Budumu Pty Ltd (ACN 001 216 397) - [2021] NSWSC 522

Supreme Court

New South Wales

Medium Neutral Citation: Budumu Pty Ltd (ACN 001 216 397) [2021] NSWSC 522
Hearing dates: 3 February 2021
Date of orders: 19 April 2021
Decision date: 12 May 2021
Jurisdiction: Equity - Expedition List
Before: Sackar J
Decision:
See paras [21], [23], [27]-[28]

Catchwords:
EQUITY — Trusts and trustees — Judicial advice — Variation of trusts — Whether trustee can exercise power to exclude

Legislation Cited:
Conveyancing Act 1919 (NSW)
Duties Act 1997 (NSW)
Land Tax Act 1956 (NSW)
Land Tax Management Act 1956 (NSW)
State Revenue Legislation Further Amendment Act 2020 (NSW)
Trustee Act 1925 (NSW)

Cases Cited:
Casibond Pty Ltd [2021] NSWSC 320
Cecil Investments Pty Limited [2021] NSWSC 211
Re Dion Investments Pty Ltd [2014] NSWCA 367
Re Dion Investments Pty Ltd [2020] NSWSC 1661

Category: Principal judgment
Parties: Budumu Pty Ltd in its capacity as trustee of the George Hardi Family Trust
Representation:
Counsel:
D Barlin (plaintiff)
Solicitors:
Stacks Champion (plaintiff)

File Number(s): 2020/353667

Judgment – Judicial Advice

This is an application by the Plaintiff, acting as trustee (“the Trustee”) of the George Hardi Family Trust (“the Trust Estate”), asking the Court for advice under s.63 and or relief under s.81 of the Trustee Act 1925 (NSW) (“Trustee Act”).
For the purposes of the s.63 application, the questions for advice are contained in prayers 2 and 3 of the summons.
For the purposes of the s.81 application, the relief sought is contained in prayer 4 of the summons.
The reason for application is because of amendments to the Land Tax Act 1956 (NSW) (“Land Tax Act”) and the Duties Act 1997 (NSW) (“Duties Tax Act”) which impose surcharges to the extent that a “foreign person” may be (not necessarily is) a beneficiary of the trust where the trust holds residential property.
On 19 April 2021, having heard the evidence and submissions, I made the orders requested. I indicated I would subsequently publish my reasons. These are they.

The Land Tax Act

Sections 5D(1)-(5) of the Land Tax Act are as follows:

(1) The trustee of a discretionary trust is taken to be a foreign person in that capacity for the purposes of section 5A if the trust does not prevent a foreign person from being a beneficiary of the trust.
(2) If a discretionary trust prevents a foreign person from being a beneficiary of the trust, the trustee is not in that capacity a foreign person for the purposes of section 5A.
(3) A discretionary trust is considered to prevent a foreign person from being a beneficiary of the trust if (and only if) both of the following requirements are satisfied—
(a) no potential beneficiary of the trust is a foreign person (the no foreign beneficiary requirement),
(b) the terms of the trust are not capable of amendment in a manner that would result in there being a potential beneficiary of the trust who is a foreign person (the no amendment requirement).
Note—

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.

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Details

Case: [2021] NSWSC 522
Decision Date: 12 May 2021

CaseChat Overview and Summary

The applicant, Budumu Pty Ltd, sought advice from the court on whether it could exercise its power to exclude beneficiaries from a discretionary trust. The respondent, as trustee, had exercised its power to exclude a beneficiary, who subsequently challenged the decision. The case was heard in the Supreme Court of New South Wales.

The legal issue before the court was whether a trustee could exercise a power to exclude beneficiaries from a discretionary trust. The court considered whether the power to exclude was a valid exercise of the trustee's discretion and whether the exercise of the power was for the benefit of the trust as a whole. The court also considered the principles of equity and whether the exercise of the power was in accordance with the trust deed.

The court found that the power to exclude was a valid exercise of the trustee's discretion. The court noted that the power to exclude was a common feature of discretionary trusts and that it was necessary to ensure that the trust was administered in accordance with its purposes. The court also found that the exercise of the power was for the benefit of the trust as a whole and was in accordance with the trust deed. The court emphasised the importance of the trustee's good faith and the need for the exercise of the power to be reasonable and not arbitrary.

The court advised that the exercise of the power to exclude was valid and that the trustee could exclude the beneficiary from the trust. The court also noted that the beneficiary had the right to challenge the exercise of the power in the court if it was unreasonable or in bad faith. The court did not make any orders but provided advice to the parties on the exercise of the power to exclude.

Orders