Caroline Elizabeth Wareham and Martin Wareham (as trustees of the Swanson Superannuation Fund) v Riccardo Giacomo Marsella (both personally and as executor of the estate of Helen Freeth Marsella (also known as..

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2019 0022

CAROLINE ELIZABETH WAREHAM AND MARTIN WAREHAM (as trustees of the Swanson Superannuation Fund)	Applicants
v
RICCARDO GIACOMO MARSELLA (both personally and as executor of the estate of Helen Freeth Marsella (also known as Helen Freeth Swanson))	Respondent

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JUDGES:	TATE, McLEISH and HARGRAVE JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	10 March 2020
DATE OF JUDGMENT:	20 April 2020
MEDIUM NEUTRAL CITATION:	[2020] VSCA 92
JUDGMENT APPEALED FROM:	[2019] VSC 65 (McMillan J)

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TRUSTS – Superannuation – Self-managed superannuation fund – Trustees resolved to pay death benefit to trustee – Whether trustees exercised discretion upon real and genuine consideration – No real and genuine consideration – Trustees’ misapprehension of duties and terms of trust inferred from lawyers’ correspondence to potential beneficiary – Existence of possible grounds for exercise of discretion no cure for lack of real and genuine consideration – Karger v Paul [1984] VR 161, applied – Finch v Telstra Super Pty Ltd (2010) 242 CLR 254, considered – Whether bad faith necessary to impugn exercise of absolute discretion – Bad faith not necessary in addition to failure to give real and genuine consideration – Karger v Paul [1984] VR 161, applied – Clerical Administrative and Related Employees Superannuation Pty Ltd v Bishop (1997) 76 IR 139, Attorney-General (Cth) v Breckler (1999) 197 CLR 83, Curwen v Vanbreck Pty Ltd (2009) 26 VR 335, Gisborne v Gisborne (1877) 2 App Cas 300, considered.

TRUSTEES – Removal – Failure to exercise discretion upon real and genuine consideration – Trustees’ misapprehension of duties and terms of trust based on incorrect legal advice – Whether grounds for removal – History of conflict between trustees and potential beneficiary – Not shown judge erred in discretion – Miller v Cameron (1936) 54 CLR 572, 580‑1, applied – Appeal dismissed.

PRACTICE AND PROCEDURE – Application for leave to appeal determination not embodied in order – Order and reasons to be read together – Supreme Court Act1986 s 17(2).

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APPEARANCES:	Counsel	Solicitors
For the Applicants	Dr N F Orow	Hill Legal
For the Respondent	Mr S P Newton	Stidston Warren Lawyers

TATE JA

McLEISH JA
HARGAVE JA:

A superannuation fund was established in 2003 on behalf of Helen Freeth Swanson, who was its only member until her death on 27 April 2016. There is a dispute about the payment of a death benefit provided for under the trust deed for the fund. The trust deed gave the trustees a discretion as to which of Mrs Swanson’s dependants should receive that benefit. The trustees are Mrs Swanson’s daughter, Mrs Carol Wareham and her husband Mr Martin Wareham (the present applicants). The respondent, Mr Marsella, was Mrs Swanson’s husband for some 32 years until her death, and is the executor of her estate.

At the time of Mrs Swanson’s death, she and Mrs Wareham were the trustees of the fund. Mrs Wareham is Mrs Swanson’s daughter from a previous marriage. Mrs Swanson also had a son, Charles Swanson, from the same previous marriage. He took no part in the present proceeding.

As the surviving trustee, Mrs Wareham appointed her husband as a second trustee of the fund. They then determined to pay the whole of the death benefit to Mrs Wareham. Mr Marsella commenced a proceeding seeking orders removing Mr and Mrs Wareham as trustees of the fund and appointing a substitute trustee. He also sought an injunction restraining distribution of the fund and an order requiring the applicants to repay any sum already distributed.

A judge in the Trial Division upheld the application on the basis that Mr and Mrs Wareham had exercised their discretion as trustees without giving real and genuine consideration to the interests of the dependants of the fund. The judge held that the exercise of discretion should be set aside and the trustees removed. She made orders for the filing of submissions as to the identity of a replacement trustee.

Mr and Mrs Wareham seek leave to appeal. For the reasons that follow, leave should be granted but the appeal must be dismissed.

Factual background

Mrs Swanson’s first marriage ended when her husband died in a car accident in 1981. Mrs Swanson and Mr Marsella married in 1984. At the time, the Swanson children were teenagers. Mrs Swanson and Mr Marsella remained married and lived together at a property in Alicudi Avenue, Frankston, until Mrs Swanson’s death.

In 2003, Mrs Swanson engaged a firm of accountants to establish a fund for her retirement. The firm prepared a trust deed for that purpose and the fund was established on 12 May 2003. Mrs Swanson and Mrs Wareham accepted appointment as the trustees of the fund and were parties to the trust deed in that capacity. On the same day, Mrs Swanson signed a binding death benefit nomination form nominating her grandchildren as beneficiaries. Relevant provisions of the trust deed are set out later in these reasons.

Mrs Swanson executed her last will on 13 April 2015. The will named Mr Marsella as executor and trustee. It directed that Mrs Swanson’s ‘jewellery and other possessions of value’ be distributed equally between her children. It then directed that a property in Tanti Avenue, Mornington, be held upon trust as a home for Mr Marsella until his death or upon him permanently leaving the home of his own accord, at which time the property should form part of the residue of the estate. The will authorised the trustee to pay the mortgage in relation to the property in full and to upgrade the home before Mr Marsella moved into it. It also authorised the investment of $100,000 to pay for all charges or amounts necessary for the general upkeep of the property while it was held for Mr Marsella. The will stated that no further provision was made for Mr Marsella ‘by agreement and bearing in mind that the assets herein disposed of were pre-marital assets acquired during my previous marriage and that my husband has monies of his own and business interests including his surveying practice’.

The will then made provision for Mrs Swanson’s grandchildren and children concerning amounts held upon other trusts. The balance of the residuary estate was left to Mrs Swanson’s children in equal shares.

Upon the death of Mrs Swanson, the death benefit payable from the superannuation fund was $450,416. The beneficiary nomination form signed in 2003 had expired and Mrs Swanson did not execute any other such nominations.

Mr Matthew Hayes, the accountant whose firm had arranged for the preparation of the trust deed and who was responsible for preparing the final accounts of the fund, gave evidence that he advised Mrs Wareham that, by virtue of provisions of the Superannuation Industry (Supervision) Act 1993 (Cth) (‘the SIS Act’), a superannuation death benefit must be paid out ‘as soon as practicable’ after the date of death, and generally within six months, to avoid losing certain tax benefits and incurring administrative penalties. Mr Hayes said that he made several attempts after Mrs Swanson’s death to contact Mr Marsella in order to obtain necessary information but that he did not receive a response. In the meantime, it became apparent that relations between Mr Marsella and Mrs Wareham were strained and there was evidence of a physical altercation between Mr Marsella and Mr Wareham at the Alicudi Avenue property on 9 July 2016 in connection with a disputed antique clock which Mrs Wareham removed from the property. Probate was granted to Mr Marsella on 11 August 2016.

On 13 October 2016, Mr Marsella commenced proceedings seeking further provision from Mrs Swanson’s estate pursuant to pt IV of the Administration and Probate Act 1958. In the meantime, the death benefit had not been paid out of the fund.

Mr Hayes gave evidence that in early April 2017, he gave advice to Mrs Wareham that the fund would lose its complying tax status and risk significant tax penalties unless the death benefit was paid out as soon as possible. He said that he advised Mrs Wareham that she needed to consider the interests of all of Mrs Swanson’s dependants as defined in the trust deed and that she should obtain specialist advice. He stated that Mrs Wareham told him that she would carefully consider all the dependants and consult with her solicitor to ensure that she complied with her duties as trustee.

On 17 April 2017, two sets of minutes were signed. Mr Hayes said that he received these from Mrs Wareham, who informed him that she had followed his advice and ‘had given careful consideration of all of her mother’s dependants as defined by the trust deed of the Fund and her mother’s wishes as stated in the May 2003 Binding Death Benefit Nomination form’. Mr Hayes said that Mrs Wareham said that the trustees ‘had made the minutes of meeting of the Fund with the assistance of her solicitor’. Mr Hayes said that Mrs Wareham explained that Mr Wareham had been appointed as a co-trustee because of uncertainty as to the requirements of cl 8 of the trust deed (referred to below) and that her understanding was based on legal advice obtained from her solicitor.

Trust deed and resolutions

The fund was established with the objective that it be a regulated superannuation fund within the meaning of the SIS Act. Among the range of benefits for which it provided were death benefits under cl 51, which relevantly stated:

51. DEATH BENEFITS
51.1 Entitlement
Upon the death of a Member the Trustee shall pay a Death Benefit equal to:
(a)the amount then standing to the credit of that Member’s Accumulation Account as at the date upon which payment is made; and
…

51.2Manner of Payment — Trustee’s Discretion
A Death Benefit shall be paid in such manner as the Trustee may determine in its discretion in the form of a Pension, the purchase of an Annuity or a lump sum or any one or more of those forms.

51.3 Binding Beneficiary Nomination
...
(b)The Trustee must allow a Member to make a binding beneficiary nomination by giving to the Trustee a notice in writing which requires that any Death Benefit payable on or after the Member’s death is paid to the person or persons referred to in the notice as the Member’s Nominated Beneficiary PROVIDED THAT:
(i)the Nominated Beneficiary is the legal personal representative or a Dependant or Dependants of the Member; and
(ii)the form of the notice, and the manner in which it is completed by the Member and given to the Trustee satisfies the relevant requirements of the Act.[1]

...
(d)Unless sooner revoked by the Member, a notice of binding beneficiary nomination given to the Trustee shall cease to have effect at the end of the period of 3 years after the day it was first signed, or last confirmed or amended, by the Member.
...
[1]The trust deed defined ‘Act’ to mean the SIS Act and several other statutes including the Corporations Act 2001 (Cth) and the Trustee Act 1958.

51.4Persons to Receive Death Benefits
(a)Where a Death Benefit is payable in respect of a Member, if the Trustee holds a notice of binding beneficiary nomination which has been given to the Trustee by that Member in accordance with clause 51.3, the Trustee must pay the Death Benefit to the person or persons referred to as the Nominated Beneficiary in the notice if:
(i)the person, or each of the persons, mentioned in the notice is the legal personal representative or a Dependant of the deceased Member;
...

(b)Where a Death Benefit is payable in respect of a Member and the Trustee does not hold a notice of binding beneficiary nomination from that Member or such a notice held by the Trustee does not conform to the relevant requirements of this Deed or the Act, the Trustee must pay or apply the Death Benefit to or for the benefit of:
(i)a person nominated in writing by the deceased Member provided that the Trustee is satisfied that the person was a Dependant of the deceased Member at the time of death of the Member; or
(ii)such one or more of the Dependants of the deceased Member; or
(iii)the legal personal representatives of the deceased Member;

in such proportions between all or any of the above persons or categories of persons as the Trustee shall determine in its discretion.
...

The expression ‘Dependant’ was defined in cl 1 of the trust deed in the following terms:

‘Dependant’ means in relation to a Member or any deceased Member any person who satisfies the description of any one or more of the following categories of persons:
(a) the spouse, widow or widower of the Member;
(b)any child of the Member including any child of the Member born after the death of the Member;
(c)any person who in the opinion of the Trustee is at the relevant time (or in the case of a deceased Member, was at the time of death of that Member) wholly or partially dependent on the Member for that person’s maintenance and support or who has or had at the relevant time a legal right to maintenance and support from that Member; and
(d)any other person who is a dependant as defined by the Act.

It is plain from this definition that Mr Marsella, Mrs Wareham and Charles Swanson were ‘Dependants’ as defined. It also emerges from the definition that the binding beneficiary nomination executed by Mrs Swanson in favour of her grandchildren was invalid because they were not ‘Dependants’. As mentioned earlier, by the time of her death, the purported nomination had lapsed in any event and had not been replaced.

The exercise of discretion by the trustee was dealt with in cl 10, as follows:

10.1 No Requirement to Give Reasons
Unless otherwise expressly provided in this Deed or by the Act the Trustee shall in the exercise or non-exercise or partial exercise of each and every power exercisable by the Trustee not be bound to give to any person any reason for or explanation of the Trustee’s exercise, non-exercise or partial exercise of any such power.

10.2 Unfettered Discretion
The Trustee shall have in the exercise or non-exercise or partial exercise of each and every power exercisable by the Trustee an absolute and unfettered discretion and is not bound to act subject to the direction of any other person unless otherwise expressly provided by the Act.

10.3 Trustee’s Decision Final
If any dispute arises as to the interpretation of any provision of this Deed or as to the rights or obligations of a Member or the Trustee or any other person under this Deed, then (except as expressly provided to the contrary in this Deed and subject to any rights conferred on a Member by the Act) the decision of the Trustee in relation to such dispute shall be final and binding on all interested persons.
...

Clause 8, to which reference has already been made, made provision for the number of trustees and their appointment and removal. It is not necessary to set out its terms.

It is then convenient to refer to the minutes of meetings of the trustee on 17 April 2017. There are two sets of minutes which appear to proceed upon alternative understandings of the requirements of the trust deed regarding the number of trustees. By one set of minutes, Mrs Wareham as sole trustee noted various provisions of the trust deed and the making and expiry of the binding beneficiary nomination, before resolving in the following terms regarding the payment of death benefits:

After due consideration having been made by the surviving Trustee of the possible interests of all Dependants of the deceased member, the potential eligible Beneficiaries of the Member, and the Member’s Estate, the Trustee has HEREBY RESOLVED to exercise the discretion afforded to her pursuant to rule 51.4(b) of the Trust Deed of the Fund to forthwith pay the deceased member’s death benefits as a lump sum payment to Caroline Elizabeth Wareham, being a Dependant of the deceased Member.

Mrs Wareham also resolved to ensure that the fund was wound up as soon as practicable.

By the other set of minutes, both Mr and Mrs Wareham resolved in the above terms. However, it was also recited by way of background in those minutes that, before a discretion regarding the death benefit was exercised, the office of trustee was required to be held by two or more trustees (referring to cl 8.1 of the trust deed). It was stated in these minutes that Mr Wareham was appointed as trustee, as follows:

By these minutes the Surviving Trustee resolves by her power as Surviving Trustee to appoint Martin Wareham, husband of the Surviving Trustee, as Co-Trustee of the Fund who hereby accepts such appointment.

On 26 April 2017, Mr and Mrs Wareham made further resolutions for the winding up of the fund. It was noted in the minutes that the death benefit remaining in the fund would be paid ‘in accordance with earlier resolutions made by the Fund’.

The solicitors for Mr Marsella and Mrs Wareham then engaged in correspondence which is referred to further below. In the meantime, mediation of the pt IV proceeding took place on 1 May 2017, without success.

On 13 June 2018, the Court handed down judgment in the pt IV proceeding, ordering that Mr Marsella be provided with a ‘flexible life interest’ in the property at Alicudi Avenue, together with a pecuniary legacy of $100,000.[2] Mrs Wareham thereafter discontinued another proceeding in which she had claimed that the property at Alicudi Avenue, purportedly devised by the will, was in fact held by Mrs Swanson upon an earlier trust.
[2]Re Marsella; Marsella v Wareham [2018] VSC 312.

Correspondence between solicitors

On 24 April 2017, Mr Marsella became aware that assets of the fund were being sold. His solicitors wrote to the solicitors acting for Mrs Wareham seeking an explanation. They alleged that the assets in question were ‘effectively estate assets’ and asked why Mr Marsella had not been consulted in relation to dealing with them. The letter sought undertakings that Mrs Wareham would not sell any more assets from the fund or otherwise deal with them.

On 27 April 2017, Mrs Wareham’s solicitors replied, confirming that Mrs Wareham had taken action ‘as the sole surviving trustee’ of the fund to wind it up and to pay out the death benefit. The letter stated, correctly, that superannuation did not form part of the estate. The letter noted the recommendations of the accountant that the fund be distributed as soon as practicable and alleged that Mr Marsella had failed to provide relevant details relating to the fund. The letter concluded as follows:

Our client is an individual trustee of the Fund, and has been since [its] creation in 2003. As such, she is responsible for ensuring the proper administration of the Fund, and the payment of death benefits on termination of the Fund.
Your client is neither a Member, Trustee or Beneficiary of the Fund, and as such our client is not required to consult with him on any matter relating to the administration of the Fund, nor to provide any undertakings or accounting as requested in your letter of today’s date.[3]

[3]Despite the reference to the letter ‘of today’s date’, it was not in doubt that this letter responded to that dated 26 April 2017.

It is relevant to interpose that the trust deed defines ‘Beneficiary’ in the following terms:

‘Beneficiary’ means any person, including but without limitation, a Member, Dependant or Pensioner:
(a)who is presently and absolutely entitled to receive payment of a Benefit; or
(b)who has a contingent right or mere expectancy to receive payment of a Benefit Entitlement subject to the occurrence of a Prescribed Event.

A ‘Prescribed Event’ is defined as ‘any event described in this Deed the occurrence of which will cause a Benefit to become payable to a Beneficiary’. ‘Benefit’ includes a ‘Death Benefit as described in clause 51’. By this definition the Dependants, together with Mrs Swanson’s legal personal representatives, are ‘Beneficiaries’.

Returning to the correspondence, Mr Marsella’s solicitors on 27 April 2017 responded to Mrs Wareham’s solicitors by a letter which, among other things, asserted (incorrectly) that adult children were not ‘dependants’ and were therefore not entitled to receive the death benefit. The letter also contended that cl 8.1 of the trust deed required the office of trustee to be held by two or more individuals and that Mr Marsella, as executor of Mrs Swanson’s estate, now held the office of ‘Founder’ under the trust deed. The letter concluded:

We advise that if you permit or advise your client to do anything which prejudices or adversely affects the estate’s rights in relation to the Superannuation Fund and its assets, we hereby put you on notice that our client will, if necessary, hold you personally liable for any resulting losses or costs.

Mrs Wareham’s solicitor took issue with these claims by way of an emailed letter dated 28 April 2017. That letter disputed that adult children were not entitled to receive the death benefit and referred to the appointment of Mr Wareham as trustee. The letter stated twice that the death benefits were of ‘no interest’ to Mr Marsella or his solicitors. At the beginning of the letter, it was said:

As we have asserted, the superannuation death benefits do not form part of the estate and they should have no interest to you or [your] client.

After dealing with the legal points raised by Mr Marsella’s solicitor, the letter concluded as follows:
As we contend, the superannuation death benefits do not form part of the estate and therefore [are] of no interest to your client since there has been no resolution to pay the death benefits to the estate.
Accordingly, the estate has no right to the superannuation death benefits. There is no loss to the estate and it has no standing to bring any threatened injunctive application for any such benefits of the Fund to be transferred or frozen or indeed any right to an account to the estate for the administration of the Fund.

By return email letter, Mr Marsella’s solicitors expressed the view that the trustee ‘has clearly used her role to benefit herself and has failed to exercise her discretion properly’. The letter concluded by saying that the solicitors would ‘seek to recover the moneys and have an independent trustee appointed’. On 4 May 2017, they sent a further letter to similar effect, anticipating proceedings being commenced if Mr and Mrs Wareham did not resign and make arrangements for the preservation of the benefit pending exercise of the discretion by a new trustee.

On 4 May 2017, Mrs Wareham’s solicitors responded, stating, among other things, that superannuation trustees have an unfettered discretion as to the distribution of the superannuation funds and that the trustees were entitled to make a death benefit distribution to any of the eligible beneficiaries. They stated that a discretionary trustee was not required to give reasons for any decision and that their client ‘does not do so’. It was said that no conflict of interest arose and that the trustee was permitted to exercise her discretion in favour of any eligible object including herself. The letter also stated that Mrs Wareham owed ‘no duty to the estate or other beneficiaries’.

On 10 May 2017, Mrs Wareham’s solicitors confirmed an undertaking offered on 4 May 2017 that the fund she received by way of death benefit distribution would not be distributed or disbursed, except for the payment of accounting fees and any tax, without 14 days’ notice to Mr Marsella. The letter noted that Mr Marsella had not yet accepted this offer.

Proceeding in the Trial Division

By originating motion filed on 17 May 2017, Mr Marsella sought an order that Mr and Mrs Wareham be removed as trustees of the fund and that a substitute trustee be appointed. He also sought an injunction restraining them from distributing the fund and an order requiring them to repay any sum already distributed, together with interest. Mr Marsella swore an affidavit in support which exhibited relevant documents and correspondence. Objection was taken to the admissibility of aspects of that affidavit, as mentioned later in these reasons.

Mr and Mrs Wareham relied on an affidavit sworn by Mr Hayes which, as already described, deposed to the establishment of the fund and his firm’s work as accountants for the fund. He exhibited the trust deed, the binding death benefit nomination and the trustee resolutions.

The matter proceeded by way of affidavit, without cross-examination or other oral evidence. Mr and Mrs Wareham did not give evidence.

Trial judge’s decision

The trial judge set out the factual background and identified the applicable principles governing the exercise of discretion by trustees. She then rejected an argument advanced by Mr and Mrs Wareham to the effect that the fund had been wound up and that the orders sought were therefore based on an erroneous assumption. The judge held that trustees could not escape the Court’s jurisdiction regarding an alleged breach of trust simply by winding up the trust.[4]
[4]Re Marsella; Marsella v Wareham [No 2] [2019] VSC 65, [44] (‘Reasons’).

The judge held that the power of distribution provided in cl 51.4(b) of the trust deed was a special power, in accordance with which the trustee was required to distribute the proceeds of the fund to one or more individuals who fell within the class of objects identified. The judge held that the fact that Mrs Wareham fell within the class of objects herself did not negate her duty to exercise the power in good faith, upon real and genuine consideration, and for the purposes for which it was conferred.

The judge held that, based upon the correspondence of her lawyers, Mrs Wareham appeared to have approached the exercise of discretion ‘under misapprehensions as to the terms of the fund deed, the duties she owed to the plaintiff and the relevance of the plaintiff’s role as legal personal representative of the estate of the deceased’.[5]
[5]Ibid [48].

The judge continued:

To assert that the plaintiff was not a beneficiary, while technically correct according to trust law,[6] is inconsistent with the way in which the phrase is defined in clause 1 of the fund deed. The first defendant’s duty was to familiarise herself with the terms of the fund deed. Moreover, the assertion by Hill Legal on 27 April 2017 that the plaintiff should have ‘no interest’ in the fund is also inconsistent with the plaintiff’s status, both personally, as a potential object of the exercise of discretion, and as legal personal representative, as having a role in relation to s 17A(3) of the SIS Act. Albeit subsequent to the exercise of discretion, the claim by Hill Legal in the letter of 4 May 2017, that the first defendant owed the estate or other beneficiaries ‘no duty’ is incorrect and inconsistent with the defendants’ later submissions that noted the dependants had rights to be considered for selection and to compel proper administration of the trust.[7]

[6]Mercanti v Mercanti [2015] WASC 297.

[7]Reasons [49].

Turning to the question of conflict, the judge continued:

Similarly, the assertion in the same Hill Legal letter that the defendants failed to see how a conflict allegedly arose, indicates an ignorance or deliberate mischaracterisation of the true circumstances at hand. As identified in the reasons in the Part IV proceeding, and evidenced particularly by the existence of related litigation and the incident in July 2016, substantial conflict existed between the plaintiff and first defendant. Furthermore, the assertion is inconsistent with the earlier acknowledgment of Hill Legal that the relationship between the plaintiff and first defendant was strained.[8]

[8]Ibid [50].

Next, the judge said that, while it was not the role of the Court to consider the fairness or reasonableness of the outcome of the exercise of discretion or to usurp the role of the trustee, the outcome itself (particularly if it was ‘grotesquely unreasonable’) might constitute evidence that the discretion was not properly exercised or that it was exercised in bad faith. She held that, in the circumstances of this proceeding, the distribution of the entire proceeds of the fund to Mrs Wareham supported the conclusion that there was a lack of real and genuine consideration.[9]
[9]Ibid [51].

The judge then addressed the factors which had been relevant for the trustees to consider, concluding that relevant matters had not been taken into account. She held that the relevant considerations included the intention of Mrs Swanson as settlor of the fund, the relationship between Mrs Swanson and Mr Marsella, and the financial circumstances and needs of the dependants. She held that ‘ignoring the plaintiff’s substantial relationship with the deceased and relatively limited financial circumstances … demonstrates a failure of the first defendant to take into account a relevant consideration’.[10]
[10]Ibid [52].

The judge inferred from the signing of two sets of minutes that Mrs Wareham was ‘attempting to cover both interpretations of the fund deed’.[11] Although the applicants seek to challenge that finding, the conclusion is inescapable.[12]
[11]Ibid [53].
[12]Proposed ground 10(c).

On the other hand, the judge accepted that there was some evidence supporting the contention that Mr and Mrs Wareham did exercise the power of appointment in accordance with their duties as trustees. That evidence included the comment of Mrs Wareham to Mr Hayes that she had given careful consideration to all of the dependants, together with the statement in the resolutions that referred to consideration of the possible interests of all dependants, potential beneficiaries and the estate. However, the judge held that this evidence did not indicate that any misapprehensions which Mrs Wareham was under had been resolved. She held that it was more than outweighed by the totality of the evidence. The judge held that the statements in the resolutions were ‘formulaic’. Further, although Mrs Wareham had obtained legal advice and the advice of Mr Hayes, the judge held that she did not obtain specialist advice as Mr Hayes had suggested and did not seek to resolve uncertainty surrounding the fund deed in the context of a significant financial decision distributing an amount in the order of $490,000.[13]
[13]Reasons [55]. The higher figure presumably reflects investment returns since the date of Mrs Swanson’s death.

The judge concluded:

On balance, the inference to be drawn from the evidence is that the first defendant acted arbitrarily in distributing the fund, with ignorance of, or insolence toward, her duties. She acted in the context of uncertainty, misapprehensions as to the identity of a beneficiary, her duties as trustee, and her position of conflict. As such, she was not in a position to give real and genuine consideration to the interests of the dependants. This conclusion is supported by the outcome of the exercise of discretion.[14]

[14]Ibid [56].

The judge then considered arguments by Mr Marsella that the trustees had acted in bad faith and for an improper purpose. She accepted that the ‘ill-informed arbitrariness’ with which Mrs Wareham approached her duties amounted to bad faith. She held that the ‘dismissive tenor’ of the correspondence from her solicitors, a willingness to proceed with the appointment and distribution in the context of uncertainties and significant conflict and the lack of specialist advice despite the recommendation of Mr Hayes, all supported the conclusions that her conduct went beyond mere carelessness. The judge held that the position in relation to Mr Wareham was less certain. She held that the evidence did not support the conclusion that he had approached the exercise of discretion with the same arbitrariness or bad faith as Mrs Wareham and that it might be, for example, that his role could be explained by mere carelessness.[15] Nonetheless, the judge held that Mr Wareham had acted in breach of his duty to avoid being in a position of conflict between his duties towards the dependants and his interests as the husband of Mrs Wareham.[16]
[15]Ibid [59].
[16]Ibid [60].

Mr Marsella’s improper purpose argument was rejected. The judge held that it was not clear whether Mrs Wareham’s actions had been motivated by personal animosity towards Mr Marsella or by the fact that the fund needed to be distributed as soon as practicable. The judge accepted that the latter purpose would not be improper. On that basis, she was not satisfied that the power had been exercised for an improper purpose.

Finally, the judge considered the appointment of Mr Wareham as trustee. She held that the appointment was difficult to reconcile with Mrs Wareham being aware of her duties and the considerations relevant to their performance.[17]
[17]Ibid [65]–[71].

The judge held that it was appropriate in all the circumstances for Mr and Mrs Wareham to be removed as trustees of the fund, because they had failed to exercise the discretion afforded to them by not giving real and genuine consideration to the interests of the dependants. In distributing the proceeds of the fund to Mrs Wareham they had dealt arbitrarily with the entirety of the property subject to the trust, in the context of substantial personal conflict with Mr Marsella.[18] As mentioned earlier, the judge made orders for further submissions to be filed in regard to a suitable replacement trustee.
[18]Ibid [73].

Preliminary issue

On their face, the orders of the trial judge which are subject to appeal are of an administrative kind only. This raises the question whether there is a relevant ‘determination’ of the Court for the purposes of a proposed appeal under s 17(2) of the Supreme Court Act 1986. The appropriate course is to read the order together with the judge’s reasons. This makes it clear that the order impliedly determined that the applicants had not validly exercised the discretion and that they should be removed. They are entitled to seek leave to appeal from those determinations.[19]
[19]Slea Pty Ltd v Connective Services Pty Ltd (2018) 341 FLR 208, 214–5 [25]–[32] (Ferguson CJ, Whelan and McLeish JJA);[2018] VSCA 180.

Proposed grounds of appeal

Mr and Mrs Wareham advanced 10 proposed grounds of appeal. Although they are lengthy and the subject matter overlaps, it is convenient to set them out in full:
Ground 1
1.The learned primary judge erred in setting aside the exercise of discretion by the applicants as trustees of the Swanson Superannuation Fund afforded to them in clause 51.4(b) of the governing deed and in concluding that the applicants exercised that discretion without real and genuine consideration of the interests of the dependants of the fund (Reasons 78 & 56 & 58).
Ground 2
2.The learned primary judge erred in deciding that the applicants are to be removed as trustees of the Swanson Superannuation Fund when there were no factual bases to sustain that decision and to appoint a new trustee when the fund has been wound up (Reasons 44, 73, 79 & 80).
Ground 3
3.The learned primary judge erred in finding that the applicants were in a position of conflict and were not in a position to give real and genuine consideration to the interests of the dependants (Reasons 56 & 60).
Ground 4
4.The learned primary judge erred in concluding, contrary to established principle, that from the outcome of the applicants’ exercise of discretion that it was ‘grotesquely unreasonable’ and that that conclusion was supported by the outcome of the exercise of discretion (Reasons 51 & 56).
Ground 5
5.Given that the evidence in the applicants’ case was received without objection and was not challenged in cross examination, the learned primary judge erred in not accepting and or drawing adverse inferences from the unchallenged evidence that the applicants did exercise the power of appointment in accordance with their duties as trustees (Reasons 54 & 55).
Ground 6
6.The learned primary judge erred in concluding that the first applicant approached her duties with ill-informed arbitrariness that amounted to bad faith (Reasons 57).
Ground 7
7.The learned primary judge erred in finding, contrary to the evidence of the first applicant that was received without objection or cross examination that the first applicant did not obtain specialist advice (Reasons 55, 57 and 71). Alternatively, the learned primary judge erred in attributing weight to that finding.
Ground 8
8.The learned primary judge erred in taking notice of the findings and observations made in earlier Part IV proceeding (Reasons 52 & 33) because those observations and findings were not matters of common knowledge within section 144 of the Evidence Act 2008 (Vic). Further, those matters unfairly prejudiced the applicants because the learned primary judge relied on them to sustain the conclusions reached (Reasons 50, 57, 66, 73 & 79) without affording the applicants the opportunity to make submissions and to refer to relevant information relating to the acquiring or taking into account of knowledge of that kind as is necessary to ensure that they are not prejudiced.
Ground 9
9.The learned primary judge erred in holding that the power of distribution provided in clause 51.4(b) of the Swanson Superannuation Fund deed is a special power (Reasons 47). Her Honour should have held that the power provided in the said clause 51.4(b) was a general power of appointment that permitted the trustees to distribute the proceeds of the fund to a class of objects which included the first applicant.
Ground 10
10.The learned primary judge erred in attributing weight to and drawing these inferences as to the conduct and state of mind of the applicants:
a.The first applicant misunderstood the terms of the trust deed, the duties she owed to the respondent and the relevance of the respondent’s role as legal personal representative of the estate of the deceased (Reasons 48, 49, 50).
b.The applicants failed to take into account a relevant consideration by ignoring the plaintiff’s substantial relationship with the deceased and relatively limited financial circumstances (Reasons 52).
c.In the preparation and execution of distribution minutes, the first applicant was attempting to cover both interpretations of the fund deed (Reason 53).
d.The first applicant acted arbitrarily in distributing the fund, with ignorance of, or insolence towards, her duties (Reasons 64).
e.The first applicant acted in the context of uncertainty, misapprehensions as to the identity of a beneficiary, her duties as trustee, and her position of conflict (Reasons 56).

It can be seen that proposed grounds 1, 3, 4, 5, 7 and 10 are directed at the trial judge’s conclusion that the trustees failed to give real and genuine consideration to the interests of those who might potentially benefit from the exercise of the discretion regarding payment of the death benefit. Proposed grounds 8 and 9 raise specific matters relevant to that matter and to other findings of the judge. Proposed ground 6 concerns the judge’s finding that Mrs Wareham acted in bad faith. Finally, proposed ground 2 is directed at the judge’s decision that the trustees be removed. It is convenient to deal with the issues in these four groups.

Real and genuine consideration — Proposed grounds 1, 3, 4, 5, 7 and 10

The applicants submitted that the case against them, at its highest, was that it could be inferred, from correspondence written by their solicitors after they had exercised the discretion, that they had acted on incorrect legal advice. It was submitted that the trial judge had erred in drawing that inference, not only because the relevant correspondence was written after the event, but because it was written to another party to an ongoing litigious dispute, rather than by way of advice to a client. It was further submitted that the evidence of Mr Hayes, which was not challenged, showed that Mrs Wareham had acted on legal advice, and on the advice of Mr Hayes himself. Counsel pointed out that the minutes of the relevant resolutions referred to the trust deed, including the definition of ‘Dependant’, and acknowledged that the estate was a potential beneficiary of the death benefit. Therefore, it was said, to the extent that the legal correspondence might suggest that Mr Marsella and the estate were not potential beneficiaries, it is clear that the trustees did not act on that understanding.

It was submitted that the judge had erred in holding that the trustees did not seek specialist advice before making their decision. The applicants submitted that Mr Hayes had given evidence that Mrs Wareham said she had followed his advice, which included the obtaining of such advice.

Counsel further submitted that the objective evidence showed that Mrs Swanson did not wish any part of the death benefit to be conferred on the respondent, and that she envisaged Mrs Wareham receiving the benefit. These intentions were said to be apparent from the appointment of Mrs Wareham as trustee, who would be sole trustee after Mrs Swanson’s death and in the position of exercising the power in her absolute discretion. The fact that Mrs Swanson had signed a death benefit nomination in favour of her grandchildren showed that she contemplated her husband not receiving any of her superannuation savings. It was submitted that these were surrounding circumstances capable of bearing on the construction of the trust deed.[20]
[20]Schreuders v Grandiflora Nominees Pty Ltd [2016] VSCA 93 [12], [14]ff, [21], [22] (Kyrou, Ferguson and McLeish JJA).

In so far as the trial judge identified a position of conflict, it was submitted that this was in error, because the trust deed expressly envisaged that Mrs Wareham could appoint herself as the recipient of the death benefit. It could not be said that exercising the power in this manner was impermissible by reason of her being in a position of conflict. Nor could the decision properly be characterised as ‘grotesquely unreasonable’.

The respondent submitted that the trial judge’s conclusion as to real and genuine consideration rested on a combination of factors, including the extraordinary fact that Mrs Swanson’s husband of more than 30 years received no amount despite his limited financial means, the fact that there was ongoing litigation between the parties and there had been a personal altercation as well, the incorrect legal statements in correspondence shortly after the event (and the dismissive nature of that correspondence), the absence of evidence that Mrs Wareham had made any inquiries about the claims of potential beneficiaries, the decision to appoint Mr Wareham, rather than a person at arm’s length from Mrs Wareham, as the second trustee, the absence of any evidence of dialogue between the trustees regarding the distribution decision and, most significantly, the lack of any evidence at all from the applicants about the course they took. It was submitted that the trial judge’s conclusion was correct.

Counsel for the respondent submitted that the recitations in the minutes were ‘formulaic’ and there was no evidence that the minutes reflected meetings that were actually held.

Principles

When called upon to review the exercise of a trustee’s absolute and unfettered discretion, Australian courts have long relied upon the analysis of the authorities undertaken by McGarvie J in Karger v Paul, in the following terms:

The discretionary power given to the trustees by cl. 3, was a power, upon the request of Mr Smith, in their absolute and unfettered discretion to pay or transfer the whole or part of the capital of the estate to him. In my opinion the effect of the authorities is that, with one exception, the exercise of a discretion in these terms will not be examined or reviewed by the courts so long as the essential component parts of the exercise of the particular discretion are present. Those essential component parts are present if the discretion is exercised by the trustees in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred. The exception is that the validity of the trustees’ reasons will be examined and reviewed if the trustees choose to state their reasons for their exercise of discretion.

In this context I consider that the test of acting honestly is the same as the test of acting in good faith. It was argued for the plaintiff that gross negligence may of itself amount to an absence of good faith. I do not agree. Honest blundering and carelessness do not of themselves amount to bad faith. Again I do not agree with the argument for the plaintiff that there is any conceptual territory which lies between good faith and bad faith. An act which falls short of good faith is done in bad faith.

… In my view, in this case it is open to the Court to examine the evidence to decide whether there has been a failure by the trustees to exercise the discretion in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred. As part of the process of, and solely for the purpose of, ascertaining whether there has been any such failure, it is relevant to look at evidence of the inquiries which were made by the trustees, the information they had and the reasons for, and manner of, their exercising their discretion. However, it is not open to the Court to look at those things for the independent purpose of impugning the exercise of discretion on the grounds that their inquiries, information or reasons or the manner of exercise of the discretion, fell short of what was appropriate and sufficient. Nor is it open to the Court to look at the factual situation established by the evidence, for the independent purpose of impugning the exercise of the discretion on the grounds that the trustees were wrong in their appreciation of the facts or made an unwise or unjustified exercise of discretion in the circumstances. The issues which are examinable by the Court are limited to whether there has been a failure to exercise the discretion in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred. In short, the Court examines whether the discretion was exercised but does not examine how it was exercised.

I regard it as an inherent requirement of the exercise of any discretion that it be given real and genuine consideration. … [T]here must be the ‘exercise of an active discretion’. It has been held that when the occasion for the exercise of a discretionary power has arisen, trustees, while not bound to exercise the discretion, are bound to consider whether it ought in their judgment to be exercised. I think that it goes without saying that they must give real and genuine consideration. It seems to me that it is in this sense only that the Court can examine whether the trustees gave ‘proper’ consideration to the exercise of the discretion. ... The courts will examine whether a discretion has been exercised irresponsibly, capriciously or wantonly. This is another way of saying that there may be an examination as to whether trustees have exercised their discretion on real and genuine consideration.

It is an established general principle that unless trustees choose to give reasons for the exercise of a discretion, their exercise of the discretion can not be examined or reviewed by a court so long as they act in good faith and without an ulterior purpose. For reasons given above, I would add the further requirement, so obvious that it is often not mentioned, that they act upon real and genuine consideration. … In the case of an absolute and unrestricted discretion such as the discretion in the present case, the general principle is given unqualified operation.

…

The principle I apply does not imply that there are not standards with which trustees should comply in the process of exercising their discretion. ... When trustees disclose their reasons, making those reasons examinable, they are examined to see whether they satisfy the standard of being valid reasons. The principle which I apply is that, apart from cases where the trustees disclose their reasons, the exercise of an absolute and unfettered discretion is examinable only as to good faith, real and genuine consideration and absence of ulterior purpose, and not as to the method and manner of its exercise.[21]

[21][1984] VR 161, 163–6 (citations omitted); see also, eg, Curwen v Vanbreck Pty Ltd (2009) 26 VR 335, 348 [24] (Redlich and Bongiorno JJA and Hansen AJA) (‘Curwen’); Hoh v Ying Mui Pty Ltd [2019] VSCA 203, [275] (Beach and Hargrave JJA and Sifris AJA).

These principles have been cited, including by the High Court, in the superannuation context.[22] However, in Finch v Telstra Super Pty Ltd,[23] the High Court left open the question precisely how far the principles in Karger v Paul apply in respect of superannuation funds, and how far they should be qualified in that context. Finch did not involve a discretionary decision. However, the Court noted the public nature of superannuation and its detailed statutory regulation, which it held made it unlikely that decisions of superannuation trustees were largely immunised from judicial control without clear contrary language in the trust instrument.[24] It was said that the same reasons suggested that the principles stated in Karger v Paul were not applicable in the superannuation field without any qualification. But, except in one respect, the matter was not decided.[25] The exception was that, in the case of superannuation funds, the duty of trustees properly to inform themselves was held to be more intense than in trusts of the Karger v Paul type, because of the importance that beneficiaries be paid their benefits.[26] The Court did not distinguish between corporate, retail and industry funds, on the one hand, and self-managed funds such as that in the present case, on the other. In one sense, funds of the latter type are closer to the Karger v Paul kind of fund than the corporate fund under consideration in Finch. That matter was not raised before us and does not need to be addressed.
[22]Attorney–General (Cth) v Breckler (1999) 197 CLR 83, 99–100 [7] (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ) (‘Breckler’); Asea Brown Boveri Superannuation Fund No 1 Pty Ltd v Asea Brown Boveri Pty Ltd [1999] 1 VR 144, 154–7 [33]–[39] (Beach J).
[23](2010) 242 CLR 254 (‘Finch’).
[24]Ibid 272 [35]–[36] (French CJ, Gummow, Heydon, Crennan and Bell JJ).
[25]Ibid 278–80 [57]–[65].
[26]Ibid 280–1 [66]. See also Alcoa of Australia Retirement Plan Pty Ltd v Frost (2012) 36 VR 618, 633 [59] (Nettle JA, Redlich JA agreeing at 636 [74], Davies AJA agreeing at 636 [76]); Commonwealth Bank Officers Superannuation Corporation Pty Ltd v Beck [2016] NSWCA 218, [137]–[140] (Bathurst CJ, Macfarlan JA agreeing at [189], Gleeson JA agreeing at [196]).

The position is therefore that, until the High Court decides otherwise, the principles in Karger v Paul remain applicable to superannuation trusts, subject to the qualification mentioned above. The trial judge did not rely on the ‘more intense’ obligation in the present case, noting instead that Finch did not involve the exercise of a discretion to choose between competing claims.[27] The qualification identified in Finch therefore does not arise for further consideration in this matter.

Analysis

[27]Reasons [39], citing Finch (2010) 242 CLR 254, 270 [29].

As set out earlier, the trial judge summarised her findings as to real and genuine consideration by Mrs Wareham in the following terms:

On balance, the inference to be drawn from the evidence is that the first defendant acted arbitrarily in distributing the fund, with ignorance of, or insolence toward, her duties. She acted in the context of uncertainty, misapprehensions as to the identity of a beneficiary, her duties as trustee, and her position of conflict. As such, she was not in a position to give real and genuine consideration to the interests of the dependants. This conclusion is supported by the outcome of the exercise of discretion.[28]

[28]Ibid [56].

In relation to Mr Wareham, the judge described the position as ‘less certain’.[29] However, she reached the same conclusion in respect of both trustees, namely that they had failed to exercise the direction under cl 51.4(b) because they had not given real and genuine consideration to the interests of Mr Marsella.[30] In respect of Mr Wareham, the judge found that there was no evidence that he received the incorrect legal advice which she had found was given to Mrs Wareham. However, he had agreed to be appointed as co-trustee despite being in a position of conflict in the midst of significant acrimony between the parties, and had distributed the proceeds of the fund, in a grotesquely unreasonable way, on the very day of his appointment.[31]
[29]Ibid [58].
[30]Ibid [73]. The reference to the ’interests of the defendants’ in this paragraph of the reasons is plainly intended to refer to the plaintiff.
[31]Ibid [58].

The applicants’ principal argument in respect of real and genuine consideration, advanced under proposed grounds 1 and 10, goes to the understanding of Mrs Wareham as to her duties and the terms of the trust deed. The applicants pointed to the fact that the legal correspondence was written after the impugned decision, in a litigious context in which it was not safe to infer that it reflected advice given by the same lawyers to Mrs Wareham (and therefore her understanding). However, even making allowances for those features, the correspondence is striking for the definitive position it takes regarding Mr Marsella. On 27 April 2017, ten days after the impugned decision, Mrs Wareham’s solicitors asserted that Mr Marsella was ‘neither a Member, Trustee or Beneficiary of the Fund’.[32] While this might be read as a reference to Mr Marsella only in his capacity as executor, even in that respect the letter was in error. It is noteworthy that the letter employs the capitalised terms used as definitions in the trust deed.
[32]See [26] above.

It is scarcely likely that responsible lawyers would write such a letter if they had previously advised their client that Mr Marsella was both a Dependant and a Beneficiary under the terms of the trust deed. The more likely inference is that, in giving advice on that subject, they had given advice consistent with the letter. Consistently with that inference, in correspondence on 4 May 2017, about a week later, they asserted that the trustee was permitted to exercise the discretion to any eligible object and that Mrs Wareham owed ‘no duty to the estate or other beneficiaries’.[33] That statement by itself might perhaps be read as being confined to the situation after the passing of the resolutions, but in context it describes the position as at the exercise of the power. As such, it is also capable of supporting the above inference.
[33]See [31] above.

Similarly, the solicitors’ assertion on 28 April 2017 that, since there had been no resolution to pay death benefits to the estate, the estate had no standing to bring any threatened injunction application, tends to suggest that the solicitors did not regard the trustees as having been under any duty with respect to the estate. While the letter recognises, as do the minutes, that the estate could have been the recipient of the death benefit, the inference is that the estate had no enforceable right to be considered as a potential beneficiary. In that respect, the letter was mistaken. Again, the inference is well open that the lawyers had advised Mrs Wareham in terms that led her to think that she was not required to give proper consideration to the position of the estate as a potential beneficiary.[34]
[34]In contrast, in Ioppolo v Conti (2015) 293 FLR 412, upon which the applicants relied, there was evidence that the solicitors had given correct advice: at 432 [79]–[81] (Martin CJ, Buss JA and Beech J agreeing at 433 [85]–[86]).

The inference the judge drew, as to Mrs Wareham having misunderstood her duties on the basis of incorrect advice, is not falsified by the minutes. The fact that the minutes refer to the trust deed and the definition of ‘Dependant’ does not reveal that the trustees had an understanding of that term different to that disclosed by the lawyers’ correspondence. It is true that the minutes expressly record that the legal personal representatives of the deceased member may receive the death benefit, and that the estate has been considered along with the Dependants and Beneficiaries. If the issue in this proceeding concerned the potential claims of the estate, it would be necessary to decide whether the inference which the judge drew could properly have been drawn in respect of the estate. But that has no bearing on the critical question, which is whether the trustees gave real and genuine consideration to the personal claims of Mr Marsella. If Mrs Wareham had been advised that he had no interest in the matter, reference in the minutes to the defined term ‘Dependants’ would not alter that position. It would naturally be inferred that, consistent with the advice, she understood that term not to include Mr Marsella. There was no suggestion in the minutes or other evidence that the trustees had looked at the trust deed.

The applicants also referred to evidence that Mrs Swanson did not intend to confer the death benefit on Mr Marsella. However, the matters relied on could not influence the construction of the trust deed, being concerned primarily with events after its execution. The purported binding nomination, executed on the same day as the trust deed, was inconsistent with the terms of the trust deed and it was not suggested to have varied it. Nor was any construction advanced by the applicants that would have excluded Mr Marsella as a potential recipient of the death benefit. The argument was more along the lines that the trustees acted in line with Mrs Swanson’s wishes. However, even accepting that to be so for the sake of argument, the fact that there may have been good grounds for the discretion not to be exercised in favour of Mr Marsella is irrelevant at this point. If the trustees did not exercise the discretion upon real and genuine consideration, there has not been a proper exercise of the discretion. The fact that the discretion could have been properly exercised in the same way cannot alter that position.

The principal attack on the judge’s conclusion therefore fails.

The applicants sought to address the judge’s more specific findings in other grounds. So, it was submitted under proposed ground 3 that the finding as to conflict was in error. Reliance was placed on the terms of the trust deed. It was said that the trust deed recognised the possibility of Mrs Wareham being both trustee and beneficiary and that this attenuated any conflict. The finding as to the parties being involved in litigious disputes, and the fact of the physical altercation to which the judge referred, are not challenged. It is inescapable that these matters formed part of the context in which the discretion was purportedly exercised, as the judge held.

The trust deed can be said to have acknowledged that Mrs Wareham and other potential beneficiaries of the death benefit would be in a position of potential conflict, and therefore endorsed that prospect.[35] It cannot be said that the trust deed expressly envisaged the appointment of Mr Wareham as trustee. More importantly, and in any event, the trust deed was silent on the altogether different circumstance of there being actual conflict, concerning the proper distribution of assets after the death of Mrs Swanson, and extending to litigation between the trustees and one of the potential beneficiaries. The attack on the judge’s finding, or its relevance, therefore fails.
[35]Blenkinsop v Herbert (2017) 51 WAR 264, 289–90 [115]–[117] (Murphy and Mitchell JJA and Beech J); Elovalis v Elovalis [2008] WASCA 141, [68]–[70] (Buss JA).

Secondly, the applicants contend under proposed ground 4 that the judge erred in finding that the outcome of the exercise of the discretion was ‘grotesquely unreasonable’. It was submitted that the outcome of the exercise of discretion was irrelevant, although the applicants pointed to no authority for that submission. The judge cited Re Lofthouse,[36] in which Cotton LJ stated in argument that ‘perversity is dishonesty for this purpose’,[37] meaning the purpose of impugning a trustee’s exercise of discretion. The authors of Jacobs’ Law of Trusts in Australia rely on that observation for the proposition that a ‘grotesquely unreasonable result may be evidence of a miscarriage of duty’.[38] There is no reason to doubt that proposition.
[36](1885) 29 Ch D 921 (‘Lofthouse’), cited at Reasons [37].
[37]Lofthouse 930.
[38]JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia (LexisNexis Butterworths, 8^th ed, 2016) 327 [16–08].

But in any event, arguments as to the result of the exercise of the discretion do not advance the applicants’ case. The judge relied on her characterisation of the trustees’ decision only as supporting her conclusion, based on other grounds, that the discretion had not been duly exercised.[39] The judge did not apply the above principle to identify a miscarriage. She invoked her finding to support a conclusion already reached. It is therefore unnecessary to venture into the question whether the decision was correctly characterised as ‘grotesquely unreasonable’. But it must be said that the decision to pay no part of the death benefit to the deceased’s husband of more than 30 years was, at least, remarkable.
[39]Reasons [51], [56]. These passages refer only to the position of Mrs Wareham, but it can be assumed that the judge applied the same reasoning in the case of Mr Wareham.

Next, under proposed ground 5, the applicants submit that the judge erred in failing to accept what they described as their unchallenged evidence, or in failing to give them an opportunity to be heard before rejecting that evidence. This is a reference to the evidence of Mr Hayes that Mrs Wareham told him that she had given careful consideration to all of the dependants, and to the statement in the minutes referring to consideration of ‘the possible interests of all Dependants of the deceased member, the potential eligible Beneficiaries of the Member, and the Member’s Estate’.[40]
[40]Ibid [54].

There is no substance in this submission. The evidence in question amounted to nothing more than out of court assertions by Mrs Wareham, and by the trustees collectively, to the effect that they had complied with their duties. Mr and Mrs Wareham did not give evidence. As such, the respondent could not have meaningfully cross-examined any witness as to the truthfulness of these assertions. In the circumstances, it adds nothing to describe the evidence as ‘unchallenged’. Moreover, the judge was not required to give notice that she might act on other evidence, or reach a conclusion based on all the evidence that amounted to disagreement with the out of court assertions of the applicants. The parties can have been in no doubt that the task of the judge was to reach her own conclusion on the whole of the evidence. If the true complaint is that the contrary conclusion was not put to the applicants, that was the inevitable result of their choice not to give evidence.

Proposed ground 7 then seeks to establish that the judge erred in finding, ‘contrary to the evidence of [Mrs Wareham] that was received without objection or cross-examination’, that she did not obtain specialist advice. The ground is again misconceived in so far as it suggests that Mrs Wareham gave evidence. She did not. Again, there was no procedural fairness reason why the judge could not decide that Mrs Wareham did not obtain specialist advice. More fundamentally, there was no evidence at all that she had done so. The finding involved rejecting no evidence. The highest that the evidence rose was that Mr Hayes had advised Mrs Wareham to carefully consider all the dependants as defined in the trust deed and obtain specialist advice, and that she later told him that she had followed his ‘advice’ and given the dependants careful consideration. This fell well short of evidence that Mrs Wareham had received specialist advice. Moreover, in circumstances where the minutes were drawn by lawyers, the absence of any reference to such advice having been obtained supports the judge’s finding.

To the extent that this ground challenges the judge’s finding on the basis that Mrs Wareham obtained legal and accounting advice, it is misconceived because it is plain that the judge’s finding referred to the advice of a specialist in the superannuation field, beyond the legal and accounting advice which the judge found Mrs Wareham had received.[41]
[41]Reasons [55].

For these reasons, none of proposed grounds 1, 3, 4, 5, 7 or 10 is made out.

Evidentiary issue and the nature of the power — Proposed grounds 8 and 9

In proposed ground 8, the applicants take issue with the trial judge having taken notice of findings and observations made in the pt IV proceeding.[42] It is submitted that those facts were not matters of common knowledge within the scope of s 144 of the Evidence Act 2008, and that the judge had not afforded the applicants an opportunity to make submissions as to the acquiring or taking into account of knowledge of that kind. Further, it is submitted that the judge had indicated, when objection was taken by the applicants to Mr Marsella relying on affidavits in the pt IV proceeding, that she would not be concerning herself with the findings in question.
[42]It was not disputed that the judge was entitled to have regard to the fact that the parties were engaged in the proceeding.

However, the judge did not say that. She said to counsel for the applicants that he should not concern himself with ‘all of the matters … in the affidavits’ but she added that she had the decision in the pt IV proceeding and so was aware of the background. In other words, the judge made it clear that she would not delve into the evidence but might rely on the decision she had made in the pt IV proceeding. It would have been strange for the judge to have ignored her own findings in that proceeding altogether.

As she had foreshadowed, the judge did not rely on the affidavits in the pt IV proceeding. Her reliance on the findings in that proceeding was, moreover, very confined. In her factual narrative, the judge said this:

On 13 June 2018, the Court handed down judgment in the Part IV proceeding, ordering that the plaintiff be provided with a flexible life interest in the Alicudi Avenue property and a pecuniary legacy. Of note, the Court made a number of findings regarding the relationship between the plaintiff and first defendant, namely, that upon the death of the deceased the first defendant exhibited a marked negative attitude toward the plaintiff, that their relationship had broken down irretrievably and that the first defendant’s evidence tended to be jaundiced by her negative feelings toward the plaintiff. Subsequent to this judgment, the first defendant discontinued the trust proceeding.[43]

[43]Reasons [33] (citations omitted).

These observations were employed in the reasons in the following way:

Relevant factors for consideration include, but are not necessarily limited to, the intention of the deceased as the settlor of the fund, the relationship between the deceased and the dependant, and the financial circumstances and needs of the dependants. Here, on account of the Part IV proceeding, the Court has notice of the relationship between the deceased, the parties and Mr [Marsella], and their respective financial circumstances. Even assuming that the defendants’ position that the deceased did not intend the plaintiff to benefit from the fund is correct, ignoring the plaintiff’s substantial relationship with the deceased and relatively limited financial circumstances, demonstrates a failure of the first defendant to take into account a relevant consideration.[44]

[44]Ibid [52] (citations omitted).

It can be seen the judge relied on the pt IV proceeding in this context for no more than the finding, which is unchallenged, that Mr Marsella had a substantial relationship with the deceased, and the further finding, which is not accepted by the applicants, that Mr Marsella had ‘relatively limited financial circumstances’.[45] Inevitably, the financial circumstances of the parties were a central issue in the pt IV proceeding. The judge had told the parties that she might rely on the decision in those proceedings, which turned on that question. She was entitled to do so and there is no plausible case that the applicants were denied procedural fairness in the circumstances.
[45]Of course, the fact of the pt IV proceeding was also relied on as part of the circumstances of conflict between the parties.

The question is not one of admissibility. The facts alleged in the pt IV proceeding, principally by Mr Marsella himself and Mrs Wareham, were put into evidence by Mr Marsella in the present proceeding. There was no need to rely on the ‘common knowledge’ provision in s 144 of the Evidence Act. In relying on what was decided in the pt IV proceeding, the judge was simply adopting findings made on that same material, in line with the approach she had foreshadowed.[46]
[46]For the same reason, the exclusionary rule as to evidence of decisions and findings in other proceedings in s 91 of the Evidence Act is inapplicable.

Under proposed ground 9, the applicants submit that the judge erred in making the following finding:

Contrary to the defendants’ submissions, the power of distribution provided in clause 51.4(b) is a special power,[47] in accordance with which the trustee must distribute the proceeds of the fund to one or more individuals who fall within the class of objects identified.[48] The fact that the first defendant falls within the class of objects did not negate her duty to exercise the power in good faith, upon real and genuine consideration, and for the purposes for which the power was conferred.[49]

[47]See Geraint Thomas, Thomas on Powers (Oxford University Press, 2^nd ed, 2012) 9 [1.17].

[48]JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia (LexisNexis Butterworths, 8^th ed, 2016) 31–2 [2–46].

[49]Reasons [47].

The applicants submit that the judge should have found that the power in cl 51.4(b) was a general power of appointment that permitted the trustees to distribute the proceeds of the fund to a class of objects including Mrs Wareham, and to distribute the fund to Mrs Wareham without regard to the interests of other potential beneficiaries. This was said to arise on the ‘proper construction’ of the trust deed. Reliance was placed on Blenkinsop v Herbert.[50] The passage in question involves discussion of the classification of powers as fiduciary or otherwise, which is (uncontroversially) said to be a question of construction. However, the applicants pointed to no feature of the trust deed supporting their suggested construction, beyond the absolute and unfettered nature of the power and the absence of any requirement for the trustees to give reasons.
[50](2017) 51 WAR 264, 285–7 [90]–[100] (Murphy and Mitchell JJA and Beech J).

There is no reason to doubt the correctness of the trial judge’s conclusion set out above. It is abundantly clear that the trust deed obliged the trustee to exercise a discretion as to which of a defined class of persons should receive an amount standing in the fund by way of death benefit (and in what proportions if more than one). Clause 51.1 requires the trustee in mandatory terms to pay the benefit. Clause 51.4(b) is also expressed in mandatory language, while requiring the trustee to choose among the identified class of potential beneficiaries. That choice reflects a discretion. The case is very far removed from a general power, by which the appointor has rights virtually equivalent to ownership.[51] This ground is without merit.
[51]See n 47 above, cited by the trial judge.

Neither of proposed grounds 8 or 9 is made out.

Bad faith — Proposed ground 6

The sixth proposed ground of appeal challenges the judge’s finding that Mrs Wareham approached the exercise of discretion with such ‘ill-informed arbitrariness’ as to amount to bad faith.

If the judge’s finding that the trustees did not give real and genuine consideration were to be displaced, it is hard to see how the bad faith finding would not fall with it. The question then arises whether, if the finding as to real and genuine consideration stands (as we have found it does), anything is added by having regard to the issue of good or bad faith. An affirmative answer to that question is premised on the notion that, in a case where a trustee enjoys an absolute discretion, bad faith needs to be shown in order to impugn the exercise of that discretion. In that context, the applicants submit that a failure to give real and genuine consideration does not suffice to displace the exercise of an absolute and unfettered discretion.

This suggestion is flatly inconsistent with Karger v Paul, which involved an absolute discretion. McGarvie J was at pains to make it clear that there were three obligations on a trustee exercising such a discretion: to do so in good faith, upon a real and genuine consideration, and in accordance with the purpose for which the discretion was conferred.[52] He described the real and genuine consideration requirement as being ‘so obvious that it is often not mentioned’.[53] He then proceeded to consider the three obligations individually on the facts of the case.
[52][1984] VR 161, 164.
[53]Ibid 165.

The idea that it may be essential to establish bad faith in cases of absolute discretion derives from the summary of the law in this area adopted by Northrop J from written submissions of counsel in Clerical Administrative and Related Employees Superannuation Pty Ltd v Bishop.[54] The summary was approved on appeal to the Full Court of the Federal Court[55] and was later adopted by the High Court in Breckler.[56] The relevant passage in the summary reads:

The exercise of a discretion by trustees cannot of course be impugned upon the basis that their decision was unfair or unreasonable (see Dundee General Hospitals Board of Management v Walker [1952] 1 All ER 896) or unwise (Gisborne v Gisborne (1877) 2 App Cas 300 at 307). Where a discretion is expressed to be absolute it may be that bad faith needs to be shown (Gisborne v Gisborne at 305).

[54](1997) 76 IR 139 (‘Bishop’).

[55]Wilkinson v Clerical Administrative and Related Employees Superannuation Pty Ltd (1998) 79 FCR 469, 480 (Heerey J, Lockhart J agreeing at 471).

[56](1999) 197 CLR 83, 99–100 [7] (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ). The trial judge in the present matter stated (at [59]) that this Court’s decision in Curwen (2009) 26 VR 335 may also suggest that bad faith needs to be shown. We are unable to identify such a suggestion. In any event, Curwen involved no allegation of bad faith; the Court approached the case as one alleging improper purpose only: at 351 [35]–[37] (Redlich and Bongiorno JJA and Hansen AJA).

The authority of the summary cannot be denied. Apart from its endorsement by the High Court (albeit without argument between the parties as to its correctness), counsel originally responsible for its preparation, Mr David Maclean, was a leading authority in the area in his own right. But the point as to bad faith is made only tentatively, and it did not need to be decided in any of the cases mentioned, including Bishop itself. When one turns to the authority cited for the proposition, Gisborne v Gisborne,[57] it is apparent that the relevant observation in the speech of Lord Cairns LC was made in passing in the course of construing a will. The passage reads:

The trustees are not merely to have discretion, but they are to have ‘uncontrollable,’ that is, uncontrolled, ‘authority.’ Their discretion and authority, always supposing that there is no mala fides with regard to its exercise, is to be without any check or control from any superior tribunal.[58]

[57](1877) 2 App Cas 300.

[58]Ibid 305.

Especially when, as McGarvie J pointed out, the requirement of real and genuine consideration is so obvious that it is often not mentioned,[59] these authorities should not be construed as requiring that bad faith be demonstrated in order to impugn the exercise of a trustee’s absolute and unfettered discretion. Such a discretion may be reviewed on the same grounds as more confined discretions, along the lines explained in Karger v Paul.
[59]Karger v Paul [1984] VR 161, 165.

Of course, the tests for impugning a trustee’s discretion are to be applied in every case by reference to the nature, scope and purpose of the discretion in issue, properly construed. Where that discretion is absolute and unfettered, the trustee’s latitude to act is plainly broader and the task of the party seeking to displace the exercise of discretion is correspondingly more difficult. In particular, it will be more difficult to establish that the outcome of the exercise of the discretion was so unreasonable as to found an inference that it was not done in good faith, upon a real and genuine consideration, and in accordance with the purpose for which the discretion was conferred. But as already explained, this was not the process of reasoning of the judge in the present case.

The premise underlying the utility for the applicants of proposed ground 6 is therefore wrong. Success on this ground would not avail the applicants, since the judge’s conclusion as to real and genuine consideration has been sustained. It is unnecessary to say more about her finding as to Mrs Wareham’s bad faith.

Removal — Proposed ground 2

The final proposed ground challenges the judge’s decision to remove the applicants as trustees, in circumstances where, it is submitted, there was no factual justification for doing so and, in any event, the trust had already been wound up.

The first argument in this context is that the evidence did not establish that the trustees were unfit to act.

The judge explained her decision to remove the applicants as trustees in the following terms:

The defendants failed to exercise the discretion afforded to them under clause 51.4(b) by not giving real and genuine consideration to the interests of the defendants. In distributing the proceeds of the fund to the first defendant they arbitrarily dealt with the entirety of the property subject to the trust. They did so in the context of substantial personal conflict with the plaintiff. In all the circumstances it is appropriate for the defendants to be removed as trustees of the fund.[60]

[60]Reasons [73].

Although the judge did not expressly say so, her decision appears to have been based on the inherent jurisdiction of the Court, rather than the statutory power in s 48 of the Trustee Act 1958. This approach is consistent with authority regarding the removal of a trustee who wishes to continue in office.[61]
[61]Monty Financial Services Ltd v Delmo [1996] 1 VR 65, 76–7 (Ashley J) (‘Monty Financial Services’).

It was submitted that, to the extent that the judge had found that the trustees had acted upon incorrect legal advice, there was no reason to think that they would not properly follow correct legal advice if called upon to exercise the discretion afresh. It was said that a distribution had to be made in order to avert the adverse tax consequences of further delay, notwithstanding the position of conflict between the parties. It was submitted that it could not be said to be arbitrary to have acted, on legal advice, in those circumstances.

The applicants pointed to the summary of principles governing removal of a trustee set out by Martin CJ in Elovalis v Elovalis.[62] Strictly speaking, those principles emerge from cases dealing with the construction and application of the statutory power of the Court to replace trustees.[63] However, no relevant difference was identified for present purposes. Nor was any criticism made of the summary of principle set out by the trial judge in the present case, drawing on some of the same authorities, in the following terms:

In determining whether a trustee should be removed the chief consideration is the welfare of the beneficiaries. The Court will have regard to the security of the trust property, the efficient and satisfactory execution of the trust and the faithful and sound exercise of powers conferred upon the trustee. A breach of trust will not necessarily lead to the removal of a trustee, nor will the existence of a conflict between duty and interest. At times, however, such factors may be sufficient to justify the trustee’s removal. Ultimately, whether the Court exercises its discretion turns upon the circumstances of each case.[64]

[62][2008] WASCA 141, [29]–[40] (‘Elovalis’).

[63]Ibid [29].

[64]Reasons [72] (citations omitted).

However, in this Court the applicants went further and submitted that the guiding principle is whether the trustees are ‘unfit to act’. That expression derives from the statutory power to remove an executor in s 34 of the Administration and Probate Act 1958. In that context, much case law has developed as to the meaning of the concept of unfitness.[65] The position regarding the inherent jurisdiction is not necessarily constrained by this concept.[66] The safer guide is the requirements of the welfare of the beneficiaries.[67] The content of that notion was explained by Dixon J (with whom Evatt and McTiernan JJ agreed) in Miller v Cameron:

The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove a trustee the Court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office.[68]

[65]Dimos v Skaftouros (2004) 9 VR 584, 592 [12] (Winneke P); Monty Financial Services [1996] 1 VR 65, 70ff (Ashley J); Czapp v Cassar [2015] VSC 111, [56]–[62] (Hargrave J).

[66]Monty Financial Services [1996] 1 VR 65, 73–4.

[67]Miller v Cameron (1936) 54 CLR 572, 575 (Latham CJ), 579 (Starke J), 580 (Dixon J); see also Letterstedt v Broers (1884) 9 App Cas 371, 385–6.

[68](1936) 54 CLR 572, 580.

Relevantly to the matter currently before this Court, Dixon J continued:

Such a judgment must be largely discretionary. A trustee is not to be removed unless circumstances exist which afford ground upon which the jurisdiction may be exercised. But in a case where enough appears to authorize the Court to act, the delicate question whether it should act and proceed to remove the trustee is one upon which the decision of a primary Judge is entitled to especial weight.[69]

[69]Ibid 580–1.

In our opinion, it has not been shown that the judge’s discretion miscarried in this respect. The fact that a decision as to distribution had to be made may well justify having addressed the matter notwithstanding that the parties were engaged in litigation. But those circumstances cannot be taken in isolation. The trustees made a decision, based on a failure to give the matter real and genuine consideration, which they have since defended both at trial and in this Court. The trustee or trustees who will re-exercise the discretion must, in order to give the matter real and genuine consideration, admit of the possibility of a different outcome. There is a real risk, at the least, that even with correct legal advice the interests of all potential beneficiaries may not be given that consideration by the present trustees, but that they may instead simply act to reinstate the decision, made in their own favour, which they have fought to uphold. In the circumstances, it has not been shown that the judge’s discretion miscarried.

Finally, the fact that a resolution was also made to wind the trust up is no impediment to the making of remedial orders by the Court. It was not suggested that any irrevocable step had been taken pursuant to that resolution such that the resolution and those preceding it could not be undone. In the circumstances, the judge was correct to reject the submission that the Court lacked jurisdiction.[70]

Jones v Dunkel

[70]Reasons [41].

The respondent in his submissions placed considerable reliance on the fact that Mr and Mrs Wareham had not given evidence. It was said that this amply supported the drawing of a Jones v Dunkel[71] inference in the respondent’s favour. The judge did not draw such an inference. She made it clear that she did not do so, especially in the context of the good faith issue.[72] The fact that the trustees were not required to give reasons for their decision complicates the issue, as the judge recognised (citing Curwen v Vanbreck Pty Ltd).[73]
[71](1959) 101 CLR 298.
[72]Reasons [57].
[73]Ibid [42], citing Curwen (2009) 26 VR 335, 349.

The applicants pointed out, with some justification, that reliance on this argument required a notice of contention. On the other hand, the issue was squarely raised in the respondent’s written case and we would not have prevented the respondent from relying on the argument on that ground alone. In the circumstances, it is not necessary to consider the argument in any event and it is undesirable to say more about it.

Conclusion

Leave to appeal should be granted but the appeal should be dismissed.

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[2020] VSCA 92

20 April 2020