur, whereas if the Trust is to vest, the family business is likely to be wound up. Each of these considerations weigh in favour of a finding that the arrangement proposed by the plaintiff is a fair and proper one overall.
The arrangement will also, as both the plaintiff and the contradictor recognise, allow for the preservation of the Trust assets and the deferral of significant capital gains tax liabilities. It has been repeatedly affirmed that a Court should not hesitate to approve an arrangement for the extension of a trust’s vesting date merely because one of the purposes of the arrangement is to avoid, reduce or defer taxation consequences,[76] and regard is often had to potential taxation implications in assessing the benefit and overall fairness of an arrangement for the purposes of s 63A.[77] The plaintiff has provided evidence that no taxation or duty consequences will flow from the extension of the Trust on the one hand, and that significant taxation implications will result from the vesting of the Trust on the other hand. I consider the deferral of those implications to be of clear benefit to both the present and potential future beneficiaries of the Trust, as well as fair and proper overall. In making a businesslike assessment of the arrangement, the deferral of capital gains tax implications and preservation of the Trust assets is incontrovertibly advantageous to both the present beneficiaries of the Trust, as well as any potential future beneficiaries.
[76]Re Arthur Brady Family Trust (n 33) 182 [44]-[45] (McMurdo J); Re Plator Nominees Pty Ltd (n 47) [14]-[15] (Davies J); Thomas Hare Investments Ltd v Hare (n 47) 666 [34]-[37] (Habersberger J); Faye v Faye (n 51) 71 (Lavan J); Thomson v Thomson & Whitmee [1954] P 384, 393-4 (Davies J).
[77]Re Arthur Brady Family Trust (n 33) 182 [46] (McMurdo J); Re Plator Nominees Pty Ltd (n 47) [14]-[15] (Davies J); Thomas Hare Investments Ltd v Hare (n 47) 666 [37] (Habersberger J).
Finally, an arrangement which effects an extension of the vesting date of the Trust is consistent with the purpose of the disposition, and the intentions of Louis and Nerina in establishing it. Louis gave evidence that, at the time the Trust Deed was prepared and executed, a standard document was used and he did not have its terms discussed with or explained to him. As such, he did not understand how the Trust would operate, and was under the impression that it would continue indefinitely. As such, the vesting date set out in cl 1(b) of the Trust Deed is not representative of his intention as to how and when the Trust was to vest. Indeed, on the evidence, it is clear that the Trust was established for dual purposes: to act as a vehicle for the operation and management of the family’s construction business, and to benefit Louis, Nerina, their children and their further descendants, as deposed to by Louis and recorded in recital (A) of the Trust Deed. That both of the purposes for which the Trust was established would be furthered by the Court supplying approval for an arrangement to extend its vesting date, and hindered if such approval is withheld, is especially persuasive.
As such, I am satisfied that it is appropriate in the circumstances to exercise the discretion under s 63A to approve, on behalf of the minor and unborn beneficiaries of the Trust, an arrangement to extend the Trust’s vesting date. The factors relevant to the exercise of this discretion include that the proposed arrangement is financially beneficial to the Trust’s minor beneficiary as well as any potential unborn beneficiaries, and has been consented to by each of the sui juris beneficiaries. It also allows for the deferral of significant impact of taxes and duties on the Trust assets, and furthers the intention and purpose of the Trust as a vehicle for the family construction business.
On a final note, and as was observed by the plaintiff, many of the above-discussed matters are comparable or akin to factors that were taken into account in similar circumstances in Coote v Clark,[78] Thomas Hare Investments Ltd v Hare,[79] and Re Plator Nominees Pty Ltd.[80] Each of those factors were found, in those cases, to weigh in favour of the exercise of the power under s 63A to approve an arrangement to extend the vesting date of a discretionary trust, and they are equally compelling and relevant in the present case.
Question 5: Exercise of power under s 63 of the Trustee Act
[78]Coote v Clark (n 62).
[79]Thomas Hare Investments Ltd v Hare (n 47).
[80]Re Plator Nominees Pty Ltd (n 47).
Given the conclusion reached in respect of Question 4, namely that the orders sought in the plaintiff’s application will be made pursuant to s 63A of the Trustee Act, it is unnecessary to consider the plaintiff’s alternative application for such orders to be made under s 63 of the Trustee Act.
Question 6: Form of arrangement to be approved
The final question for the Court to consider is the proper formulation of the arrangement. Specifically, it is necessary to determine whether the plaintiff’s first preference as to the manner in which the extension of the vesting date of the Trust is to be effected is appropriate, or whether any of the other options put forward, or another formulation entirely, is to be preferred.
The four alternative arrangements proposed by the plaintiff, in order of preference, can be summarised briefly as follows:
(a) The first option proposes amending the definition of ‘Day of Distribution’ (or, in other words, the vesting date) set out in cl 1(b) of the Trust Deed to 21 years after the death of the last living child of Louis born on or before 11 August 1969, and also specifying a perpetuity period defined in the same manner.
(b) The second option proposes amending the definition of ‘Day of Distribution’ set out in cl 1(b) of the Trust Deed to 80 years from the date of execution of the Trust Deed, and also specifying a perpetuity period defined in the same manner.
(c) The third option proposes amending the definition of Day of Distribution’ set out in cl 1(b) of the Trust Deed to the last to occur of the deaths of both Louis and Nerina and the eightieth anniversary of the date of execution of the Trust Deed, and also specifying a perpetuity period of 80 years.
(d) The fourth option proposes amending the definition of ‘Day of Distribution’ set out in cl 1(b) of the Trust Deed to the last to occur of the deaths of both Louis and Nerina and the eightieth anniversary of the date of execution of the Trust Deed, but makes no express provision for a perpetuity period.
The plaintiff’s and the contradictor’s submissions
Both the plaintiff and the contradictor agree that the most appropriate formulation of an arrangement to extend the vesting date of the Trust is that set out in sub-para (a), namely, an arrangement which defines the Trust’s vesting date and perpetuity period by reference to a period of 21 years after the death of the last living child of Louis born on or before 11 August 1969.
Consideration
There are a number of reasons why the arrangement set out in sub-para (a) and agreed upon by the parties is appropriate.
First, of each of the options set out above, this formulation is likely to prolong the lifespan of the Trust to the greatest extent. As such, this arrangement is likely to be of the greatest benefit to the minor and potential unborn beneficiaries of the Trust, in that it will afford such beneficiaries more time to come into existence and benefit from future income distributions.
Secondly, having found that the Trust’s perpetuity period is presently set by the common law rule against perpetuities, it would seem appropriate to approve an arrangement which extends the vesting date of the Trust on the same basis. The language used in the plaintiff’s proposed arrangement is consistent with the common law rule, in that it defines a closed class of beneficiaries to be used as the relevant measuring lives for the purposes of setting the Trust’s perpetuity period.
Finally, such an approach would mirror that adopted in Re Plator Nominees Pty Ltd,[81] where the orders made under s 63A took substantially the same form as those presently sought by the plaintiff.
[81]Ibid.
In circumstances where the plaintiff and contradictor are in agreement as to the proposed form of orders, and the Court is content as to the suitability of the plaintiff’s preferred arrangement for the reasons set out above, it is appropriate to approve the extension of the vesting date of the Trust by making orders in the form sought by the plaintiff in its application.
Conclusion
The Court has provided the advice sought in the plaintiff’s application pursuant to r 54.02, and will provide the necessary approval, under s 63A of the Trustee Act, for an arrangement to extend the vesting date of the Trust to 21 years after the death of the last living child of Louis born on or before 11 August 1969.
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