Blenkinsop v Blenkinsop Nominees Pty Ltd as trustee for the Blenkinsop Family Trust [No 2]
[2016] WASC 61
•4 MARCH 2016
BLENKINSOP -v- BLENKINSOP NOMINEES PTY LTD AS TRUSTEE FOR THE BLENKINSOP FAMILY TRUST [No 2] [2016] WASC 61
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASC 61 | |
| Case No: | CIV:2074/2013 | 4 & 5 NOVEMBER, 8 & 9 DECEMBER 2015 | |
| Coram: | ALLANSON J | 4/03/16 | |
| 19 | Judgment Part: | 1 of 1 | |
| Result: | Application dismissed | ||
| B | |||
| PDF Version |
| Parties: | JUDITH ANNE BLENKINSOP BLENKINSOP NOMINEES PTY LTD AS TRUSTEE FOR THE BLENKINSOP FAMILY TRUST SILVERGLADE PTY LTD AS TRUSTEE FOR THE BLENKINSOP FAMILY TRUST NO 2 SCOTT FREDERICK BLENKINSOP ROSS ALEXANDER BLENKINSOP TRACEY ANN JAKOVICH KIM ROSINA HOLLAND CHRISTINE MARION THURTELL |
Catchwords: | Trusts Removal of guardian Whether guardian exercises fiduciary power Turns on own facts Trusts Inherent jurisdiction of court to supervise Power to remove guardians Turns on own facts |
Legislation: | Nil |
Case References: | Berger v Lysteron Pty Ltd [2012] VSC 95 Blenkinsop v Blenkinsop Nominees Pty Ltd ATF the Blenkinsop Family Trust [2015] WASC 463 Bridge Trustees Ltd v Noel Penny (Turbines) Ltd [2008] EWHC 2054 (Ch) Duke Group Ltd (in liquidation) v Pilmer [1999] SASC 97 Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] FCA 1628; (2001) 188 ALR 566 In re Newen; Newen v Barnes [1894] 2 Ch 297 In re Skeats' Settlement; Skeats v Evans (1889) 42 Ch D 522 LGSS Pty Ltd v Egan [2002] NSWSC 1171 National Trustees, Executors and Agency Co of Australasia Ltd v Boyd [1926] HCA 44; (1926) 39 CLR 72 Pope v DRP Nominees Pty Ltd [1999] SASC 337 Rawcliffe v Steele [1995] Manx LR 426 Re Burton; Wily v Burton [1994] FCA 1146; (1994) 126 ALR 557 Re Freiburg Trust [2004] JRC 056 Re Papadimitriou [2004] WTLR 1141 Re the A Trust [2012] JRC 169 Re The Circle Trust; HSBC International Trustee Limited v Wong [2006] CILR 323 Re VR Family Trust [2009] JRC 109 Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 Vagliviello v Vagliviello [2003] WASC 61 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
BLENKINSOP NOMINEES PTY LTD AS TRUSTEE FOR THE BLENKINSOP FAMILY TRUST
First Defendant
SILVERGLADE PTY LTD AS TRUSTEE FOR THE BLENKINSOP FAMILY TRUST NO 2
Second Defendant
SCOTT FREDERICK BLENKINSOP
Third Defendant
ROSS ALEXANDER BLENKINSOP
Fourth Defendant
TRACEY ANN JAKOVICH
Fifth Defendant
KIM ROSINA HOLLAND
Sixth Defendant
CHRISTINE MARION THURTELL
Seventh Defendant
Catchwords:
Trusts - Removal of guardian - Whether guardian exercises fiduciary power - Turns on own facts
Trusts - Inherent jurisdiction of court to supervise - Power to remove guardians - Turns on own facts
Legislation:
Nil
Result:
Application dismissed
Category: B
Representation:
Counsel:
Plaintiff : Mr C R Bailey
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : Mr W C J Zappia
Fourth Defendant : In person (on 4 November only)
Fifth Defendant : No appearance
Sixth Defendant : No appearance
Seventh Defendant : Mr M D Cuerden SC & Mr P G Donovan
Solicitors:
Plaintiff : Williams & Hughes
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : S F Blenkinsop
Fourth Defendant : In person
Fifth Defendant : No appearance
Sixth Defendant : No appearance
Seventh Defendant : MDS Legal
Case(s) referred to in judgment(s):
Berger v Lysteron Pty Ltd [2012] VSC 95
Blenkinsop v Blenkinsop Nominees Pty Ltd ATF the Blenkinsop Family Trust [2015] WASC 463
Bridge Trustees Ltd v Noel Penny (Turbines) Ltd [2008] EWHC 2054 (Ch)
Duke Group Ltd (in liquidation) v Pilmer [1999] SASC 97
Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] FCA 1628; (2001) 188 ALR 566
In re Newen; Newen v Barnes [1894] 2 Ch 297
In re Skeats' Settlement; Skeats v Evans (1889) 42 Ch D 522
LGSS Pty Ltd v Egan [2002] NSWSC 1171
National Trustees, Executors and Agency Co of Australasia Ltd v Boyd [1926] HCA 44; (1926) 39 CLR 72
Pope v DRP Nominees Pty Ltd [1999] SASC 337
Rawcliffe v Steele [1995] Manx LR 426
Re Burton; Wily v Burton [1994] FCA 1146; (1994) 126 ALR 557
Re Freiburg Trust [2004] JRC 056
Re Papadimitriou [2004] WTLR 1141
Re the A Trust [2012] JRC 169
Re The Circle Trust; HSBC International Trustee Limited v Wong [2006] CILR 323
Re VR Family Trust [2009] JRC 109
Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146
Vagliviello v Vagliviello [2003] WASC 61
1 ALLANSON J: In these proceedings, I have already ordered that two companies which had acted as the trustees of two family trusts, the Blenkinsop Family Trust No 1 and No 2, be removed and replaced by an independent trustee. The application to replace the trustees was coupled with an application to remove the guardians of the two trusts. These reasons deal with that second issue.
2 The application to remove the guardians was brought by the plaintiff, supported by the seventh defendant. I will refer to them collectively as the applicants. Only the third defendant opposed the application. The other defendants abided the decision of the court with one qualification. In the course of the proceedings, a secondary question arose: whether the court should remove some only of the persons currently acting jointly as guardians; or, perhaps another way of achieving the same result, appoint some only of them as replacement guardians. This position was pressed with varying fervour by the applicants and the third defendant. The other guardians, or some of them, wished to be heard if the court was to remove only some of them. It has not proved to be necessary to hear from any of them.
3 It was practical to first determine the application relating to the removal and replacement of the trustees. In the earlier judgment, Blenkinsop v Blenkinsop Nominees Pty Ltd ATF the Blenkinsop Family Trust [2015] WASC 463, I found that the two companies which were acting as trustees could not carry out their role as trustees and properly execute the trusts.
4 These reasons deal with a quite limited issue - whether the court can and should remove the six guardians of each trust. The application does not question the validity of the guardians' appointments. Nor does it call for any determination of whether the powers of the guardian are subject to obligations to act within the scope of the power, and to not act in fraud on the power, and whether the conduct of the guardians might be reviewed in any particular case on those grounds.
5 The factual background is largely set out in the earlier decision. I will outline the facts only to the extent it is necessary to deal with issues specific to the guardians. As in the earlier decision, I will use the first names of those relevant persons who have the surname Blenkinsop.
The trusts
Trust No 1
6 Trust No 1 was created by a deed dated 1 July 1973. The initial trustees were Fred and Judith Blenkinsop. The trust deed did not include provision for a guardian.
7 By supplemental deed of settlement, dated 25 September 1996, the structure of Trust No 1 was substantially changed. Blenkinsop Nominees Pty Ltd was appointed the sole trustee. Under the supplemental deed, some of the powers conferred on the trustee were to be exercised with the consent of a guardian.
8 The primary beneficiaries of Trust No 1 are the children of Fred and Judith, their children and remoter issue, and their respective husbands, wives, widowers and widows for the time being. The primary beneficiaries are also general beneficiaries. Judith is a general beneficiary.
9 The schedule now provided for who was to hold office as guardian and appointer. The same provision was made for each of those offices:
Frederick William Blenkinsop during his life or any person who he may by deed or will appoint and failing appointment then Judith Anne Blenkinsop during her life or any person who she may by deed or will appoint and failing appointment then the primary beneficiaries jointly during their lifetimes and thereafter the survivors thereof during his or her lifetimes and thereafter any person whom he or she or they unanimously may appoint and in the absence of unanimity no such appointment shall be made.
Trust No 2
10 Trust No 2 was created by a deed of settlement dated 25 October 1993. Silverglade Pty Ltd was the trustee. The primary beneficiaries are the children of Fred and Judith Blenkinsop. General beneficiaries include the primary beneficiaries, and Fred and Judith.
11 The provisions relating to distributions of income and capital, and the requirement for consent of the Guardian, are similar to those in Trust No 1.
12 The deed provided for who are to be guardians in these terms:
(a) William Frederick Blenkinsop and Judith Anne Blenkinsop jointly during their lifetimes; and
(b) on and from the death of the survivor of William Frederick Blenkinsop and Judith Anne Blenkinsop such person or persons as the survivor may by deed or will nominate; or
(c) on and from the death of the survivor of William Frederick Blenkinsop and Judith Anne Blenkinsop if no nomination is made by deed or will by the survivor or if the nominee has died or ceased to be in existence or is unwilling to act as Guardian of this trust, then the personal representative of the survivor.
13 As a result of my earlier order, there is now an independent professional trustee for each trust.
The role of the guardian
14 Because of the similarity between the two trust deeds, it is sufficient to set out the relevant provisions for Trust No 1.
15 Many of the powers of the trustee, including the powers to distribute capital and income between the beneficiaries, are in the discretion of the trustee. By cl 2(e):
The expressions 'as the trustee thinks fit' and 'the trustee as it thinks fit' shall give the trustee the widest and most absolute and unexaminable discretion including the power to prefer any one or more Beneficiaries to the total exclusion of any other or others of them.
16 The position of guardian provides a check on the absolute discretion of the trustee. The consent of the guardian is required for the exercise of several of the trustee's powers.
17 Some of those powers require the consent of the guardian, if there is a guardian then in existence:
1. to change the proper law for the deed: cl 3(b);
2. to pay, apply or set aside the net income of the trust fund for an accounting period: cl 5(a);
3. to transfer the whole or any part of the trust fund, or raise any sum out of the capital of the trust fund and pay that sum in addition to any income: cl 8;
4. to lend any sum out of the trust fund to any general beneficiary or pay or apply any part of the capital or income for the benefit of an infant beneficiary: cl 8;
5. to pay or transfer the whole or any part of trust fund to the trustee of any settlement under which all or any of the primary beneficiaries are beneficiaries: cl 14;
6. to, by deed, revoke, alter or amend the trusts or confer any new additional powers on the trustee, or vary, delete or amend any of the trustee's powers: cl 17.
18 Two of the trustee's powers require the consent of the guardian and are qualified by the condition that if there is no guardian in existence the trustee shall have no such power:
1. the power of appointment with regard to the trusts of capital: cl 6;
2. the power to add to, or exclude persons from, the beneficiaries of the trust: cl 9.
19 The general powers of the trustee with respect to the preservation and management of the trust property do not require consent.
20 Clause 16 provides for the resignation of a trustee, guardian or appointor:
Any trustee, guardian or appointor and any person who may by succession become a trustee, guardian or appointor may resign or renounce such position by notice in writing to the trustees and forthwith upon the giving of such notice the person giving the same shall for all purposes hereunder cease to be a trustee, guardian or appointor or to become a person who may by succession become a trustee, guardian or appointor (as the case may be) and if by virtue of holding that position he was one of the excepted persons he shall cease to be an excepted person provided that if at any time there is no appointor or other person entitled to exercise the powers of appointment provided in clause 10 hereof a sole surviving trustee shall not resign except upon appointing a new trustee or new trustees in his place.
The deed of variation
21 On 1 August 2011, the trustee of each trust executed a deed to vary the schedule to each trust deed in this manner:
The below mentioned variations are made pursuant to the powers given to the Trustee by the Trust Deed. The wording in the schedule to the Trust Deed under the heading GUARDIAN and APPOINTOR is replaced by the following wording in this Deed of Variation and any part of the Trust Deed that conflicts with the following wording in this Deed of Variation is to be read down in favour of the wording in this Deed of Variation.
APPOINTOR and GUARDIAN shall mean:
Judith Ann Blenkinsop and her children, Kim Rosina Holland, Scott Frederick Blenkinsop, Tracey Ann Jakovich, Christine Marion Blenkinsop (also known as Christine Marion Thurtell) and Ross Alexander Blenkinsop ('the children of Judith Ann Blenkinsop') acting jointly and unanimously and in the event that any or all of the children of Judith Ann Blenkinsop are unable to act as appointor and guardian then their spouse shall take their place provided that their spouse shall have both the legal capacity and mental capacity to act as appointor and guardian.
22 Judith signed each deed, giving her consent as guardian.
23 On 10 September 2013, Judith and her children also signed a deed of settlement in relation to litigation then pending between them. Terms of the settlement included that the parties agreed that each of them is a Guardian and Appointor of each Trust and will at all times act jointly and unanimously: cl 3. The third defendant, Scott Blenkinsop, relied on this deed of settlement. It is unnecessary to say anything more about it when the validity of the 2011 deed of variation is not challenged.
24 Accordingly, at the time of this action, each trust has six persons jointly holding the offices of Guardian and Appointor. The same six individuals were also the directors of the two trustee companies. All were beneficiaries under the trusts.
Grounds for removal
The conduct of the guardians
25 The applicants (that is, the plaintiff and seventh defendant) rely on seven factors, although there is extensive overlap between them. In summary:
1. The relationships within the Blenkinsop family have broken down to the extent that they cannot act jointly. This led the court to remove the trustee companies.
2. There is a position of conflict by reason of all guardians also being beneficiaries. The applicants rely particularly on the fact that, for Trust No 1, the original guardian (Fred) was not a beneficiary and such a conflict was not contemplated by the trust deed.
3. The number of guardians, with the requirement that they act jointly and unanimously, is impractical.
4. The guardians have demonstrated that they are unable to agree on the proper administration of the trusts and act unanimously.
5. Distributions by the trustee companies have been improperly vetoed in the past.
6. Because of the requirement of unanimity, the wrongdoing of one guardian infects all.
7. Those parties who are guardians have acted in a manner which gives rise to real concern about their fitness to remain 'in another fiduciary or quasi-fiduciary role'. In particular, they may seek to use their powers for their own self-interest. The applicants particularly attack conduct of the third defendant.
The power to remove a guardian
26 The guardian exercises specified powers under the trust deed. Persons exercising powers under a trust deed, but who are not trustees and do not have vested in them any of the trust estate, are commonly referred to as guardians, appointors, or protectors, according to the powers conferred on them. The use of the term 'guardian' is not of any significance.
27 There appear to be no Australian cases where the court has removed a person appointed to exercise powers under a trust deed, other than a trustee. I was referred to none. In Vagliviello v Vagliviello [2003] WASC 61 [61], Barker J doubted the court had power to replace a guardian.
28 The plaintiff relied on a series of decisions of courts of the Isle of Man, Jersey and the Cayman Islands where the issue of removal or appointment has been considered in relation to persons designated 'protectors', who were not trustees but on whom powers had been conferred by a trust instrument. No evidence was led regarding the legal system in those jurisdictions. But the decisions reveal that the courts proceeded on familiar principles regarding the inherent jurisdiction of the courts to supervise trusts.
29 In Rawcliffe v Steele [1995] Manx LR 426 (Isle of Man), under the deed of trust, certain of the trustees' powers were exercisable only with the consent of a 'protector', although some might be exercised if there was no protector. The protector was entitled to be notified of and participate in all trustees' meetings and to receive information from the trustees on demand. The protector had the power of appointing new trustees or additional trustees, but had no power to remove trustees. On the office of protector falling vacant, the trustees, with the agreement of the settlor, had a power of appointment. No protector had been appointed. The issue for determination was whether the absence of a protector meant that the trust failed.
30 Acting Deemster Hegarty held that power of the protector was of a fiduciary nature. The donee of fiduciary powers is in a position analogous to that of a trustee in the traditional sense. The court's inherent jurisdiction to appoint a new trustee extends to the power to appoint a person to exercise fiduciary powers under a trust 'even though he may not be a trustee in the classical sense'. Further, the court could, if necessary, itself exercise fiduciary powers under the trust. That opinion was subject to one important qualification; where the individual characteristics of the person or body corporate in whom the power is vested may be such as to make it plain that no substitute can properly be imposed on the trust (503 - 505).
31 Acting Deemster Smith said, on a principle analogous to the principle that a trust will not fail for want of a trustee, that the court could and, if necessary, should appoint a protector in the same circumstances as it would appoint a trustee if a trustee was either not appointed or declined to act (529 - 530).
32 The trust deed in Re Freiburg Trust [2004] JRC 056 (Jersey) appointed a protector. Powers of the trustee, including the powers to make appointments of income or capital, required the written consent of the protector. Consent was not required if, at the particular time, there was no protector. The protector had defrauded the trust. The court held that the office of protector was a fiduciary one, and the court had inherent jurisdiction to remove the protector from office as a necessary incident of its duty to protect the interests of the beneficiaries.
33 In Re Papadimitriou [2004] WTLR 1141 (Isle of Man) the court considered the position of the protector under a discretionary trust. Certain powers of the trustees, including the appointment of beneficiaries, and the power to remove a person or add a person to the definition of beneficiaries, could be exercised only with the consent of the protector. The protector also had power to appoint additional trustees. The Deemster Cain said:
I am not prepared to say that the court does not have, in any circumstances, an inherent power to remove the protector, if that were necessary to protect the assets of the trust or to prevent the trusts failing, or if the continuance of the protector would prevent the trusts being properly executed. However, I consider that the court would only so act in exceptional circumstances [71].
34 In Re The Circle Trust; HSBC International Trustee Limited v Wong [2006] CILR 323 (Cayman Islands), the court was concerned with the power to appoint a protector. Anderson J referred to earlier decisions to the effect that a protector's power of appointing and removing trustees was fiduciary in nature. He continued:
He is a fiduciary in the classic sense. I am also satisfied that this court has an inherent jurisdiction to remove the protector upon good cause being shown, and to appoint another in his stead … As I indicated earlier, a deed of settlement may be constructed as to show clearly that a protector is not to have fiduciary obligations and may act purely for his own benefit [23].
35 In Re VR Family Trust [2009] JRC 109 (Jersey), the court referred to the fiduciary character of the office of protector, and power of the court to remove a protector on the application of the trustee.
36 In Re the A Trust [2012] JRC 169 (Jersey), the court (in the published extract from an otherwise confidential judgment) followed the earlier decisions in Re Freiburg Trust and Re VR Family Trust.
37 The court in each of these cases acted on the principle that where a person holds office and exercises powers under a trust that are of a fiduciary nature, the court may remove him from office on similar principles to those applicable to removal of a trustee. The particular power conferred on the protector was not critical. The decisive issue was whether the protector owed fiduciary duties to the beneficiaries as a whole, such that the court is able to invoke its inherent jurisdiction to secure the proper administration of the trust and the welfare of the beneficiaries.
38 The applicants referred also to Bridge Trustees Ltd v Noel Penny (Turbines) Ltd [2008] EWHC 2054 (Ch). In that case, the court was concerned with the exercise of a power to distribute surplus assets held in a pension scheme. The holder of the power (the defendant) was not himself a trustee in whom those assets were vested. The court held that while the defendant was not a trustee, where the defendant was bound to but declined to exercise the power he held, the court had power to 'intervene under its jurisdiction to execute a trust, to exercise the power or cause it to be exercised in whatever way and by whatever means it thinks fit: see generally Lewin on Trusts, 18th ed., para 30-19 at p1121-2, and paras 30-25 to 26 at pp 1125-7' [25]. In the exercise of that jurisdiction the court could appoint some fit and proper person to exercise a fiduciary power in place of the donee [27].
39 Although there are no direct Australian authorities, there are cases which deal with the nature of powers conferred by a trust deed on persons other than the trustee.
40 The plaintiff and seventh defendant relied on LGSS Pty Ltd v Egan [2002] NSWSC 1171 [108] - [113], where Austin J considered the nature of a power to consent to the exercise of a power by a trustee. The case arose under a Scheme relating to public sector superannuation. The donee of the power was the relevant Minister (the Treasurer), who had powers to consent or agree to the particular application of funds by the trustee. The issue, accordingly, required consideration also of administrative law principles relating to the exercise of powers reposed in a public body.
41 Austin J discussed, generally, the submission that the power of the Treasurer was fiduciary, and this imposed limitations on the Treasurer's power to give or refuse consent. In particular, his Honour said:
A power conferred by a trust instrument on a non-trustee to consent to the exercise of a power by the trustee may be a fiduciary power. Ford and Lee [Principles of the Law of Trusts, 3rd ed, 1996], paragraph 1208, draw attention to the distinction between a power to consent intended to be for the benefit of the holder of the power, and a power to consent intended to be for the benefit of some other person. In the latter case, the holder of the power has an obligation to the beneficiary when exercising the power. The power of consent is a fiduciary power and must be exercised solely for the benefit of the beneficiary of it [108].
42 Austin J continued at [113]:
Identifying the purposes for which a power was conferred is a question of interpretation of the instrument that confers the power, in light of the circumstances existing when the power was conferred. According to Scott on Trusts (Vol 3 paragraph 185):
'In determining this question the relationship of the holder of the power to the trust, as well as the nature of the power, is an important consideration. If the holder of the power is one of the trustees, it is ordinarily clear that he owes duties to the beneficiaries with reference to the exercise of that power. ... On the other hand, where the power of control was conferred on one of the beneficiaries, the power is more likely to be, although it is not necessarily, conferred on him for his own benefit and not for the benefit of the other beneficiaries also. ... Where the person on whom the power of control is conferred is neither a co-trustee nor a beneficiary but is a third person otherwise unconnected with the administration of the trust, the power is ordinarily conferred on him as a fiduciary and not for his own benefit.'
44 The power to appoint or remove a trustee is generally regarded as a power that must be exercised in good faith for the benefit of the beneficiaries. I am not aware of Australian authorities where the holder of such a power has been removed from office, but there are cases where the power of the court to review an exercise of the power of appointment, as an exercise of fiduciary power, has been considered.
45 In Berger v Lysteron Pty Ltd [2012] VSC 95, the court was dealing with a matter where an appointor had removed the trustee of an investment trust and appointed a new trustee. The action was brought by an object of the trust, alleging the removal of the trustee was invalid. Habersberger J held that the particular power of appointment was one that the holder was obliged to exercise for the benefit of the beneficiaries as a whole. His Honour concluded that, 'at least in deeds of trust, the power of removal and appointment is likely to be a fiduciary one which must be exercised for the benefit of the beneficiaries' [85]. His Honour considered in some detail the nature of the power of removal and appointment, and in particular whether the power was fiduciary in nature and subject to implied duties, or subject only to the obligations to act within the scope of the power, and to not act in fraud on the power: [67] - [85]. Generally, a power is considered fiduciary if it is one that could or should not be exercised in the holder's own interests but was to be exercised in the interests of the beneficiaries: In re Skeats' Settlement; Skeats v Evans (1889) 42 Ch D 522; In re Newen; Newen v Barnes [1894] 2 Ch 297; Re Burton; Wily v Burton [1994] FCA 1146; (1994) 126 ALR 557; National Trustees, Executors and Agency Co of Australasia Ltd v Boyd [1926] HCA 44; (1926) 39 CLR 72, 81; Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 [144] - [149] (reversed on other grounds). Matters identified as relevant in determining whether a power has this character include:
1. whether the donee of the power is a trustee: In re Skeats (526 - 527); In re Newen;
2. whether the power is conferred by a deed of trust: Re Burton (559 - 560); Berger v Lysteron [72];
3. whether the beneficiaries are vulnerable and rely on the integrity of the donee to act in their interests: Pope v DRP Nominees Pty Ltd [1999] SASC 337 [46] - [47]; Duke Group Ltd (in liquidation) v Pilmer [1999] SASC 97 [716] - [736];
4. whether the donee is a beneficiary: Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] FCA 1628; (2001) 188 ALR 566 [98];
5. the terms of the instrument creating the power: Berger v Lysteron Pty Ltd [84]; LGSS Pty Ltd v Egan [113].
46 The present case turns on the proper construction of the trust deed to ascertain the intention of the settlor. There are, in my opinion, two critical questions in the resolution of this application:
1. did the settlor objectively intend the powers of the guardian to be fiduciary in the sense that they must be exercised for the benefit of the beneficiaries; and
2. did the settlor intend that the trust might operate without a guardian, having regard to the identity of the guardians and the obligation that they act jointly and unanimously?
47 In addressing further questions, I will assume that the court has power to remove a guardian in accordance with the principles set out in the cases referred to above. That is, the court has the power to remove a guardian exercising fiduciary powers pursuant to a trust deed. There is no doubt about the jurisdiction of the court with regard to the supervision of trusts. Whether that jurisdiction includes the power to remove a person appointed under a trust, but not a trustee, was not questioned. I have some doubts about the availability of the power, but because it was not questioned I prefer to express no concluded view. It is unnecessary to determine whether the court does have power because, in my opinion, the circumstances in which it should be exercised have not arisen.
Is the guardian a fiduciary?
48 The exercise of construction must be applied to the deed as varied in 2011. The applicants submitted, correctly, that the question of interpretation must be in light of the circumstances existing when the power was conferred (relying on LGSS Pty Ltd v Egan [113]). On that basis, they submitted that the court must consider the proper construction of the deed having regard to the position when Fred (for Trust No 1) or Fred and Judith (for Trust No 2) were the guardians and also the appointors and controlling mind of the trustee companies.
49 The present guardians, however, were not appointed or nominated by Fred or Judith. They were directly appointed, and their powers were conferred by amendment to the trust. The circumstances altered fundamentally when the deeds were varied. While I have had regard to the deeds prior to variation, when considering the circumstances at the time the power was conferred on the present guardians, the relevant time is the time of the deeds of variation.
50 It is necessary to have regard to all of the powers conferred on the guardians. I have had regard also to the following matters.
51 First, the powers are conferred by a deed of trust and for the execution of the trusts.
52 Second, the powers are not conferred on trustees. In essence, the guardian's role is supervisory. The guardian has no power to initiate anything, only to grant or withhold consent where the trustee otherwise would have an absolute and unexaminable discretion.
53 Third, apart from the power to change the proper law of the trust, the powers conferred on the trustee that require consent of the guardian are, in global terms, powers under which the trustee may prefer one of more of the beneficiaries to the exclusion of others.
54 Fourth, the guardians are all beneficiaries. For Trust No 1 the guardians are all of the general beneficiaries. Judith is the only guardian who is not also a primary beneficiary. The other primary beneficiaries in Trust No 1 are the issue and the spouses (or a widow or widower) of the children of Fred and Judith. The guardians for Trust No 2 are all of the primary beneficiaries, and also Judith. The general beneficiaries to this trust are a much wider group.
55 Fifth, any decision of the guardians to grant or withhold consent to a particular action of the trustee will affect one or more of the guardians in their capacity as beneficiaries. The intention of the deeds, as varied, is that preference for one or more of them can only be with the consent of them all.
56 Having regard to all of these matters, I find that the Trust Deeds, as varied, did not intend that the individual guardians should exercise their powers only in the interests of the beneficiaries and not in their own interests. Although the powers are conferred by a deed of trust and relate to the execution of the trust, the intention of the deed in conferring these powers on beneficiaries is to allow each of them to have a right to consent or withhold consent to decisions of the trustee that might benefit only one or more of them. None of them was obliged to disregard his or her own interest as a beneficiary under the trust.
57 In reaching this conclusion, I am mindful that the third defendant accepted in submissions that the role of guardian was fiduciary. The third defendant characterised the guardians' power to give or withhold consent as a power to be exercised in favour of a class of objects which includes the holder of the power. The third defendant approached the question from a different perspective, accepting that the office was fiduciary but the obligations of the fiduciary were limited.
58 One of the important factors in the third defendant's submission was that the office of guardian under the trusts provides for a succession of guardians, so that it cannot be construed as personal to the donee. While that might have been the position under the deeds before amendment, from 2011 the deed has not provided for succession in the office of guardian except to the extent that a spouse shall take their place of any guardian unable to act. Any part of the Trust Deed that conflicts with the new provision appointing the guardians 'is to be read down in favour of the wording in this Deed of Variation'.
59 More generally, the third defendant argued from the position of the guardian under the trust deeds before amendment in 2011. That, for the reasons I have given, is a false premise.
60 Accordingly, I do not accept the submissions of either party regarding the nature of the guardians' role. That is a position I do not lightly reach, but the question concerns the power of the court. Concession by one party cannot confer power the court does not have. I must also take into account the interests of the other guardians and beneficiaries who were not represented in the action. That is, the determination of this issue does not simply affect private rights between parties before the court.
Can the trust operate without a guardian?
61 Only two of the trustees' powers are qualified by the condition that in the absence of a guardian there is no power. Neither is essential to the continued operation of the trust. In that respect, the trust could operate in accordance with its terms in the absence of a guardian.
62 The role of the trustee would, however, substantially alter. The intention of the deed is to have the trustees' discretion to prefer beneficiaries subject to the requirement of joint and unanimous consent, not that the discretion would be unchecked. For the reasons given above, and in particular having regard to the identity of the guardians, the proper construction of the trust deed is that the power to prefer is subject to control by those beneficiaries who are also guardians. In effect, to remove the guardians would be to amend the trusts under the deed.
63 For essentially the same reason, the position advocated at various points of the hearing, that the court might remove one or more of the guardians or alter the composition of the guardians by re-appointing some only of them, would be a rewriting of the terms of the trust. Where the deed intends an equal voice for six named guardians/beneficiaries, it would not, in my opinion, be a proper exercise of the court's power to alter that balance.
Conclusion on the grounds for removal
64 In the earlier reasons, I found that as directors, the six parties who are now guardians were unable to make the decisions necessary to enable the trusts to function. I will not repeat the findings I made on the earlier occasion regarding the conduct of members of the family between 2009 and 2014, and on which I based that conclusion. The dysfunction in their relationships included, but was not confined to, personal conflict. The arrangements under which the children of Fred and Judith were all to become directors and shareholders of the trustee companies were unlikely to be effective without a binding shareholders' agreement and agreed policy guiding the distribution of the income and capital. I have no doubt that part of the problem was the vulnerability of the arrangement because of the requirement of unanimous consent to decisions about distribution of income or capital.
65 The number of guardians, and the requirement that they act jointly and unanimously, may be impractical. They have in the past been unable to agree on the proper administration of the trusts and act unanimously. To remove the guardians on this ground would, however, be to disregard the intention of the deed. The intention was to fetter the discretion of the trustee in this way.
66 Similarly, the argument that one of more of them may, in the past, have acted from self-interest is not to the point. All guardians are beneficiaries. It is not helpful to describe their position as one of conflict, because the deed contemplates that they may act in their own interests.
67 In reaching this conclusion, I recognise that it is possible that the same problems that led to the removal of the trustees may afflict the arrangement now in place. Self-interest of one or more of the guardians may hinder the trustee in administering the trusts, at considerable cost to the estate and, ultimately, to the detriment of all beneficiaries. For the reasons above, however, this is how the trust is now intended to operate. The remedy sought would be a substantial departure from the terms of the trusts, and I am not satisfied that it can be done.
68 The application to remove the guardians will be dismissed.
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