Brooks v Brooks - [2024] SASC 82

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
BROOKS & ANOR v BROOKS & ORS
[2024] SASC 82
Judgment of the Honourable Justice Stanley
TRUSTS – BENEFICIERIES – DISTRIBUTION OF ASSETS
Application pursuant to section 59C of the Trustee Act 1936 (SA) by the beneficiaries of a testamentary trust to wind it up, realise the trust assets and distribute them to the beneficiaries earlier than the terms of the trust allow.
The two beneficiaries of the trust become absolutely entitled to an equal share of the trust property upon the younger of them attaining the age of 23 years. If neither reaches that age, the trust property vests in a contingent beneficiary.
Whether the trust should vest now, applying the rule in Saunders v Vautier (1841) 41 ER 482, or continue until the younger of the applicants reaches 23 years as per the terms of the trust.
If trust should vest now, whether the trust assets should be distributed to the applicants in specie or the trustees ought to liquidate the trust assets and distribute cash funds to the applicants.
If the trust assets are liquidated, whether the trustees are justified in holding back sufficient funds from distribution to cover any anticipated capital gains tax liability.
Held:
1.      The trustees are, within a reasonable period of time, to liquidate the trust assets and distribute them to the applicants;
2.      The trustees are permitted to retain sufficient funds from the liquidation of the trust assets to pay any CGT liability;
3.      The solicitors for the trustees are to bring into Court minutes of order reflecting the terms of this judgment;
4.      The parties have liberty to apply.
Inheritance (Family Provision) Act 1972 (SA); Trustee Act 1936 (SA) s 59C, referred to.
Saunders v Vautier (1841) 41 ER 482; Custodian v Commissioner of State Revenue (2005) 224 CLR 98; The Estate of Murdoch Stanley McLeod Deceased: Re The Trusts of Will Julia Farr Centre v University of Adelaide; Adelaide Women's and Children's Hospital; Roy Frederick Rhodes Scragg; Henry Knoyle Cross and Donald Hugh Collier [1993] SASC 4574; Nikoloski v Goodall [2013] WASC 179; Phillips v Price [2007] WASC 54; Piper v Fraser [2020] SASC 239; Krstic v State Trustees Ltd [2012] VSC 344, applied.

BROOKS & ANOR v BROOKS & ORS
[2024] SASC 82
Testamentary causes jurisdiction
STANLEY J:
Introduction

This is an application by the beneficiaries of a testamentary trust to wind it up, realise the trust assets and distribute them to the beneficiaries.
On 17 February 2013 Hector Buckland Brooks (the deceased) died leaving a substantial estate. His will provided variously for his children and grandchildren. One of the deceased’s children, Christopher Buckland Brooks (Christopher), made an Inheritance (Family Provision) Act 1972 (SA) claim against the deceased’s estate. That claim was resolved by way of terms of compromise (the compromise) entered into by the parties to that action and which were made a rule of Court. The compromise provided for a lump sum payment…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Brooks v Brooks

Details

AGLC: Brooks v Brooks [2024] SASC 82
Case: [2024] SASC 82
Decision Date: 25 June 2024

CaseChat Overview and Summary

In the matter of Brooks v Brooks, the applicants Joseph and Jason sought to have the trust vested in them earlier than the terms of the trust allowed, in accordance with the rule in Saunders v Vautier. The trust had been established with contingencies for distribution upon the applicants reaching certain ages or failing to do so. The primary issue before the court was whether the trust should vest immediately due to the applicants having reached adulthood, or continue until the younger applicant reached the age of 23. The court found that both applicants were adults and unanimously wished for the trust to vest early, satisfying the first and second criteria of the rule in Saunders v Vautier. Although Christopher, the contingent beneficiary, would be adversely affected by the early vesting, he had irrevocably consented to it, satisfying the third criterion.

The court ruled that the trust should vest immediately in the applicants. It held that the appropriate course of action was for the trustees to liquidate the trust assets and distribute the proceeds to the applicants. However, due to the potential capital gains tax liability arising from the liquidation of the trust assets, the court permitted the trustees to retain sufficient funds to cover this liability before distributing the balance to the applicants. This decision ensures that the applicants' wishes are respected while also considering the financial implications of the trust's distribution. The court ordered the trustees to liquidate the trust assets, retain funds for potential capital gains tax, and distribute the remaining funds to the applicants. The parties were granted liberty to apply regarding costs.

Orders

Orders of the court

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Background

Background to the litigation

The issues arising from the amended application that need to be considered are: · whether the trust should vest now in the applicants as both have reached adulthood as per the rule in Saunders v Vautier; or continue until the younger of the applicants, Jason, has reached the age of 23 years as per the terms of the trust. · If the trust should vest now:o the time frame for vesting of the trust;o whether the trust assets should be distributed to the applicants in specie or the trustees should liquidate the trust assets to distribute cash funds to the applicants; ando if the trust assets are liquidated, whether the trustees are justified in holding back sufficient funds from distribution to cover any anticipated capital gains tax liability. Outline of background facts The trust created two contingencies. First, in the event that only one of the applicants attains 23 years of age, the survivor would become solely entitled to the trust property.[6] Alternatively, in the event that neither of the applicants attains the age of 23 years, Christopher would become entitled to the whole of the trust property.[7] [6] Exhibit MMY-1 to the Affidavit of Melissa May Yule 21 July 2023, (FDN 19).[7] Exhibit MMY-1 to the Affidavit of Melissa May Yule 21 July 2023, (FDN 19). The trust property has at times been applied for the maintenance, advancement and education of the applicants.[8] [8] Affidavit of Simon Rowley Brooks, 20 April 2023, (FDN 12) at [10] – [11]. The trust assets mainly comprise shares in established public companies and some cash. The trustees have taken advice from a competent financial advisor with respect to investments.[9][9] Affidavit of Simon Rowley Brooks, 20 April 2023, (FDN 12), at [8]; Affidavit of Melissa May Yule, 21 July 2023, (FDN 19), at [12]. The trust has almost doubled in value in eight years despite the application of trust funds for the benefit of the applicants from time to time. As at 30 June 2015 the trust had a capital value of $415,470.49.[10] As at 30 June 2023 this figure was $799,664.41.[11] [10] Exhibit MMY-3 to the Affidavit of Melissa May Yule, 21 July 2023, (FDN 19).[11] Exhibit MMY-4 to the Affidavit of Melissa May Yule, 21 July 2023, (FDN 19). If the trust assets are liquidated for distribution to the applicants there will be capital gains tax (CGT) payable by the trust that will reduce the funds available for distribution. That CGT liability is undeterminable until the event. If the trust assets are distributed in specie, there is no CGT event that would require the trust to pay CGT prior to distribution. While the trustees submit that if the Court determines that the trust should vest now, it may be that advice is given from the trust accountant as to the best form of distribution with respect to taxation consequences, I do not consider that is necessary. The applicants are clear in their wish that if the Court grants their application to wind up the trust, they want the trustees to liquidate the trust assets and proceed to distribute the proceeds after making due allowance for any CGT liability.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

Both Joseph and Jason are now adults, and accordingly satisfy the first criteria. Also, they appear to be unanimous in seeking to vest the trust early, thereby satisfying the second criteria. Christopher is a contingent beneficiary to the trust. In the event that neither Jospeh, nor Jason, reaches the age of 23 years, Christopher becomes the object of the trust. Thus, the early vesting of the trust will have the result that his interest as the contingent beneficiary will be adversely affected. However, I am satisfied that Christopher irrevocably consents to the vesting in Joseph and Jason earlier than provided for in the terms of the trust. Accordingly, I am satisfied the third criteria is established. Conclusion In all the circumstances I am satisfied that the rule in Saunders v Vautier should be applied and the trust should vest now in the applicants, who are both adults. Given the attitude of the applicants, I consider that the appropriate order is that the property of the trust should be realised and the proceeds distributed equally to the applicants, rather than the trust assets being distributed in specie. As the liquidation of the trust assets, which are predominantly shares in public companies, will create a liability for CGT payable by the trustees in an amount undeterminable until the event, I order that the trustees are permitted to retain sufficient funds from the sale of the shares to pay the CGT liability, with any balance thereafter being distributed to the applicants. The trustees have a fiduciary duty to make an honest and prudent estimate of the maximum amount needed to be retained.[23] [23] Nikoloski v Goodall [2013] WASC 179 at [12]. Accordingly, I make the following orders:1.The trustees are, within a reasonable period of time, to liquidate the trust assets and distribute them to the applicants;2.The trustees are permitted to retain sufficient funds from the liquidation of the trust assets to pay any CGT liability;3.The solicitors for the trustees are to bring into Court minutes of order reflecting the terms of this judgment; 4.The parties have liberty to apply. I will hear the parties as to costs.

Ratio Decidendi

Legal Principle Established

The trustees have identified a number of considerations relevant to whether it is appropriate to wind the trust up and distribute its corpus to the applicants earlier than provided for by the terms of the trust. Considerations for the Court to take into account The trustees are concerned by the extent of the influence exerted over the applicants by their father Christopher. Christopher gave evidence in the course of the hearing of the application, much of which was argumentative and designed to advocate for the making of the orders sought on the application. In addition, the affidavit evidence demonstrated the exertion of his forceful personality in favour of the achievement of that objective. I am satisfied Christopher has and does exercise considerable influence over his sons. That might be thought unsurprising, at least in the context of this application, given their relative youth. Nonetheless, having heard from Joseph and Jason, I am satisfied they are genuine in wishing to have the trust wound up and the trust property realised so as to enable them to purchase a farming property in New South Wales. I am satisfied that this is their wish regardless of the influence exerted over them by their father. The trustees are also concerned by what they perceive to have been an attempt to force their hand by the production of what purported to be evidence of a contract to purchase rural land in New South Wales. An undated document purporting to evidence that the applicants had entered into a contract to purchase rural land in New South Wales for the price of $745,000.00 was sent by Christopher to one of the trustees, the first respondent Anna Brooks, on 13 February 2023.[14] This document caused the trustees significant concerns as: ·the vendor details were unnecessarily redacted; ·the document was brought into existence while Jason was still a minor and the contract may not have been enforceable against him; ·the document did not contain the signatures of any party to the alleged sale; ·the document was not in the form of a standard real estate contract; and;·no valuation had been obtained to ascertain the value of the land said to be purchased given it was proposed to pay for it using trust assets. [14] Exhibit SB-5 to the Second Affidavit of Simon Rowley Brooks, 25 May 2023, (FDN 13). Subsequently, a more formal contract was provided to the trustees.[15] [15] Exhibit-1, Affidavit of Joseph Buckland Brooks, 29 August 2023, (FDN 22). Despite the provision of a more formal contract the trustees still held some concerns, as: ·the document was not signed by the vendors; ·the document was signed by the applicants on 30 March 2023 at which time Jason was still a minor;·the applicants had entered into an unconditional contract to purchase land despite the trust being in place and without any access to other funds to complete the contract; ·the sale price for the land corresponded very closely to the whole value of the trust assets; and ·the applicants appeared to have entered into the contract in an attempt to force the trustees to wind up the trust and distribute some five years earlier than permitted under its terms.