Australian Conservation Services v Liladel Holdings
[2017] ACTSC 162
•21 April 2017
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Australian Conservation Services v Liladel Holdings |
Citation: | [2017] ACTSC 162 |
Hearing Date(s): | 18 April 2017 |
DecisionDate: | 21 April 2017 |
Before: | Mossop J |
Decision: | 1. The proceedings are dismissed. 2. Any party seeking a costs order must file and serve written submissions not longer than three pages and any evidence in relation to costs by 27 April 2017. Any party may file and serve submissions in reply not longer than two pages and any evidence in reply by 3 May 2017. |
Catchwords: | EQUITY – TRUSTS – Powers of Appointment – fraud on a power – whether the decision in Re Skeats’ Settlement (1889) 42 Ch D 522 prevents the donee of a power of appointment from exercising that power to appoint the donee or a company controlled by the donee – it does not – whether appointment of company controlled by appointor as trustee involved a fraud on the power of appointment in the circumstances – it did not |
Legislation Cited: | Trustee Act 1925 (ACT) Trustee Act 1925 (UK) |
Cases Cited: | Austec Wagga Wagga Pty Ltd v Rarebreed Wagga Pty Ltd [2012] NSWSC 343 Australian Securities and Investments Commission v Carey (No 6) [2006] FCA 814; 153 FCR 509 Berger v Lysteron Pty Ltd [2012] VSC 95 El Sayed v El Hawach [2015] NSWCA 26; 88 NSWLR 214 Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] FCA 1628; (2001) 188 ALR 566 Hancock v Rinehart [2015] NSWSC 646; 106 ACSR 207 Hillcrest (Ilford) Pty Ltd v Kingsford (Ilford) Pty Ltd (No 2) [2010] NSWSC 285 Mercanti v Mercanti [2016] WASCA 206; 50 WAR 495 Montefiore v Guedalla [1903] 2 Ch 723 Pope v DRP Nominees Pty Ltd [1999] SASC 337; (1999) 74 SASR 78 Rayner v NJ Sheaffe Pty Ltd [2010] NSWSC 810 Re Burton; Wily v Burton (1994) 126 ALR 557 Re Christina Brown (1921) 22 SR (NSW) 90 Re Newen; Newen v Barnes [1894] 2 Ch 297 Re Skeats' Settlement; Skeats v Evans (1889) 42 Ch D 522 Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 Schuhmacher v Emmerson [2013] QSC 205 |
Texts Cited: | Halsbury’s Laws of England, 3rd edition volume, volume 38 Trusts [1568] Halsbury’s Laws of England, 4th edition 2007 reissue, Volume 48 Trusts [831] P D Finn, Fiduciary Obligations (The Law Book Company, 1977) Young, Croft and Smith, On Equity (2009, Lawbook Co) |
Parties: | Australian Conservation Services Pty Ltd (Plaintiff) Liladel Holdings Pty Ltd (Defendant) |
Representation: | Counsel W D B Buckland (Plaintiff) M A Karam (Defendant) |
| Solicitors R D Silverstein (Plaintiff) McInnes Wilson Lawyers (Defendant) | |
File Number(s): | SC 90 of 2017 |
MOSSOP J:
Introduction
This case involves a dispute as to who is the trustee of a small discretionary trust. The sole asset of the discretionary trust is a residential property in McGregor in the Australian Capital Territory which is subject to a mortgage to the Commonwealth Bank. The defendant, Liladel Holdings Pty Ltd, filed a caveat over the property asserting its interest in the property as trustee. The plaintiff, Australian Conservation Services Pty Ltd, commenced proceedings seeking a declaration that the defendant was not, at the time that it lodged the caveat, the trustee of the trust. It sought consequential orders requiring the removal of the caveat.
The trust the subject of these proceedings is the Teddington Trust. It was established by a deed executed on 26 November 2008 (the Trust Deed).
The plaintiff is the original trustee of the Trust named in the Trust Deed. It is a company which is presently controlled by Thomas Alfred James Davey and Carol Anne Davey.
The defendant is a company controlled by Suzanne Andrea Davey. She is also known as Suzanne Andrea Wirtitsch. For the sake of consistency, in these reasons, I will refer to her as Suzanne Davey. She is the sister of John Davey. She is the daughter of Thomas Davey.
John Patrick Davey is the appointor for the Trust identified in the Trust Deed. He is the named beneficiary in the Trust Deed. The other beneficiaries of the Trust are identified by reason of being his relatives and companies in which those relatives hold shares.
John Davey, Thomas Davey and Suzanne Davey have each been estranged from one another for many years.
In support of its claim that the defendant was not, at the time that it lodged caveat number 2048937, the duly-appointed trustee of the trust, the plaintiff has raised two issues. First, whether the power of the appointor to nominate a new appointor could be exercised when the original appointor was a bankrupt. The plaintiff contends that it could not. Second, whether the second appointor was not entitled to appoint a company which she controlled as the trustee because to do so would amount to a fraud upon the power of appointment.
Assessment of the plaintiff’s first contention
As at the establishment of the Trust the would-be appointor was John Davey. He became a bankrupt in about April 2014. On 14 April 2016 he signed an instrument by which Suzanne Davey became the appointor of the Trust. On 7 June 2016 Ms Davey appointed the defendant as the trustee of the Trust. The defendant was only registered on the following day however the plaintiff did not contend that the appointment of the defendant as trustee was defective because of that fact.
The issue raised by the plaintiff was whether Mr Davey had the power under cl 11 of the Trust Deed to nominate another person to be appointor in circumstances where he was a bankrupt. This depends upon the relationship between cl 8 and cl 11 of the Trust Deed.
Clauses 8 and 11 of the Trust Deed provided as follows:
APPOINTOR
8.
(a) The power to appoint a new or additional Trustee and the power to remove a Trustee shall, subject to this paragraph, vest in:
(i) The appointor/s from time to time.
(ii) if there is more than one Appointor on and from the death of an Appointor, in the surviving Appointor or Appointors.
(iii) on and from the death of a sole or surviving Appointor, in such person or persons as the solve or surviving Appointor may in writing or by their will nominate.
(iv) on and from the death of the sole or surviving Appointor without such nomination having been made or such nominee having died or ceased to be in existence or unwilling to act as Appointor, in the Trustee for the time being of the Trust.
(b) In the event that there shall be more than one Appointor they shall act by a simple majority.
(c) If at any time no persons shall have the power to appoint a new Trustee or an additional Trustee, the power shall be vested in the Trustee or Trustees for the time being of the Trust.
(d) Where a Trustee or an additional Trustee is appointed pursuant to this paragraph, the Trust Fund shall at that time vest in the person or jointly in the persons who shall thereupon be the Trustee without the necessity for any vesting, declaration, transfer, conveyance or other assurance.
(e) The power to appoint a new Trustee contained in this paragraph is subject to paragraphs 9(a) and 11.
(f) The power to appoint or remove a Trustee may be exercised by written instrument or by deed signed by the Appointor(s) at that time.
(g) If any Appointor becomes subject to a legal disability including being declared bankrupt or an order being made for the sequestration of the estate of the Appointor, then from the time of such disability, and during the continuance therof, the power of appointment and removal vested in the Appointor shall vest in the Trustee provided that where there is more than one Appointor, the power shall vest in the other Appointor or Appointors. Upon the cessation of the legal disability including any sequestration order ceasing to have effect, then the power shall revest in the Appointor or the Appointors, if more than one.
...
NEW APPOINTOR
11.
(a) An appointor, or any one of them with the written consent of all other Appointors, if any, may in writing (signed by that or those Appointor/s) nominate any other person or entity as an Appointor in that Appointor’s place and on execution of that document (“nomination”) the Appointor shall cease to be the Appointor and the new Appointor shall take that Appointor’s place and shall thereupon become an Appointor (either solely or if there was more than one of them as one of two or more Appointors ). The Settlor shall not be capable of becoming an Appointor under this Deed.
(b) The nomination must then be given to the Trustee.
(c) An Appointor may resign as Appointor by notice in writing to the Trustee and any other Appointor.
The plaintiff’s argument depends upon the terms of cl 8(g) affecting the power given under cl 11. Under cl 8(g) if the appointor is subject to a legal disability, including bankruptcy, the appointor is prevented from appointing and removing the trustee and instead that power is vested in the trustee. Upon the legal disability or bankruptcy ceasing, the power to appoint and remove the trustee reverts to the appointor. In order for the plaintiff’s argument to be successful the existence of that qualification on the power to appoint and remove a trustee must have the additional effect of disabling the appointor from exercising the power under cl 11.
The express words of the clause do not have that effect. Nothing in cl 11 links the power set out there to cl 8(g). Similarly cl 8(g) does not extend to the nomination of a new appointor but instead is limited to the power to appoint and remove the trustee. Therefore if there is to be some disabling of the power in cl 11 during a period when the appointor is a bankrupt, that must arise by some implication from the terms of the Trust Deed. I am not satisfied that any such implication arises. The two powers are dealt with separately. While the drafter might well have considered it to be appropriate to disable the appointor from nominating a new appointor during a period of bankruptcy that has not been done. Neither the text, structure, nor the subject matter of the Trust Deed makes the implication contended for by the plaintiff a necessary one.
I therefore do not accept the plaintiff’s submission that the existence of cl 8(g) had the effect of preventing John Davey from nominating Suzanne Davey as the appointor of the Trust.
Assessment of the plaintiff’s second contention
The plaintiff’s contention was that the appointment by Suzanne Davey of the defendant, a company which she controlled, amounted to a fraud upon the power of appointment given under the Trust Deed. Fraud on a power is an equitable doctrine which limits the power conferred on a person by an instrument: see Young, Croft, Smith On Equity at [8.880]; Hancock v Rinehart [2015] NSWSC 646; 106 ACSR 207 at [57]–[61]. It may limit the power of both fiduciaries and non-fiduciaries. For the purposes of the doctrine, fraud does not necessarily connote that which would be termed fraud at common law. Rather it encompasses the idea that the power has been exercised for a purpose or with an intention beyond the scope of, or not justified by, the instrument creating the power.
The plaintiff relied upon the decision of Stevenson J in Austec Wagga Wagga Pty Ltd v Rarebreed Wagga Pty Ltd [2012] NSWSC 343. The issue in Austec was who or what entity should be the trustee of a discretionary trust. The need to determine that issue arose out of the breakdown of the relationship of a married couple who had been the directors and shareholders of the trustee company. Clause 6(iii) of the trust deed prevented the power of appointment of a new trustee being exercised “in favour of ... the person exercising the power of appointment”. After orders had been made by the Family Court requiring sale of the business, a new company was registered of which a 25-year-old storeman employed in the business was the sole director and shareholder. The husband purported to appoint that company as trustee of the trust in the place of the existing trustee. The question was whether that appointment was a valid one. His Honour’s conclusion at [67] and [70] was that the appointment was contrary to cl 6(iii) because the husband’s appointment of the new company was not a step taken by him to promote the object of the trust, rather it was to ensure that he achieved control of the trust and the business. He therefore found that the appointment was of no effect.
It was in this context that his Honour referred, by way of obiter dicta, to the fact that the prohibition in cl 6(iii) was consistent with the general law prohibition upon a power of appointment being exercised for the benefit of the appointor as opposed to the beneficiaries. His Honour said at [49]-[55].
49As I have set out above, by clause 6(i)(a) of the Deed, Mr Cullen was empowered to appoint a new trustee of the Trust. However, by reason of clause 6(iii) of the Deed, such power was not to be exercised by Mr Cullen in his own favour. The clause provided that the power of appointment was not to be exercised "in favour of ( ... ) the person exercising the power of appointment".
50This prohibition is consistent with, and indeed reflects, the law that the power to remove and appoint a trustee must be exercised for the benefit of the beneficiaries of the Trust, and not for the benefit of the appointor.
51 Thus is Re Burton; Wily v Burton (1994) 126 ALR 557 at 559-560 Davies J held: -
"When the power is contained in a deed of trust, the donee of the power is even more constrained to act in the interests of the persons for whose benefit the power was conferred. Thus, in Re Skeats' Settlement (1889) 42 Ch D 522, Kay J held that, as a power of appointing new trustee was fiduciary power, the donee of the power may not exercise it so as to appoint himself. At 527, His Lordship said:
...the universal rule is that a man should not be judge in his own case; that he should not decide that he is the best possible person, and say that he ought to be the trustee.
Naturally no human being can be imagined who would not have some bias one way or the other as to his own personal fitness, and to appoint himself among other people, or excluding them to appoint himself, would certainly be an improper exercise of any power of selection of a fiduciary character such as this is.
See also Re Newen; Newen v Barnes [1894] 2 Ch 297 at 308-9.
Statutory provisions, such as s 6(3) of the Trustee Act 1925 (NSW), which permit such an appointment to be made, do not affect the underlying equitable principle."
52.Further in Fitzwood Pty Ltd v Unique Goal Pty Ltd [2001] FCA 1628; (2001) 188 ALR 566 (reversed on other grounds at [2002] FCAFC 285) Finkelstein J held at [98]: -
"I am prepared to accept that a power of removal of a trustee may be a fiduciary power that must be exercised for the benefit of the beneficiaries and not for the benefit of the donee of the power, at least when the donee is not a beneficiary, although much will depend upon the terms of the trust instrument: Re Skeats' Settlement (1889) 42 Ch D 522 at 526; [1886-90] All ER Rep 989 at 990; Inland Revenue Commissioners v Schroder [1983] STC 480 at 500."
53In Hillcrest (Ilford) Pty Ltd v Kingsford (Ilford) Pty Ltd(No 2) [2010] NSWSC 285, Biscoe AJ considered a clause relevantly indistinguishable from clause 6(iii) of the deed and held at [42]: -
"The prohibition in (...) the trust deed is not limited to an appointment of the person exercising the power of appointment. The prohibition extends beyond that by the words 'in favour'. Those words should be given their normal meaning. The Macquarie Dictionary (3rd ed) gives the following meaning to 'in favour of': 'in support of; on the side of; to the advantage of'. Similarly, the Shorter Oxford Dictionary (5th ed) gives the following meaning to 'in favour of': 'on behalf of, in support of, on the side of, to the advantage of'."
54I agree with these observations and consider that they apply, directly, to the present case.
55In my opinion, by purporting to appoint Rarebreed as trustee of the Trust, Mr Cullen was purporting to exercise the power in his own favour - that is "in support of" or "on the side of" or to "the advantage" of himself.
The submission of the plaintiff was that these authorities, particularly Re Skeats' Settlement (1889) 42 Ch D 522 and Re Newen; Newen v Barnes [1894] 2 Ch 297 established the proposition that the power of appointment was a fiduciary power and could not be exercised so as to appoint the donee of the power as the trustee. The plaintiff then contended that not only could the donee of the power not be appointed but nor could a company controlled by the donee of the power. Applied in the circumstances of the present case this would mean that the power of appointment in cl 8 of the Trust Deed did not permit the appointor, Suzanne Davey, to appoint the defendant as a trustee because that was a company which she controlled.
For the purposes of considering this argument both parties accepted that the power to appoint and remove trustees was contained within the Trust Deed and did not require supplementation by the statutory powers set out in s 6 of the Trustee Act 1925 (ACT). They approached the matter on the basis that the powers in cl 8 were self contained and were sufficiently so as to indicate that the powers (and the qualifications on those powers) in s 6 of the Trustee Act were excluded. Although in the light of cl 6 of the Trust Deed, I have some doubts about that position, having regard to the fact that both parties conducted the matter on that basis and it is not obvious given the separate legal personality of the defendant that s 6(3) would alter the result that I have come to, I have approached the matter in a manner consistent with the way in which it has been approach by the parties.
The Trust Deed
The Trust Deed was executed on 26 November 2008. The settlor of the Trust was Steven Gavagna, a solicitor. The trustee was the plaintiff. Mr John Davey executed the deed on behalf of the company as director and secretary. An ASIC historical search shows that he was a director of the company at the time of the deed and remained a director up until February 2009. The appointor is identified as John Davey.
The Trust Deed established a discretionary trust. The income of the Trust was to be distributed each year to “Income Beneficiaries”. The corpus or any part thereof of the Trust could be distributed to any “Corpus Beneficiary” at any time prior to the vesting date. On the trust vesting the whole of the corpus was to be distributed to the Corpus Beneficiaries in proportions determined by the trustee in its absolute discretion.
In the definitions of Income Beneficiary and Corpus Beneficiary the only named person is John Davey. All other potential beneficiaries are identified by reference to their relationship to him.
Because of the effective control of Mr Davey over the Trust through his position as appointor, by his participation in the initially appointed trustee and because of the fact that the definition of the beneficiaries of the Trust is focused upon him, it can be seen that the trust is effectively under his control. The Trust falls into that category of trust where “the power of the appointor to remove and appoint trustees may be exercised for the purpose of controlling the trust estate for the appointor’s benefit” Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 at [151]; Australian Securities and Investments Commission v Carey (No 6) [2006] FCA 814; 153 FCR 509 [37]–[46].
If that is the proper characterisation of this Trust then the appointor, Mr John Davey, was entitled to exercise the power of appointment for his own benefit. In those circumstances there could be no objection to the appointment as trustee of a company which he controlled. As at the time of the establishment of the Trust that was very nearly the case because of his participation as a director and equal shareholder in the trustee company. Because of the nature of the trust established by the Trust Deed it is difficult to advance the contention that the appointor was not able to appoint an entity controlled by him as trustee so long as the exercise did not involve a fraud on the power. Thus, the nature of the trust appears to take it outside the scope of any general rule derived from Skeats’ case arising from the characterisation of the power of appointment as a fiduciary power. However it is not necessary to decide the present case on that basis. For the reasons which I will articulate, it is sufficient to determine the case on the basis that even if the Trust was not effectively for the benefit of John Davey, the appointment by Suzanne Davey of the defendant as trustee was not beyond the scope of her power as appointor because it did not involve a fraud on the power of appointment.
Other authorities
Following the conclusion of the hearing, the parties were permitted to provide written submissions addressing the present status of the decisions in Skeats and Newen.
In Skeats, Kay J was required to consider a trust deed which provided that certain persons may appoint any “other” person to be a trustee in the place of the existing trustee. His Honour’s decision rests on both a broad and a narrow ground. The broad ground was that the power was a fiduciary power and could not be exercised by appointing the appointor as trustee. The narrow ground was that the trust deed in question referred to the appointment of some “other” person and that this, as a matter of construction, compelled that the person appointed could not be the appointor. His Honour made it clear, however, that he did not decide the case solely on the narrow ground. The emphatic terms in which his Honour expressed himself on the broad ground leave little room for doubt that his Honour intended to articulate a generally-applicable and inflexible proposition.
In Newen Kekewich J held that two persons entitled to make an appointment were not entitled to appoint one of them as a trustee. His Honour followed Skeats in emphatic terms. However I note that the manner in which his Honour dealt with the matter proceeded on the basis that the appointment was not ineffective and that the situation should be remedied by the resignation of the trustee who had appointed herself.
In the United Kingdom some doubt was cast upon the broad ratio of Skeats by Buckley J in Montefiore v Guedalla [1903] 2 Ch 723. His Honour attempted to explain the ratio of Skeats as not that an appointor “cannot appoint himself, but that he ought not do so unless the circumstances are exceptional”. Having regard to the language used by Kay J in Skeats such a reading down of the decision is somewhat ambitious. However, the decision of Buckley J properly reflected some discomfort at a blanket proposition said by Kay J to arise from the fiduciary nature of the power of appointment. In 1925 the necessity to confront the inconsistency between Skeats and Montefiore was largely removed by the inclusion in the Trustee Act 1925 (UK) of a statutory provision permitting the appointment of the appointor as trustee. Thus, where the statute applied there was no difficulty in the appointor being appointed trustee. Where the statute did not apply, the entries in Halsbury’s Laws of England (3rd edition volume 38 Trusts [1568] and 4th edition 2007 reissue, Volume 48 Trusts [831]) attempt, rather uncomfortably, to straddle both Skeats and Montefiore as if the decisions can be reconciled.
In Australia the application of Skeats has been considered in a number of cases other than Austec namely In re Christina Brown (1921) 22 SR (NSW) 90 at 93–94; Re Burton 126 ALR 557 at 559-560, Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] FCA 1628; (2001) 188 ALR 566 at [98]; Pope v DRP Nominees Pty Ltd [1999] SASC 337; (1999) 74 SASR 78 at [46]–[47]; Hillcrest (Ilford) Pty Ltd v Kingsford (Ilford) Pty Ltd (No 2) [2010] NSWSC 285 at [38]–[39]; Rayner v NJ Sheaffe Pty Ltd [2010] NSWSC 810 at [150] and [152]; Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 at [145]-[151]; Berger v Lysteron Pty Ltd [2012] VSC 95 at [67]–[85]; and Schuhmacher v Emmerson [2013] QSC 205 at [94]-[98]. None of these cases involve giving unqualified effect to the broad ratio in Skeats as the plaintiff sought to do in this case.
A significant influence upon the approach to Skeats has come from the comments of Paul Finn in Fiduciary Obligations (1977). Paul Finn criticised the fiduciary terminology used by Kay J (at [627]) and suggested that the true limitation is that the power of appointment only exists for the benefit of the beneficiaries and Courts will review the exercise of that power only when there has been a fraud on the power (at [644]). (The New South Wales Court of Appeal referred recently to Finn’s criticism but did not need to fully explore the obligations owed by an appointor: El Sayed v El Hawach [2015] NSWCA 26; 88 NSWLR 214 at [69].)
An example of the qualified manner in which Skeats has been treated is Fitzwood. The relevant part of the decision of Finklestein J is set out in the extract from Austec above.
Schumacher is a case where the outcome is directly contrary to the broad ratio of Skeats contended for by the plaintiff. In that case a legal personal representative of a deceased who, because of that status had become an appointor, had appointed himself as trustee of a trust. Daubney J adopted the approach of the majority judges in Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 which, following Montefiore v Guedalla recognised that there was power to permit an appointor to appoint himself or herself as trustee even if that should only be done in special or exceptional circumstances. His Honour found that the appointment was justifiable in circumstances where there was no partisanship demonstrated on the part of the trustee and that one of the beneficiaries who would ultimately control the trustee company was taking an unjustified approach to his own entitlements.
The most recent relevant decision, that in Mercanti v Mercanti [2016] WASCA 206; 50 WAR 495, avoided the conceptual issue of whether the power of appointment should be characterised as a fiduciary power or not. Both judgments, that of Buss P and that of Newnes and Murphy JJA focussed on whether the power of appointment had been exercised, as the trust in that case required, for the benefit of the trust and for the benefit of its objects. In that case the appointor had removed a corporate trustee and replaced it with another corporate trustee which he controlled, a situation analogous to the present case. Their Honours upheld a decision of the trial judge that the appointment of the company that was controlled by the appointor was not an exercise of a power for any improper or ulterior purpose. That conclusion is inconsistent with the broad proposition for which the plaintiff contended in this case namely that a company controlled by the appointor could not be appointed as a trustee.
The Australian authorities are not consistent with the acceptance of the broad ratio in Skeats. The Australian authorities are consistent with acceptance of Montefiore which recognises a power in the appointor to be appointed trustee while also recognising that this should only be done in very limited circumstances. They also recognise that even this approach may have a limited application depending upon the nature of the trust in question. They are also consistent with an acceptance of Finn’s contention that what is of significance is whether there has been a fraud on the power rather than some blanket prohibition arising because of the fiduciary nature of the power.
In my view it is appropriate to determine this case on the basis that the power of appointment must be exercised in good faith, consistently with the objects or purpose of the trust and for the benefit of the beneficiaries. In other words, it may be determined by asking whether or not the exercise of the power of appointment involved a fraud on that power. That avoids the necessity to reach a conclusion as to the appropriate character of the trust which is dealt with above at [23]. Approaching the case in that way, the appropriate question to ask is whether there has been a fraud on the power. It is not appropriate to apply an inflexible rule that the power cannot be exercised to appoint an entity controlled by the appointor.
In its written submissions provided following the hearing, the plaintiff appeared to accept that the broad ratio of Skeats was qualified by the possibility that a company controlled by the appointor could be appointed if there were “special or exceptional circumstances”. It then contended that there were no such circumstances demonstrated. As indicated above, I do not consider that the issue should be approached in this manner, namely a rigid rule qualified by an exception. Rather the exercise should be assessed by asking whether what was done involved a fraud on the power.
Application to the facts
In the present case the relevant sequence of events was as follows:
(a) On 26 November 2008 the trust was established.
(b) On 10 February 2009 John Davey resigned as a director of the plaintiff.
(c) In 2009 the Trust purchased a residential property at McGregor funded by a loan from the Commonwealth Bank guaranteed by Thomas and Carol Davey.
(d) On 10 December 2009 Carol Davey was appointed a director of the plaintiff.
(e) In May 2010 the plaintiff’s registered office changed to an address in Queensland.
(f) In about April 2014 John Davey became a bankrupt.
(g) By instrument dated 16 September 2015 John Davey purported to revoke the appointment of the plaintiff as trustee of the Trust. Neither party contended that this instrument was effective.
(h) In March 2016 John Davey approached Suzanne Davey and asked if she would consider being appointor of the Trust.
(i) On 14 April 2016 a document appointing Ms Davey as appointor of the Trust was executed and subsequently sent to the plaintiff.
(j) In April 2016 Suzanne Davey contacted Thomas Davey for the first time in approximately 10 years. In the course of that conversation Mr Davey said he was “too old for this shit”, that the tenant was not paying rent that the house “is his” that he hadn’t done the book work and the tax was not done. Suzanne Davey suggested that she could become the trustee.
(k) On 26 April 2016 Suzanne Davey attended the McGregor property and noted that it was in poor condition.
(l) On 26 May 2016 Suzanne Davey contacted State Trustees in Victoria and discussed the possibility of them being appointed trustees. Their fees were disclosed and she was told that it was unlikely to be viable to appoint them given the Trust’s limited asset base.
(m) On 7 June 2016 Suzanne Davey executed a deed removing the plaintiff as trustee of the Trust and appointing the defendant as trustee.
(n) On 8 June 2016 the defendant was registered with Suzanne Davey as the sole shareholder, director and secretary. The deed of appointment and removal was sent to the plaintiff by post.
(o) On 4 August 2016 the property was listed on the market for sale. This was not done on the instructions of Suzanne Davey or the defendant. It was instead done on the instructions of the plaintiff.
(p) On 26 August 2016 a caveat lodged by the defendant was registered over the McGregor property. The caveat was given the number 2048937. The interest asserted by that caveat was “As Trustee pursuant to the appointment on 6 July 2016 of the Deed of Trust dated 26 November 2008”. (The reference to 6 July 2016 appears to be an error having regard to the date of the deed of appointment and removal of trustee and the date of incorporation of the defendant.)
(q) On 5 September 2016 Suzanne Davey attended the property and saw a “for sale” sign. She advised the agent of the change in trustees and that the property was no longer for sale.
(r) On 5 September 2016 documents were signed purporting to show that the shareholding of John Davey in the plaintiff had been reduced from 50 shares to nil thereby removing him as a shareholder. It is not clear pursuant to what power this was done.
(s) In September 2016 Suzanne Davey engaged in correspondence with the solicitors for the plaintiff who were acting for the plaintiff in relation to the sale of the McGregor property.
(t) On 9 September 2016 the defendant wrote to the property manager requesting information in relation to the property including in relation to tenancy and income.
(u) In the period from September 2016 to March 2017 the defendant continued to attempt to obtain information in relation to the property.
(v) On 15 March 2017 the plaintiff made an application to the Registrar General for a lapsing notice in relation to the caveat lodged by the defendant.
(w) On 20 March 2017 the plaintiff commenced proceedings. Proceedings first came before the court on an ex parte basis on 21 March 2017.
(x) In March 2017 there was correspondence between the solicitors relating to the indemnification of the plaintiff for expenses incurred in relation to the trust.
The only assets of the Trust are the McGregor property. The liabilities are currently the amount owing to the Commonwealth Bank and the obligation of the Trust to indemnify the trustee (the plaintiff or the defendant as the case may be) for expenses properly incurred in the administration of the Trust. While the evidence does not permit any precise figure to be identified, having regard to the range of figures referred to in the evidence, the net value of the assets of the Trust before the costs of these proceedings are concerned are somewhere in the order of between $80,000 and $150,000. Whatever the precise figure, it is clear that the net value of the trust assets is small.
In my view, as at the date of the removal of the plaintiff as trustee and appointment of the defendant in its place, the evidence establishes that there were reasonable grounds for considering that the asset of the Trust, namely the house at McGregor, was not being properly managed by the existing trustee. Tax returns for the trust had not been prepared. Suzanne Davey undertook an exercise to determine whether the asset of the trust should be maintained as an investment, concluding that if it was properly managed it could be a viable investment. It would have been apparent to her from her communications with John Davey and Thomas Davey that the relationship between the trustee and the named beneficiary under the deed, John Davey, had broken down. The evidence discloses that Ms Davey investigated the possibility of having an independent trustee appointed but reasonably formed the conclusion that, having regard to the value of the trust assets, such a course was not appropriate. In those circumstances she took the step that she did to appoint a company that she controlled. There is no evidence to suggest that the company is acting as trustee other than on a gratuitous basis. By becoming trustee the company and Ms Davey were prevented from obtaining any distribution of the capital of the Trust: see the Trust Deed clause 9(c). So far as the evidence discloses, Ms Davey as director of the defendant has subsequently conducted herself in a businesslike manner in order to identify and protect the assets of the Trust and put the affairs of the Trust on a proper basis. While this conduct post-dated the appointment, the significant point for present purposes is that there is nothing in the conduct of the defendant post dating its appointment that would indicate that it lacks the capacity to properly and fairly carry out its duties as trustee of the Trust. Similarly, the conduct of the plaintiff following the appointment of the defendant as trustee indicates that there was a risk that the entitlements of the plaintiff to indemnity under the deed may not have been properly assessed if it had remained trustee.
In these circumstances I am not satisfied that the appointment that Ms Davey made was made other than in good faith, having regard to the interests of the beneficiaries of the Trust and was consistent with the overall purpose of the Trust. In other words it did not involve a fraud on the power of appointment. As explained above, I do not consider that the appointment was precluded merely because the defendant is a company controlled by the appointor. I am therefore not satisfied that the appointment was ineffective. For that reason the declaration sought by the plaintiff must be refused and the proceedings dismissed.
The orders of the Court are:
1. The proceedings are dismissed.
2. Any party seeking a costs order must file and serve written submissions not longer than three pages and any evidence in relation to costs by 27 April 2017. Any party may file and serve submissions in reply not longer than two pages and any evidence in reply by 3 May 2017.
| I certify that the preceding forty [40] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Mossop. Associate: Date: 12 July 2017 |
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