BP & KS - [2002] FamCA 1454

[2002] FamCA 1454

FAMILY LAW ACT 1975

IN THE FAMILY COURT OF AUSTRALIA
AT BRISBANE No. BR 12740 of 1998

BETWEEN:
BP
Husband

AND:
KS
Wife

BEFORE THE HONOURABLE JUSTICE WARNICK

REASONS FOR JUDGMENT

Dates of Hearing: 25 June 2002

Date of Judgment: 15 November 2002

Appearances: Mr Kirk of Senior of Counsel, instructed by Hopgood Ganim, Solicitors, appeared on behalf of the Husband
Mr North of Senior Counsel, instructed by Barry Nilsson, Solicitors, appeared on behalf of the Wife

BP and KS – BR12740 of 1998

Heard: 25 June 2002

Delivered: 15 November 2002

Catchwords: Maintenance Agreement – enforcement – transfer of shares in trustee company to allow assets of the trust to satisfy claim – whether within power.

In simple terms KS comes to court seeking to obtain the equivalent of benefits to which she was unquestionably entitled under an approved maintenance agreement, between her and BS.
Again in simple terms, the way in which the wife attempts to achieve her purposes is by an order that the husband transfer to her all his shares in the NTE Pty Ltd.
But, the husband says, all is not as simple as it seems. NTE is the trustee of the S Family Trust. He says that the wife’s purpose in seeking to obtain control of the corporation is to take the assets of the trust in satisfaction of her entitlements, that such actions would be unlawful and that this court cannot or should not make an order to enable such a purpose to be put into effect.
The wife counters this argument by pointing to the treatment by the parties, at the time of entry into the Deed of Agreement and of its approval, of the assets of the trust as if they were the parties’ own. She argues that it would be inconsistent or otherwise inappropriate to now treat the trust any differently.
To resolve the issues it is necessary to examine:
·   Whether, up to and at the time of approval of the agreement the parties treated NTE and the trust as the “alter-ego” of the husband, or husband and wife
·   The difficulties that arose in carrying out the terms of the Maintenance Agreement
·   Whether NTE is now the “alter-ego” of the husband
·   The actual application before the court
·   The applicable law, including the obligations on a trustee of a discretionary trust.

Whether the parties treated the trustee corporation and the trust as the “alter ego” of the husband, or husband and wife

Counsel for the wife in his written submissions asserted:
“The parties by the terms of their s87 agreement, the submissions they put up to the Court when seeking approval, the affidavit material they filed in support of that approval and indeed by their conduct at least until it has now suited the husband’s purpose to assert to the contrary, have demonstrated that they at all times regarded the assets of the trust as first their assets and then by reason of the terms of the s87 agreement the assets of the husband. The property in the trust is as good as the property of the husband because of his powers with respect to the trust and his capacity initially to share in the benefit of that trust indirectly through the P and K Family Trust but also by virtue of his power to create himself as a beneficiary in any event.”
In his written submissions, Counsel for the wife said that in the Recitals in the maintenance agreement, the Trust is listed not as a resource but as an asset of the parties.
That the parties had treated the trustee corporation and the trusts as their own was not made an issue by Senior Counsel appearing for the husband but was also not squarely conceded
In the circumstances, it remains necessary to examine the evidence.

(a) Terms of the Maintenance Agreement

Recital G to the Agreement provides:
“WHEREAS ………..
G.The Husband and the Wife are jointly or severally the owners and/or control of the following, assets and financial resources, namely:
G.1   The parties’ interest in MTE Pty Ltd (formerly ME Pty Ltd);
G.2   The parties’ interest in the P and K Family Trust;
………………
G.6   The parties’ interest in NTE Pty Ltd (formerly PE Pty Ltd);
G.7   The parties’ interest in the S Family Trust;
…………….”
The effect of the recital is not abundantly clear, for it essentially says that the husband and the wife are the owners of and/or control their interests in certain entities/structures. That is not be the same as saying that they control the entities themselves or all of the assets of the entities/structures.
In sub-paragraph 2.2.1 it was stated that:
“Except to the extent that such an interpretation is excluded by or is repugnant to context:
2.2.1.1Reference to any party includes a related body corporate, an associate to that party, its successors and permitted assigns;”
I do not regard this statement as helpful in answering the question posed.
The husband’s entitlements under the Agreement were addressed in clause 11 as follows:
“11.1The Wife covenants with the Husband that as at the date of approval of this Deed, the Husband shall forthwith retain and otherwise receive as his absolute property, all right, title and interest in and the Wife shall forthwith transfer to the Husband and/or relinquish all her right, title and interest, (if any), to and in the following:
……………………
11.1.4MTE Pty Ltd (formerly ME Pty Ltd);
11.1.5The P and K Family Trust;
……………………
11.1.9NTE Pty Ltd (formerly PE Pty Ltd);
11.1.10The S Family Trust;
……………………”
Again, the “reach” of the terms is equivocal. As before, the husband is to retain and/or receive the interests the husband already had and those that the wife had, in the identified entities/structures, and, as before that is not necessarily the same as proprietorship or control of the entities or the assets of the entities/structures.

(b) Submissions and material before the Court upon application for approval

However, the way in which the parties regarded their position, vis a vis the corporations and trusts in question, is tolerably clear from the terms of the husband’s affidavit filed 11 December 1998 and that of the wife filed 15 December 1998, in support of the application for approval of the Maintenance Agreement (Although the affidavit of the wife was not an affidavit expressly read by her, it is referred to in another affidavit that was read by her. In any event, in its relevant terms it adopted the affidavit of the husband.)
In paragraph 6.10 the husband set out the interests of himself and the wife in “the various family, corporate and trust entities,………..” and in paragraph 6.15 the husband referred to a valuation of the interests held by the wife and himself in the various corporations and trust structures.
Then, in paragraph 7.1 the husband set out a table of what he said were the assets, financial resources and liabilities of the wife and himself at that time. The first item is “The N Group of Companies (including C)”, and the value ascribed is $996,076.00.
Since there is no indication that the interests of the parties in the corporate trustees or the trusts, of themselves had any value, the strong inference is that the parties were referring to the trust assets and regarding them as their own.
The wife also relied upon an affidavit by Mr Geoffrey Paul Sinclair, Solicitor, (filed 28 July 1999) which annexed an affidavit of DC filed 11 December 1998 in support of the application for approval of the Maintenance Agreement. Mr C, a Chartered Accountant, was administrator of various of the companies, including MTE and NTE. He annexed a list, said to be a list of the assets and liabilities of the husband and wife, which showed the same figure for the “N Group” $996,076.00.
Mr Sinclair also annexed a copy of the submissions of Mr Hopgood, (Solicitor for the husband then and now), made by Mr Hopgood in support of the application for approval of the Maintenance Agreement. In paragraph 2. of the note form submissions it is said:
“NB. Husband retaining N Group of companies in voluntary administration, Wife receiving cash and assets.”
Under the heading Husband’s entitlements, the summary of submissions read:
“Clause 11 – Husband to retain the following:-
i. N Group of companies (in voluntary administration).”
Then, under the heading, “Restructure of N Group” it was said:
“Clause 17(A) – Husband to transfer all assets in the N Group in administration to the second, NL Pty Ltd.”
Finally, in paragraph 23 of his affidavit filed 11 April 2001 the husband said:
“In summary, the terms of the maintenance agreement approved by this Honourable Court on 17 December 1998, allowed KS to take the ‘bricks and mortar’ assets and conversely, I was to take various companies and trust entities included in the S Group structure.… The agreement on its face reflected an equal division of the net matrimonial pool of assets and financial resources.”

(c)The structure of the Trust and Trustee NTE

Neither the husband nor the wife were named beneficiaries of the S Family Trust. The named beneficiaries were:
· RQ
· NL Pty Ltd as trustee of the P and K Family Trust
·Any company or trust in which any one or more of these beneficiaries are included
RQ is a nephew of the husband.
The beneficiaries named in the first schedule of the P and K Trust are the husband, the wife, KS and the children of the two of them, and:
“Any company in existence at the vesting date incorporated in any country throughout the world, the shares in which are owned by any one or more of the aforementioned or by a trustee upon trust under which any one or more of the aforementioned is a beneficiary present or contingent or any trust or trusts in existence at the vesting date under which any one or more of the aforementioned is a beneficiary present or contingent.”
The husband and wife were equal shareholders of NTE. Under the Agreement, the wife was to transfer her shares to the husband and resign as a Director.
It is clear that the husband could have benefited as a beneficiary of the S Family Trust by being a shareholder in a company or trust which included named beneficiaries or, as it stood at the date the Deed was approved, through the P and K Family Trust.
Moreoever, clause 10 of the Trust Deed provided a power in the trustee at any time in its absolute discretion to resettle the trust fund on such persons and upon such trusts as the trustee thought fit.
I am of the view that in approaching the Court for the approval of the Maintenance Agreement the parties treated the relevant corporations and trusts as their own.

The path to difficulties

In his written submissions, counsel for the wife summarised the financial effect of the deed as follows:
“4.    ……………In essence the wife was to receive the parties’ interests in certain real property both freehold and leasehold, her interests in a company VS Pty Ltd,…
The husband on the other hand was by clause 11.1 to “retain and otherwise receive as his absolute property, all right, title and interest in 7 proprietary companies (including those referred to in paragraph 3 hereof),…
5.     By clause 9 of the Deed the husband covenanted to obtain the wife’s release from any guarantee she had entered into with respect to the entities and businesses that were to pass to him under the Deed, including in particular EB Pty Ltd and further covenanted pending the obtaining of her release to “indemnify and keep the wife indemnified in respect of such guarantees”. By clause 17.1 of the Deed the husband further covenanted that he would be solely responsible for and would indemnify and keep indemnified the wife against those liabilities set out in recital J.1 through to J.5 of the Deed.
6.     Those indemnities given by the husband under the Deed covered debts including debts to the National Australia Bank which at the date of the approval of the Deed totalled $1,115,519.55. (See annexure 8 to the husband’s affidavit filed 11 December 1998).
7.     At the time of the approval of the Deed the parties agreed that the value of the property to pass to the wife under that Deed was $966,153.00. In other words unless the husband performed his obligations to indemnify the wife the assets passing to her under the Deed were insufficient to discharge her indebtedness at the date the Deed was approved.[emphasis added]
8.     Further, by clause 13 of the Deed the husband or his nominee was to take a lease from the wife over the land and buildings at XZ being part of the property that was to pass to the wife under the Deed.
At the time when the Deed was approved administrators had been appointed to 5 of the companies that were to pass to the husband and the company VS Pty Ltd.” (paragraph 11 of the wife’s outline of argument).
What the husband said of his position at the time was set out in an affidavit filed by him on 10 April 2001:
26.     Prior to my entering into the maintenance agreement, I had received the strong advice from my solicitor, Mr Hopgood not to proceed with it as he did not consider the agreement to have been a fair one from my point of view. Notwithstanding this, I instructed Mr Hopgood to proceed with the approval and I signed an indemnity in his favour, further to his request.
27.     I wished to build up the ailing companies and probably then sell them when they were in good order and attractive for sale. My intention after the approval of the maintenance agreement was to work very hard on all companies and I had selected a new general manager to assist me with the overall management of the companies to enable me to focus more time on the strategic business decisions and plans. The hard work was a cost I was prepared to pay.
28.     At the time the agreement was reached, I knew that the true and accurate value of the companies and trusts comprising the S group structure was far less than the value relied upon by KS and myself. Notwithstanding this fact, I thought I was physically and mentally strong enough to achieve the difficult task of turning around the unprofitable companies and making then (sic) profitable again.”
The husband’s hopes were dashed when on Christmas Day, 25 December 1998 he suffered a stroke. Of some of the consequences of that the husband said in the affidavit just referred to:
“29. The stroke that I suffered 8 days after approval of the maintenance agreement and the disastrous impact it has had on my health prevented my business plan from being implemented or achieved. In fact, save and accept for NTE Pty Ltd, all of the companies comprising the S group structure went into liquidation in or about January 1999. NTE Pty Ltd was placed into administration and still remains in that state. The business plan was rendered impossible once I suffered my stroke.”
In March 1999 the wife took proceedings to enforce the terms of the agreement. On 19 April 1999 Justice Jordan made the following orders:
“(1)   The provisions of clauses 9 and 17.1 of the terms of the maintenance agreement dated 10 December 1998 as approved on 17 December 1998 be enforced as if they are orders of this Court.
(2)     That the costs of each of the parties be reserved.
(3)     That pursuant to order 38 rule 26 of the Family Law Rules, this matter is once proper for the attendance of Counsel.
IT IS DIRECTED:
(4)     That the matter be transferred to the Magistrates Court for further consideration of the enforcement application.”
Subsequently the husband filed an application seeking revocation of the approval of the agreement. After a hearing in August 1999 His Honour Justice Jerrard dismissed the husband’s application on 12 October 1999. The husband appealed. That appeal was dismissed on 14 April 2000.

Actual application before the court

In her application filed 12 March 2001 the wife sought by way of final orders:
“1. An Order pursuant to S87(11)(a) of the Family Law Act that the Husband pay to the Wife the sum of $921,587.19 or such other sum as the Court may determine by way of damages for breach of the agreement between the Husband and the Wife approved in this Honourable Court on 17 December 1998.
2.       Interest
3.       Costs.
4.       That the Husband exercise his rights and powers as a shareholder in or a Director of NTE to cause it to exercise its powers as trustee of “the S Family Trust” (“the Trust”) to:-
(a)Vary the Trust by adding the Wife as a beneficiary under the Trust; and the
(b)To vest so much of the Trust in the Wife as is equal to the amounts found due by the Husband to the Wife pursuant to paragraphs 1,2 3 herein;
(c)Alternatively to (b) hereof, to appoint the Wife’s nominee as Trustee of the Trust in substitution for itself, which substitute trustee is to hold office for so long as is necessary to enable it to vest so much of the Trust Fund in the Wife as is equal to the amounts found due by the Husband to the Wife pursuant to paragraphs 1, 2 and 3 hereof, whereupon that substitute trustee shall appoint such a person as the Husband may then nominate in substitution for himself or itself as Trustee.
5.       Such further or other relief including relief pursuant to S87(11 of the Family Law Act as to the Court may seem just.”
However, at the outset of the hearing before me Senior Counsel for the wife sought to amend the application in accordance with minutes of order set out in the wife’s case management document as follows:
“1. That there be Judgment in favour of the Wife against the Husband in the sum of $1,058,524.39.
2.   That the husband forthwith transfer to the Wife all his shares in NTE PTY LTD and do all things in his power to cause such transfer to be registered by that company.
3.   That the Husband do all acts and sign all documents to give effect to the Orders herein and in the event that the Husband fails to sign any document presented to him within seven days of being requested to do so, a Registrar or Deputy Registrar of this Court at Brisbane is authorised to sign all such documents forthwith to give effect to the terms of these orders.
4.   Order number 2 of the Orders made by the HONOURABLE JUSTICE MAY on 27^th April 2001 shall be extended until the Husband has performed his obligations under these Orders or until earlier Order of this Court.
5.   Save than is provided for by the Orders herein the Wife is hereby restrained from seeking to enforce the Judgment in paragraph 1 hereof save in order to recover a sum not greater than $478,663.00.
6.   That the Husband do pay the Wife’s costs of and incidental to this Application.
7.   Such further or other Order as the Court may deem meet.”
The significance of this change was that the wife merely sought a transfer to her of the husband’s shares in NTE. There was no indication on the face of the orders or elsewhere, of the wife’s intent if she succeeded in obtaining a transfer of those shares. I indicated that I would only allow this late amendment if the wife nominated what she intended to do as a transferee of the shares so that a comparison may be made with the case that Counsel for the husband had prepared to meet with the case which the wife wished to pursue under the amendment.
As a consequence exhibit 1, setting out the intentions of the wife as follows, came into being:
“1.Use power as share holder to appoint substitute directors.
2.Seek to become a director myself.
3.Seek to have NTE vary the terms of the trust so as to nominate me as one of the beneficiaries under the trust.
4.Seek to cause the capital and income of that trust or such proportion as I may be advised is permissible having regard to the terms of the Trust Deed paid to me or to my benefit until such time as the Husband’s judgment debt is extinguished in which event I would propose transferring control of NTE as trustee to the Husband.
5.As currently advised I would propose that the business operated by NTE continue to trade but with a view to selling that business as a going concern at an early opportunity.”
It can be seen that the amendment seeking a transfer of the husband’s shares for the purposes as stated in exhibit 1 raises much the same issues as did the application earlier filed.

Whether NTE is now the alter ego of the husband.

In an affidavit filed 28 March 2001 the wife deposed that pursuant to her obligations under the maintenance agreement she had resigned as a director of NTE and the husband’s then partner, PB, was appointed as a director upon the wife’s resignation. However, it seems that the wife has not transferred her shares in NTE to the husband.
According to a company search as at 7 March 2001, each of the husband and wife owned 150 of the 300 issued shares in NTE.
As to the present position of NTE, the administrators were given notice of this application by the wife by letter of 13 March 2001. The wife deposed that she had been informed by the administrators that the company had sufficient monies to pay all creditors and be released from the Deed of Administration.
Relevant to the husband’s ability to “access” the assets of the S Family Trust is that ME Pty Ltd (trustee of the P and K Trust) has now been liquidated, currently removing one avenue by which he may have received benefits from the S Family Trust.
In the circumstances where the wife remains an equal shareholder in NTE with the husband, though the husband and his present partner are directors of NTE, it is questionable whether it is open to treat NTE as the alter ego of the husband. The wife’s possible use of her position as shareholder to bring about some change in the way the husband acts in relation to NTE, was not a question explored before me.
The current position contrasts with the control of NTE and the trust when the parties were together and had common purposes and later when the parties were agreed that the husband receive control of NTE and the trust.
I doubt that, in the present “stand off” NTE can be said to be the alter ego of the husband, though he may have been treating it as such.

The applicable law

(a)The powers and duties of the trustee of a discretionary trust

In “Discretionary Trusts” (Hardingham and Baxt 2^nd Ed. at [502] it is said:
“It has already been observed that a trustee, even if he is not obliged to exercise his power, must give it consideration from time to time …the nature and extent of the consideration he must give to the exercise of his power, whether it be a mere power or a trust power, have also been discussed… But, more specifically, it may be said that a discretionary trustee must not act arbitrarily, in capricious disregard of his power; nor may he allow another to take a decision on his behalf; he must exercise a personal discretion. Finally, it is clear that he may not, in considering his power, act in bad faith or so as to commit a fraud on power. McGarvie J has generalised that discretionary trustees must act ‘in good faith, upon real and genuine consideration and in accordance with the purpose for which [their] discretion was conferred’. Karger v. Paul [1984] VR 161 at 164.”
And later [503]:
“It is clear that the trustee will not have exercised a sound discretion if he purports to distribute property without stopping to consider (in the manner outlined in [207] and [209] before doing so … A discretionary trustee must exercise an act of discretion.”
And at [504]:
“…… Finally, a discretionary trustee must exercise his powers and discretions in accordance with the purpose for which they were conferred; Karger v. Paul [1984] VR 161. It is essential that, in considering the exercise of his power of distribution, the trustee act in a state of mind contemplated by the settlor. …… He may not make a determination based on some irrelevant or extraneous issues such as, for example, a spiteful reaction to the conduct of a particular object. There is no place for personal whim, caprice or spite in the consideration of a fiduciary power.”
And as to the personal nature of the discretion at [505]:
Any determination made by the trustee must be as a result of his own consideration and deliberation. His decision cannot be made for him.

(b)The object of a discretionary trust

As to the position of an object of a discretionary trust, such as RQ, again in the Hardingham and Baxt text, it is said [605]:
“…the following suggestions will be made concerning the interests of objects in the distributable fund:
(1)   that objects of a discretionary trust each have a right, in the nature of an equitable chose in action, to call upon the trustees to deal with the distributable fund in a manner appropriate to the due administration of the trust;
(2)   that it may be said that, because the objects of a discretionary trust have individual rights to ensure that the distributable fund is dealt with appropriately, each has an interest, in a popular and loose sense, in the totality of the assets making up the distributable fund;
(3)   that no object has an equitable interest, in the strict sense, in the distributable fund as a whole or any fraction of it; as far as any application of the fund in his favour is concerned the object has a mere expectancy; and
(4)   that the chose in action belonging to each object is ‘property’ in the strict sense; that neither of the loosely-termed ‘interest’ of each object in the assets constituting the trust fund nor the expectancy of personal benefit which each object has is ‘property’ in the accepted sense.”

(c)Family law and discretionary trusts

Davidson and consequent litigation

In Davidson and Davidson (1991 FLC 92-197) the first ground of appeal alleged an ambiguity in the trial Judge’s findings about the trust, as to whether it was a sham which did not exist or whether it had legal existence but was so much under the control of the husband that it might be regarded as his resource. If the position was the latter, the appellant claimed that the trial Judge’s orders requiring a payment of $700,000.00 by the husband to the wife, which money could only come from the trust assets, were not open to the court. This was because the appellant could not legally become an eligible beneficiary of the trust and any action to pay himself a lump sum would amount to a breach of trust rendering him liable to the beneficiaries. Thus, the question in Davidson was whether or not the appellant was able to put himself in a position to pay himself through the trust.
The Full Court concluded that the husband could lawfully take the trust assets to himself and once so satisfied, thought the ground of appeal had no merit.
The point under consideration in Davidson was not therefore the same point as here, namely, whether the court should by order in effect predetermine the exercise of a trustee’s discretion.
Nonetheless, some of the statements of the Full Court in Davidson support an argument that even the circumstances of this case it is within the power of the court to make orders as sought. The court said (at 78,365):
“It was argued that such a manipulation of the provisions of the trust would amount to a breach of the fiduciary duty of the husband as appointor relying on the decision of Kay J in re: Skeats’ Settlement (1989) 42 ChD 522.”
Whatever may have been the position 100 years ago, Australian Courts today have to look at the reality of the situation and the purpose which family trusts serve today. A limitation as to the husband’s power to control the assets and income of the trust in accordance with the provisions of the trust deed, is inconsistent with the reasoning of the Full Court in Ashton. Leave to appeal from that decision was refused by the High Court on 5 December 1986 by a bench composed of Gibbs CJ, Wilson and Brennan JJ. Whatever might be the remaining effect of Skeat’s case, it is not authority for the proposition that the husband is prevented from appointing a trustee who is compliant to his wishes.
It is our view, therefore, that if the husband were to follow the procedure outlined above, it will not render him liable to any other beneficiary.”
As to the question of notice to other persons in the matter before it, the Full Court said (at 78,366):
“On the question of distribution of capital, Senior Counsel for the husband submitted that no notice had been given to any of the potential beneficiaries to enable them to intervene and be heard. Each has a right, he argued, to have due administration of the trust. In view however, of the terms of the deed set out above, particularly those set out in Cl.23 and 24, we cannot see how the trustee could be in breach or liable for a breach of trust if it caused the distribution of the sum ordered to be paid to be made in either of the manners set out. We do not regard the lack of notice thereof, as in any way warranting interference with the order. In any event it is not disputed that both trustee companies had been served with the wife’s amended application and neither chose to intervene.
We adopt the words of Strauss J when dealing with the Ashton Family Settlement Deed. That no person other than the husband has any real interest in the property or income of the M.A.V.K. Trust except at the will of the husband, and that therefore he has the defacto ownership of the trust property. We are of this view notwithstanding the existence of a valid trust.”
The husband sought to appeal to the High Court of Australia and the application for special leave was heard on 10 May 1991. The application was refused. Mason CJ said:
“We are not persuaded that there was an error of principle on the part of the Full Court of the Family Court in concluding that the applicant could cause the trustee company to apply the capital of the trust fund for the benefit of the respondent or for the benefit of a company in which he was a shareholder, so long as a beneficiary is a shareholder.
The primary judge found as a fact that the Trustee Company was a creature of the applicant and the provisions of the trust deed are well open to an interpretation which supports the conclusion reached by the Full Court.
In the ultimate analysis, the correctness of that conclusion rests on the particular facts of this case and the interpretation of the provisions of the particular trust deed. As such, the case is not appropriate to the grant of special leave.”
The manoeuvres and consequent litigation in Davidson did not end with the Full Court Appeal, and the application to the High Court.
The trustee company, which had been found to be the husband’s alter ego, executed a Deed of Variation removing the husband as appointor of the trust. Later the wife applied to enforce the initial property orders in her favour and within that application, that the Deed of Variation referred to be set aside pursuant to section 85 of the Family Law Act (as it then stood). She also sought and obtained an order that the husband execute an agreement nominating an accountant selected by the wife to act as appointor of the trust. That order was made under section 80(1) of the Family Law Act.
The orders of the trial Judge, Ellis J, were appealed but the appeal (Davidson and Davidson (No.2)1994 FLC 92-469) turned on points related to the findings of fact by the trial Judge and the exercise of power in reliance upon section 80(1). However, in the course of discussion the Full Court, comprising Nicholson CJ, Fogarty and Treyvaud JJ said (80,878):
“…it is clearly implicit in His Honour’s orders that these steps were to be taken to assist the wife in recovering from the husband monies still owed to her under the 1990 orders…”
The significance of the means by which “assistance” is given by the court was touched upon by the Full Court in a passage shortly before the sentence just quoted:
“It would seem that His Honour preferred the course of appointing Mr Smith as appointor, allowing Mr Smith to take such steps as he considered to be appropriate, and allowing any of the relevant parties to apply to the court for further orders or directions if and when that became appropriate…”
Indeed, there were further court proceedings, though they were before Santow J in the Supreme Court of New South Wales Equity Division. Those proceedings related to an order vesting shares previously held within the trust in the new trustee, appointed by the new appointor pursuant to the orders of Ellis J just discussed. One of the matters which Santow J was called upon to consider is described by him as follows:
“…Mr George alleges that the appointment of Andco Nominees as trustee was a corrupt appointment, being a fraud on the power to appoint a new trustee.
This is essentially on the basis that the fiduciary power of appointment is not being used for the purposes of the due administration of the trust.
Rather it is contended that it is being used to benefit the appointor by remunerating Mr Smith indirectly through the MAVK Trust, or in circumstances where the appointor and Trustee were already committed by antecedent agreement to cause the trust property to be allocated to Mrs Davidson. If that contention succeeds, then the underlying basis for the vesting order disappears and the vesting order should be set aside.” [emphasis added]
Discussion by Santow J about this point is informative.
“The formulation of fraud on a power generally can be taken from Duke of Portland v Topham, (1864) 11 HLC 32 (11 ER 1242) as adopted by the High Court in Gilbert v Stanton (1905) 2 CLR 447; Cock v Smith (1909 9 CLR 773; Redman v Permanent Trustee Co (1916) 22 CLR 84 at 93, 94 and by the Federal Court in Dwyer v Ross (1992) 34 FCR 463. That formulation is as follows:
‘The appointor under the power, shall at the time of the exercise of that power, and for any purpose for which it is used, act with good faith and sincerity, and with the entire and single view to the real purpose and object of the power, and not for the purpose of accomplishing or carrying into effect any bye or sinister object (I mean sinister in the sense of its going beyond the purpose and intent of the power) which he may desire to effect in the exercise of the power.’ (11 ER 1242 at 1251)’
In Vatcher v Paull [1915] AC 372 at 378 it was held that fraud on a power ‘merely means 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’; see also Re Crawshay [1948] Ch 1234.”
At page 32 of the unreported judgment, Santow J goes on to consider whether the appointment of Andco Nominees constituted a pre-ordained arrangement to breach the trust deed:
“I turn next to the more substantive basis for the contention of a corrupt appointment, namely that Andco Nominees has been appointed, not for the purpose of the due administration of the Trust but rather to realise money directly or indirectly from the shares in Thurlstanes so as to make distributions of that money to Mrs Davidson in satisfaction of the amount required to be paid by Mr Davidson to her under the Family Court orders. The necessary assumption is that the latter purpose underlay an antecedent agreement or arrangement to that effect, between Appointor and Trustee, which pre-dates the appointment.
This contention starts with the undoubtedly correct proposition that a beneficiary of a discretionary trust "has a right to be considered as a potential recipient of a benefit by the Trustees and a right to have that interest protected by a court of equity": see Gartside v IRC [1968] AC 553 at 617-8.
Putting it in more specific terms, it is well established that a trustee under a discretionary trust with a mere power, has a duty to consider its exercise from time to time and that, in the event of the trust failing to do so, either the takers in default of appointment, or the discretionary objects, have standing to complain. However, that proposition does not mean that a court will necessarily force the trustee to consider at some specific time. Rather the court will intervene if there were a refusal to consider altogether, or if the purported consideration in fact amounted to a failure by the trustee to exercise the trustee's discretion in good faith, upon genuine consideration and in accordance with the appropriate purpose. There is however no implied obligation that the trustee must consider representations before exercising its discretion or apply the rules of natural justice; Karger v Paul [1984] VR 161 and see the discussion in Hardingham and Baxt "Discretionary Trusts" Butterworths 1984 at 11 - 13 and the cases there referred to.
…The question then is whether I should infer from all the circumstances that the Trustee has an antecedent agreement or arrangement pre-dating appointment to disregard this obligation to consider also other potential beneficiaries, in determining whether or not to benefit Mrs Davidson in one or other of the ways alleged via the shares in Thurlstane.
I start with the first concession. This is, that the Trustee intends to refer to and act in accordance with the judgments of their Honours Cook and Ellis JJ and of the Full Court of the Family Court of Australia in relation to the administration of the Trust.
It is important to be reminded that those judgments do not make any order against the Trust itself nor in any way purport to bind the Trust, the trustee or any future appointor. The orders made were against Mr Davidson personally. It is true that the orders were originally framed on the basis that Mr Davidson as Appointor and according to the evidence, was in complete control of Lestato as Trustee, so that the Trust was held then to be the creature of the husband That may be apt so far as the position then.
However, it did not follow that the Family Court, either before Cook J or in the Full Court, took the further step of treating Lestato as in a position to breach its trust, or as permitted to do so by anything the Family Court might order. [emphasis added]
If the husband, Mr Davidson could have caused Lestato properly to apply the capital of the Trust Fund for the benefit of Mrs Davidson, it is difficult to see why Andco Nominees could not also do so of its own volition, provided it were able to do so in accordance with the principles earlier set out for the proper exercise of such a discretion as is conferred on the Trustee by CL12(a) of the Trust Deed and after considering the claims of other beneficiaries.
But could it be said that because there was a clear expectation that "such a trustee could properly exercise the relevant discretion to pay funds to the wife" (Ellis J at 29-30, when making the orders on 4 August 1993), that it followed that the new Trustee, by intending to refer to and act in accordance with the Family Court judgments, was thereby conceding that it would so exercise the relevant discretion, not "properly", but as a preordained exercise where the interests of other beneficiaries would not be considered?
It is of course well settled that a trustee must make any determination as a result of the trustee's own consideration and deliberation. It is equally well settled that so long as he does this, there is nothing improper in his receiving or seeking advice from interested parties such as a settlor, see, for example, Fraser v Murdoch (1881) 6 App Cas 855, esp at 867, Karger v Paul (supra) and Turner v Turner [1983] 2 All ER 745. Thus here Andco Nominees is undoubtedly committing itself to act in accordance with the relevant Family Court judgments. But they do not compel the Trustee to act other than properly and they do not compel a distribution to Mrs Davidson, even if they contemplate that possibility, or even likelihood.
Furthermore, Mr Vella made it clear in giving evidence, that he would ensure that legal advice was taken for Andco Nominees and that it would act in accordance with that advice and even "further orders from the Court if that be appropriate"
I am satisfied that this is how Andco Nominees would act should that situation arise. But in saying that, I do not wish to be understood as suggesting that it would arise, or that the Family Court orders contemplated that the Trustee must make a distribution to Mrs Davidson, disregarding the interests of other beneficiaries or in breach of trust. Rather the assumption is made that such a distribution could be made without contravening such duties. I have earlier set out what the Trustee must do, to act properly in exercising such a discretion.”

Ultimately, Santow J was of the view that the validity of any distribution cannot be determined by the manner in which Andco Nominees was appointed, but rather the manner in which they exercise their obligations to beneficiaries:
“Thus it is certainly the case that Andco Nominees must first consider the interests of all potential objects. It may reach a conclusion favourable to one of them. It is possible that that conclusion might be in favour of Mrs Davidson who is an object. However, it is also possible that the decision might be otherwise. So long as the outcome is not preordained, either in the sense that there is some pre-existing agreement that Mrs Davidson would benefit, or an arrangement to that effect on the part of the Trustee from the time of appointment, the appointment of Andco Nominees could not be said to be a fraud on the power, having regard to the wide terms of CL12 of the Trust Deed. The actual determination falls to be tested by the process followed at the time it is made. While it may be true that Mrs Davidson's interests would be given by Laurence and Laurence the weight that a solicitor would give to its client's interests, it by no means follows that Laurence and Laurence would seek to direct, or instruct, Horwath and Horwath or Mr Vella to bring about a breach of trust by Andco Nominees in considering only the interests of Mrs Davidson. There is no evidence to that effect before me and Mr Vella has given evidence as to how he would intend the Trustee to act.”
The decision of Santow J was appealed to the New South Wales Court of Appeal (Thurlstane (AUST) Pty Ltd & Ors. v. Andco Nominees Pty Ltd matter number CA40382/95). Meagher JA expressed his views in the matter as follows:
“The second issue in the proceedings before Santow J, and apparently the only one before us, concerns alleged breach, or possible breach, of fiduciary duty by Andco. It is common ground that the MAVK Trust was a discretionary trust of the normal kind and it is also common ground that it is not a sham. In this regard it is a little difficult as Mr Grieve QC pointed out, to know what to make of the Family Court’s findings that the Trust’s assets were de facto Mr Davidson’s assets. Nor is the task of discovering what is, made any easier by the fact that the Family Court apparently thought that the payment of $700,000 from the assets of the trust would be perfectly proper and would discharge the obligation which arose under the Family Court order. Nor is the fact made any easier by the fact that the High Court seemed to have endorsed this argument.
In the present case the argument for Mr George presented by Mr Grieve in this regard was that Andco Pty Ltd accepted the trusteeship of the trust under an agreement to see the Thurlstane shares, which constitute almost the entire capital of the trust, in order to pay Mrs Davidson her $700,000 and such an agreement would be in breach of trust.
It si important in this regard to note exactly what findings of fact Santow J made after hearing all the evidence. They are as follows:
1.   That there was no such prior agreement.
2.   That Andco had o intention of blindly following any direction from anyone.
3.   That Andco’s present disposition, which his Honour found no reason to challenge, was to act in all situations according to the law.
In light of those circumstances, the present appeal must, in my view, be dismissed.”

Ashton

In Ashton and Ashton (1986) FLC 91-777, (referred to in Davidson) the husband was ordered to pay the wife a lump sum, to appoint himself trustee of the family trust and cause the trust to pay the lump sum to the wife. On appeal, the primary judgment was delivered by Strauss J, the other members of the Full Court, Ellis and Emery JJ agreeing:
“It was conceded throughout that the husband was in full control of the assets of the trust, and the evidence made it clear that he was applying them and income from them as he wished and for his own benefit. Having regard to the admissions made during the hearing, there are good grounds for saying that the trust is no more than the husband’s alter ego. However, even on the construction of the trust deed in the light of the relevant facts, it would seem that the husband has power to appoint himself as trustee. It is apparent that by the deed the husband was, in fact, appointed trustee and that he acted as such in accordance with the terms of the deed. In my opinion, in all the circumstances, the proper construction of the deed is that the husband himself can be both appointor and trustee, but that other persons cannot hold both offices. It may be that the husband cannot become a named beneficiary under the deed, but, in my view, the fact that he is not one of the named beneficiaries does not preclude him in practice from receiving the full benefit of the settlement. As has been seen, para. (8) and (11), setting out the names of beneficiaries, include a company in which, for instance, a child or other relative of the husband may have an interest. There is nothing to prevent the husband from holding the overwhelming majority of the shares in such a company or from having the greater interest in such a trust. Furthermore, as long as the distribution is made to the company or the trust, the husband can get the full benefit of such a distribution.
In the result, having regard to the powers and discretions which the husband has, and having regard to what has in fact taken place, for the purposes of sec. 79, the husband’s power of appointment, and all the attributes it carries with it, amounts to de facto ownership of the property of the trust. His Honour’s order that he should appoint himself trustee so as to make a requisite payment was not contrary to the trust deed on its proper constructions, or did it require the husband to deal with property which was not his own. In Ascot Investment Pty. Ltd v. Harper and Harper (1981) FLC ¶91-000, the question was whether orders of the Family Court could affect the rights which a company had. A trust is, of course, a very different entity from a company. A company is a separate legal person. A trust, on the other hand, is not a separate legal person. The legal owner of the trust property is the trustee and the beneficiaries are the equitable owners of the trust property. The powers which the husband has in the Ashton Family Settlement give him control of the trust either as trustee or through a trustee which is his creature, and at the same time he is able to apply all the income and property of the trust for his own benefit. In my opinion, in a family situation such as the one here, this court is not bound by formalities designed to obtain advantages and protection for the husband who stands in reality in the position of the owner. He has de facto legal and beneficial ownership.…
No person other than the husband has any real interest in the property or income of the trust except at the will of the husband…”
Later, at page 75-656 Strauss J said:
“His Honour found that the husband’s greatest resource was the trust. In my opinion, his Honour would have been entitled to find that the whole of the trust was in reality the husband’s property.”
I find myself uncertain of the impact of the passage:
“…in a family situation such as the one here, this court is not bound by formalities designed to obtain advantages and protection for the husband who stands in reality in the position of the owner.”
The case does not contain any direct discussion of any duties falling on the husband in relation to due administration of the trust. For myself, I would not conclude from the passage quoted that a trustee of a discretionary trust in a “family situation” which was before the Family Court, was not bound by law. Ashton may be a case which turned upon the particular position of the husband in relation to the particular trust.

Milankov

In Milankov and Milankov 2002 FLC 93-095, the Full Court of the Family Court considered whether the finding of a trial Judge that the husband was not then, but would at some stage in the future, again obtain control of a trust, was open to the trial Judge.
The court said that it was clear that the terms of the trust meant that the husband would have full control of the assets of the trust and ability to distribute them all to himself if he saw fit.
While the discussion in Milankov is consistent with that in Davidson, again it was not necessary for the court to go beyond an assumption (perhaps implied) that the husband could act according to law and still receive the entire benefit of the trust assets. At paragraph 139, Kay J said:
‘Treating the trust's assets as the husband's assets
139. It was strongly submitted to us that even if it was open to her Honour to find that the husband was likely to regain control of the Milankov Family Trust assets after the death of his father, that it was inappropriate to treat those assets then as the husband's own assets. It was submitted that at its strongest the husband would be in the position of a trustee of the trust and would owe fiduciary duties to the beneficiaries of the trust, who included not only himself but the other named primary and general beneficiaries.
140. It was submitted to us that in the cases that have so far discussed the concept of the manner in which the assets of a discretionary trust can be treated for Family Law Act purposes as the assets of a party, there had been a lengthy history in each of those cases of the appointor actually treating those assets as though they were his own (see Ashton v Ashton (1986) FLC 91-777, 11 Fam LR 457; Goodwin v Goodwin Alpe (1991) FLC 92-192, 14 Fam LR 801; Davidson v Davidson (1991) FLC 92-197, 14 Fam LR 817; and JEL v DDF (2001) FLC 93-075, 28 Fam LR 1).
141. Mr Dickey submitted that the appointor of a trust was subject to fiduciary duties towards the beneficiaries of the trust. He referred us to Vestey's Executors v IRC (1949) 1 All ER 1108 at 1115 per Simonds LJ, where his Lordship said:
"…this power… must be that it is a fiduciary power to be exercised with a single eye to the benefit of the beneficiaries."
He said that as there was no evidence that the husband had ever breached any fiduciary duty in respect of any trust, nor any evidence that he was likely to breach his fiduciary duties in the event that he became the appointor of the Milankov Family Trust, it was not open to her Honour to treat the assets of the trust in the hands of the husband as effectively a resource totally available to the husband.
142. In my view, this submission ignores the terms of the discretionary trust…
143. Once the husband becomes the appointor or trustee of the Milankov Family Trust I see no impediment in the terms of the trust deed to the husband then exercising his powers as trustee of the trust to distribute the income and/or corpus of the trust to himself. In those circumstances, I find little fault with her Honour's ultimate finding at paragraph 158 that the husband "will receive at least $2.8m after the death of Lazo".”

Alcaine

In Alcaine and Alcaine and Abrahams (unreported, 20 March 1997, SY9878/94) the Full Court considered an appeal against orders made by Maxwell J at trial. Among those orders were the following:
“1. That pursuant to section 79 of the Family Law Act the husband shall on or before 4.00 p.m. on 9 August 1996 do all things and execute all documents necessary to transfer to the wife or her nominee the whole of his shareholding in Alcaine Family Trustee Company Pty Limited and resign all offices therein.
2. That the wife forthwith thereafter do all things, call and attend and vote and cause her nominee(s) to attend and vote at all necessary meetings so as to bring about an amendment to the Deed governing the Trust and dated 25 August 1983 by the addition of a Clause “5A” in the following terms:
‘In considering whether and/or to whom to make any distribution of capital or income the Trustee from time to time may have regard to any findings and or recommendations in that regard which may form part of the judgment of Her Honour Justice J.M.H. Maxwell (and of the judges of any Full Court of the Family Court and of any subsequent judgment) in Family Court of Australia Proceedings Number SY9878 of 1994.”
and that the issue of the further amendments to the Trust Deed sought by the Intervenor and the wife be adjourned for consideration by the new trustee of those proposed amendments and any further application which the new trustee may see fit.’
4. That the wife shall further forthwith thereafter do all things, call and attend and vote and cause her nominee(s) to attend and vote at all necessary meetings to as to cause Alcaine Family Trustee Company Pty Limited to appoint as Trustee of the PH Alcaine Trust the company GC Nominees Pty Limited and simultaneously with that appointment to resign as Trustee of the said Trust. [emphasis added]”
The appeal by the husband seems to have ultimately attacked only the transfer of the share. The terms of order 2 made by the trial Judge however, are of some interest in comparison with those sought in the current case. It is to be noted that the amendment (which the wife was effectively ordered to make to the trust deed) did not oblige the trustee to exercise the discretion in any particular way.
On appeal the trial Judge’s orders were challenged on bases which included that the trial Judge had treated property the subject of the discretionary trust as property available to be dealt with under section 79, notwithstanding, among other issues that the trial Judge had found that the primary purpose of the trust was to benefit the child of the marriage of the parties.
The Full Court said:
“The order made by Her Honour does not deprive the trustee of an existing right nor does it impose upon a trustee a duty which the trustee would not otherwise be liable to perform. The order does not alter or affect, in any way, the rights and obligations of the trustee. In our opinion the order does not defeat or prejudice the rights of the trustee, nullify the powers of the trustee, or require the trustee to perform duties which the trustee was not previously liable to perform. The order only affects the share of the husband. The order does not alter the provisions of the deed establishing the trust. The order neither alters or affects, in any way, the entitlements of the primary and general beneficiaries nor the property of the trust. The husband and/or the wife do not obtain, as a result of the order made by Her Honour, any beneficial interest in the property of the trust.” [emphasis added]

Conclusions

There are a number of Family Court cases in which findings were made that the capital of discretionary trusts was either “property” of a person who could control the trust or the “defacto property” of such a person. While such findings might impliedly leave the court at liberty to deal with that property as the court sees fit, this is not necessarily so.
The significance of such a finding may initially be that the assets of the trust can properly be included in a “pool” of assets for division between the parties. To do so is a notional step in a process of reasoning, as distinct from the executive nature of a court order dealing with trust assets.
Even when such a finding underpins a court order, there is a difference between firstly, an order requiring a payment from, for example, husband to wife, (albeit the only source of funds is the capital of a discretionary trust of which the husband is trustee or appointor or otherwise in control), leaving it to the husband to act, presumably according to law, and secondly an order requiring a trustee to pay funds from a trust to satisfy an order for property settlement.
As seen, Ellis J in Davidson (No.2), Maxwell J in Alcaine and Santow J in Andco Nominees were circumspect in the “reach” of the orders they made, or were prepared to countenance.
While the distinction between orders designed to facilitate satisfaction of other orders for property settlement by distribution from a trust and orders that direct that result may seem fine, it is nonetheless real.
In the instant case, the wife seeks a transfer to her of the husband’s shares in a the trustee company NTE. In other words, the wife is not even yet a trustee. She does not seek an order (as she originally did) requiring the husband as trustee to take particular steps (which no doubt she would argue were lawful) in relation to the trust, for example, to distribute money to himself, albeit perhaps by indirect means through a nominated beneficiary. Nor does she seek an order which in practical terms might only be met by the husband “accessing” trust funds. She seeks that she become the trustee solely for the purpose of making amendments to the trust to obtain for herself the trust assets.
I find that the wife has pre-determined that if she is placed in a position of control of NTE she intends to distribute all (or alternatively some) of its capital to herself.
In my view, this goes a step beyond the position under consideration in Davidson, and the orders sought, on the evidence, cross the line between facilitation and even expectation, to pre-determination. Therefore, they should not be made.
There are several other factors which militate against the making of the orders sought.
RQ has not been served. Though in Davidson, in the particular circumstances of that case, the Full Court was not concerned about a lack of notice to potential beneficiaries, in my view RQ has, on the face of this application, an interest as to which he may have wished to be heard. I consider that the application should have been served on him.
I question whether NTE is currently the alter ego of the husband, being as he is, only an equal shareholder with the wife.
In his submissions counsel for the wife referred to the discretionary nature of the power to enforce under section 87(11). In relation to this discretion he submitted that “enforcement can only be refused where there are grounds on the ordinary principles of law and equity to do so” citing L & L (1984) FLC 91-563. However, counsel conceded that the further orders sought enlivened a further discretion.
I have declined the application for enforcement on the basis of the limitation on this court’s powers to make the orders sought, but for the same reasons I would not exercise favourably any discretion to make the orders.

Hardship to the husband

On the husband’s behalf it was argued that the hardship that would be caused to him if the wife was to achieve her proposals was a reason for declining the orders sought.
In view of the conclusions already reached it is unnecessary to further consider this aspect.

The claim for judgment for damages

The basic application of the wife is for a judgment pursuant to an exercise of the power contained in section 87(11) of the Family Law Act 1975 as amended. There was really no opposition to the wife’s right to a judgment.
The husband did not admit the entire quantum of the wife’s claim. However, there was no issue that the husband had failed to pay “the EB debt” of $513,923.00, though it was contended that a “liquidators’ payout” of $45,088.00 should be deducted.
As to the other parts of the claim, it was submitted on behalf of the husband that they “…are unable to be matched with clauses in the Deed that obligate him to pay and/or the Wife’s explanation does not bring the other components within the indemnities.”
Later in his written outline, Senior Counsel for the husband wrote:
“…we have had significant problems relating the damages claimed to an obligation cast upon the husband.
At the time of preparation of these submissions, despite having asked the Wife’s solicitors to provide these details, we are none the wiser.
We anticipate the need to make oral submissions on this issue.”
The wife was cross-examined about only a few of the points of damages. In my view, her evidence in each instance cogently supported her claim.

During the addresses, with the consent of Senior Counsel for the husband, the wife tendered a summary calculation of damages, with copies of supporting documentation. This summary updated one previously prepared.
During his address Senior Counsel for the wife referenced each of the points of damages claimed to the wife’s affidavit material.
In his oral submissions, Senior Counsel for the husband argued a deficiency of evidence or foundation in respect of several points of damages, but in each case I am satisfied that the claim is made out.
I refer in particular to the suggestion that the Deed of Arrangement, while obliging the wife to grant the husband a lease of a property owned by her, did not oblige the husband to take the lease.
I find, by implication, the husband was so obliged.
Accordingly, I accept the wife has suffered damages in the amount claimed and judgment for that amount should be entered.

ORDERS

That there be judgment for the WIFE against the HUSBAND in the sum of $1,058,524.39.
That the application for orders sought in paragraphs 2 to 5 inclusive of the application of the WIFE filed 12 March 2001, as amended by leave on 25 June 2002, be dismissed.
I certify that the preceding 100 paragraphs
are a true copy of the Reasons for Judgment
herein of the Honourable Justice Warnick.
………………………………….
Associate
Date: 15 November 2002