Cisera v Cisera Holdings Pty Ltd

Case •

[2018] NSWCA 286

•

26 November 2018

No judgment structure available for this case.

Court of Appeal


Supreme Court


New South Wales

  • Summary available
  • Amendment notes
Medium Neutral Citation: Cisera v Cisera Holdings Pty Ltd [2018] NSWCA 286
Hearing dates: 13 February 2018
Decision date: 26 November 2018
Before: Bathurst CJ at [1];
Beazley P at [4];
White JA at [5]
Decision:

(1)   Grant the applicants leave to appeal from the orders of the Equity Division of 20 July 2017.
(2)   The appeal be dismissed.

Catchwords: EQUITY – trusts and trustees – powers of trustees – statutory jurisdiction of the court to confer powers on trustees pursuant to Trustee Act 1925 (NSW) s 81 – where applicants sought orders that would provide for the extension of the vesting date of a trust or would allow the trustee to extend the vesting date – whether Re Dion Investments Pty Ltd (2014) 87 NSWLR 753 was wrongly decided or distinguishable – whether orders would be expedient under s 81(1) – appeal dismissed
Legislation Cited: Income Tax Assessment Act 1936 (Cth), s 78
Settled Land Acts 1925 (UK), s 64
Trustee Act 1958 (Vic), s 63A
Trustee Act 1925 (NSW), ss 28, 81
Trustee Act 1925 (UK), s 57
Trustee Act 1936 (SA), s 59C
Trustee Act 1956 (NZ), s 64A
Trustees Act 1962 (WA), s 90
Trusts Act 1973 (Qld), s 95
Variation of Trusts Act 1958 (UK)
Variation of Trusts Act 1993 (Tas), ss 13, 14
Cases Cited: Andtrust v Andreatta [2015] NSWSC 38
Arakella Pty Ltd v Paton (2004) 60 NSWLR 334; [2014] NSWSC 13
Bull v Boreas Pty Ltd [2015] NSWSC 761
Chapman v Chapman [1954] AC 429
Cisera v Cisera Holdings Pty Ltd [2017] NSWSC 960
Hancock v Rinehart [2015] NSWSC 646; (2015) 106 ACSR 207
House v The King (1936) 55 CLR 499
In Re Downshire Settled Estates; Marquess of Downshire v Royal Bank of Scotland [1953] Ch 218
James N Kirby Foundation Ltd v Attorney General (NSW) (2004) 62 NSWLR 276; [2004] NSWSC 1153
Paloto Pty Ltd v Herro [2015] NSWSC 445
Plator Nominees Pty Ltd [2012] VSC 284
Re Bowmil Nominees Pty Ltd [2004] NSWSC 161
Re Craven’s Estate (No 2) [1937] Ch 431
Re Dion Investments Pty Ltd (2014) 87 NSWLR 753; [2014] NSWCA 367
Re Dion Investments Pty Ltd [2013] NSWSC 1941
Re Philips New Zealand Ltd [1997] 1 NZLR 93
Riddle v Riddle (1952) 85 CLR 202
Southgate v Sutton & Ors [2011] EWCA Civ 637
Stein v Sybmore Holdings Pty Ltd [2006] NSWSC 1004; (2006) 64 ATR 325
Sutton v England [2012] 1 WLR 326
Thomas Hare Investments Ltd v Raymond Thomas Hare [2012] VSC 200
Texts Cited: Variation of Trusts in New South Wales (1990) 13(2) UNSW Law Journal 359
Category:Principal judgment
Parties: Mario Natale Cisera (1st Applicant)
John Anthony Cisera (2nd Applicant)
Cisera Holdings Pty Ltd (1st Respondent)
Jeremy Neil Glass (2nd Respondent)
Representation:

Counsel:
G K Burton SC with E W Young (Applicants)
Submitting appearance (1st Respondent)
M Cashion SC (2nd Respondent)

  Solicitors:
Neil Scott Lawyers (Applicants)
Glass Goodwin (2nd Respondent)
File Number(s): 2017/2470712017/251043
 Decision under appeal 
Court or tribunal:
Supreme Court of New South Wales
Jurisdiction:
Equity Division
Citation:
[2017] NSWSC 960
Date of Decision:
20 July 2017
Before:
Parker J
File Number(s):
2016/273397

HEADNOTE

[This headnote is not to be read as part of the judgment]

The applicants are members of the beneficial class of a trust known as the Cisera Family Trust (‘the Trust’) and directors of the trustee, Cisera Holdings Pty Ltd. The Trust Deed was made on 23 August 1974 and had a vesting date of no later than 1 January 2024. By their amended summons, the applicants in substance sought an order under s 81(1) of the Trustee Act 1925 (NSW) to provide for the extension of the vesting date of the Trust or that would allow the trustee to extend the vesting date of the Trust.

At the time of hearing the members of the beneficial class were the applicants, and the wife of the second applicant. However, the Trust Deed provided that the second applicant’s children would be members of the beneficial class if their father pre-deceased them before the vesting date. The applicants’ deposed that at the time of the current likely vesting date there would be a significant capital gains tax liability and that they were concerned that the assets would vest solely in the second applicant’s children.

The primary judge, Parker J dismissed the summons holding that s 81 did not provide the power to extend the vesting date of a trust and that the orders sought were not “expedient”. His Honour relied upon the decision of Re Dion Investments Pty Ltd (2014) 87 NSWLR 753; [2014] NSWCA 367. The principal issues before the Court of Appeal were:

(i)    whether Re Dion Investments was correctly decided;

(ii)    whether Re Dion Investments could be distinguished in the present case; and

(iii)    whether the proposed amendments to the Trust would be expedient.

The Court (Per White JA, Bathurst CJ and Beazley P agreeing) granted the applicants leave to appeal and dismissed the appeal:

In relation to issue (i)

(1) Re Dion Investments was correctly decided. The power under s 81(1) must be exercised by only granting specific powers relating to the management and administration of the trust property that can be seen to be expedient. The primary judge was correct to conclude that the orders sought under s 81(1) that the trustee be empowered and authorised to manage and administer the trust property beyond the Terminal Date specified in the trust deed was in substance an application for an order to vary the terms of the trust by varying the definition of the Terminal Date: [65]-[66]

Re Dion Investments Pty Ltd (2014) 87 NSWLR 753; [2014] NSWCA 367; Re Downshire Settled Estate; Marquess of Downshire v Royal Bank of Scotland [1953] Ch 218 applied.

In relation to issue (ii)

(2) The reasoning and effect of the decision in Re Dion Investments is not confined to the particular matter primarily in issue in that case as to whether s 81(1) authorised the making of an order giving the trustee a general power of amendment of the trust deed. Rather, this Court disapproved of decisions which had found in s 81 an authority to alter the trusts on which trust property was held which would have been beneficial to the interests of the beneficiaries, or to the fulfilment of the trust purpose, but which were not concerned with the management or administration of the trust assets: [68].

In relation to issue (iii)

(3) Had this further ground of appeal arisen, there would be no proper basis for interfering with the primary judge’s evaluative assessment that it was not expedient to make the orders sought, having regard to the objectives of the Trust and the settlor’s intentions: [73].

Judgment

  1. BATHURST CJ:   I have had the advantage of reading the judgment of White JA in draft.

  2. I agree with the orders proposed by his Honour and with his reasons.

  3. I would only add a reference to the analysis by Brereton J in Hancock v Rinehart [2015] NSWSC 646; (2015) 106 ACSR 207 at [180]-[191] which provides compelling support for the conclusion reached by his Honour.

  4. BEAZLEY P:    I have had the advantage of reading in draft the reasons of White JA.  I agree with his Honour’s reasons and proposed orders

  5. WHITE JA: This is an application for leave to appeal from orders of the Equity Division (Parker J) dismissing the applicants’ summons (Cisera v Cisera Holdings Pty Ltd [2017] NSWSC 960). The applicants are beneficiaries of a trust known as the Cisera Family Trust (“the Trust”) and directors of the trustee. The first respondent, Cisera Holdings Pty Ltd, is the trustee of the Trust. The second respondent, Mr Jeremy Glass, was appointed as contradictor in the proceedings.

  6. By their amended summons the applicants sought various orders that, although differently expressed, sought in substance an order under s 81(1) of the Trustee Act 1925 (NSW) that the trustee be authorised to manage and administer the property of the Trust on the basis that the vesting date of the trust would be postponed. In substance, although not in form, the applicants sought orders that would provide for the extension of the vesting date of the Trust or would allow the trustee to extend the vesting date of the Trust.

  7. The Trust Deed provides that the “Terminal Date” of the trust is to be:

“The 20th Anniversary of the date of death of the last survivor of all the lineal descendants living at the date of this Settlement of his late Majesty King George the Fifth

or

the 1st day of January in the year 2024

or

Such date as shall be declared by Memorandum in writing under the common seal of my Trustee to be the Terminal Date (as to which its discretion shall be absolute and unfettered).

WHICHEVER shall first occur.”

  1. The primary judge applied this Court’s decision in Re Dion Investments Pty Ltd (2014) 87 NSWLR 753; [2014] NSWCA 367 in holding that s 81 of the Trustee Act did not authorise the making of the orders sought.

  2. On appeal the applicants contend that Re Dion Investments was wrongly decided. Although the Court did not sit a bench of five, the applicants were advised that this did not preclude their putting any argument that they desired to put (T2). Alternatively, the applicants contended that Re Dion Investments Pty Ltd could be distinguished and that s 81 was wide enough to authorise the Court’s making the orders sought. They contended that the power should be exercised because the Court should be satisfied that it is expedient in the management or administration of property of the Trust for the trustee to be empowered to administer trust property on the basis that the vesting date was extended.

  3. Section 81 of the Trustee Act provides:

“81    Advantageous dealings

(1)    Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure, or transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust, or by law, the Court:

(a)    may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, including adjustment of the respective rights of the beneficiaries, as the Court may think fit, and

(b)    may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne as between capital and income.

(2)    The provisions of subsection (1) shall be deemed to empower the Court, where it is satisfied that an alteration whether by extension or otherwise of the trusts or powers conferred on the trustees by the trust instrument, if any, creating the trust, or by law is expedient, to authorise the trustees to do or abstain from doing any act or thing which if done or omitted by them without the authorisation of the Court or the consent of the beneficiaries would be a breach of trust, and in particular the Court may authorise the trustees:

(a)    to sell trust property, notwithstanding that the terms or consideration for the sale may not be within any statutory powers of the trustees, or within the terms of the instrument, if any, creating the trust, or may be forbidden by that instrument,

(b)    to postpone the sale of trust property,

(c)    to carry on any business forming part of the trust property during any period for which a sale may be postponed,

(d)    to employ capital money subject to the trust in any business which the trustees are authorised by the instrument, if any, creating the trust or by law to carry on.

(3)    The Court may from time to time rescind or vary any order made under this section, or may make any new or further order.

(4)    The powers of the Court under this section shall be in addition to the powers of the Court under its general administrative jurisdiction and under this or any other Act.

(5)    This section applies to trusts created either before or after the commencement of this Act.”

  1. For the reasons which follow I consider that there is no basis to depart from Re Dion Investments, nor to deny its application in the present circumstances. The primary judge was correct in concluding that the application did not meet the requirements of s 81.

The Trust Deed

  1. The Trust Deed was made on 23 August 1974. The settlor was W P Nominees Pty Ltd. The primary judge recorded that counsel for the applicants suggested that the settlor was probably associated with a firm of solicitors known as William Patterson who was involved in establishing the Trust. The trustee was Barp Nominees Pty Ltd. It retired and was replaced by Cisera Holdings in May 2015.

  2. The first applicant, Mr Mario Natale Cisera (born 13 July 1927) is one of the beneficiaries of the Trust. The second applicant, Mr John Anthony Cisera (born 7 September 1958) is also a beneficiary of the Trust. I will use the parties’ first names for ease of reading, intending no disrespect.

  3. Mario was the husband of the late Mrs Clelia Cisera (née Barp) and John is her son. John married Ms Sang Hee Shin (known as Crystal Shin). They have two children aged 10 and eight.

  4. The principal trust assets are valuable commercial real property in Sydney.

  5. Clause 3 of the trust deed provides:

“Subject to clauses 4 and 5 hereof the Trustee shall hold the Trust Fund for all or such one or more of them the members of the Beneficial Class living at the Terminal Date for such interests and in such proportions as the Trustee as at the Terminal Date in its absolute discretion by memorandum in writing under the Common Seal of the Company declares not earlier than one year prior to the Terminal Date PROVIDED ALWAYS that failing any declaration by the Trustee as aforesaid or to the extent that any such declaration as aforesaid shall not extend or shall result in invalidity the Trustee shall hold the Trust Fund upon the Terminal Date upon the trusts set out in the 5th part of the schedule hereto.”

  1. Clause 4 provides in substance that prior to vesting the trustee is to apply the net annual income arising from the trust fund for such one or more of the members of the Beneficial Class as the trustee in its absolute discretion determines, or failing determination upon trusts set out in the 6th Part of the Schedule. Clause 5 permits the Trustee in its absolute discretion with the consent in writing of the Appointor during his lifetime, to advance capital or income for the maintenance, education, advancement or benefit of any person who should, for the time being, be a member of the Beneficial Class. (No appointor was named.)

  2. The Beneficial Class is defined in the schedule as the following:

“The class of persons comprising –

JOHN ANTHONY CISERA and CLELIA CISERA

and

any spouse to whom the said CLELIA CISERA may have been married at any time before the Terminal Date and if she shall have been married more than once then each such spouse

and

every spouse to whom any of such children of the said CLELIA CISERA shall have been married prior to the Terminal Date

and

if any child of the said CLELIA CISERA shall die before the Terminal Date leaving a child or children surviving him or her then this class shall also include every such surviving child.”

  1. Clelia Cisera died in January 2003. The individuals currently within the definition of Beneficial Class are John Cisera, Mario Cisera (being the spouse of Clelia Cisera) and Crystal Shin (being the spouse of the child of Clelia Cisera). If John Cisera were to die before the Terminal Date, then his children would also be within the Beneficial Class.

  2. The 5th Part of the Schedule identifies the beneficiaries who would be entitled to the trust fund at the Terminal Date if the trustee did not make an appointment under clause 3. Relevantly, the trust fund would be held by members of the Beneficial Class then living in equal shares. Likewise, if in any year the trustee does not appoint the net annual income of the trust fund to one or more members of the Beneficial Class, then under the 6th Part of the Schedule all living members of the Beneficial Class are entitled to the income in equal shares. If John Cisera were to die and there was a gift over of corpus under the 5th Part of the Schedule or a failure to appoint income under clause 4, then his children would take in equal shares the share to which he would be entitled were he living.

  3. The primary judge found (Judgment at [42]) that “[i]t is as certain as anything can be” that the last surviving descendants of King George V who were living in August 1974 will live into the 2040s at least, so that the royal lives period in the first part of the definition of ‘Terminal Date’ would extend until the 2060s at least”. However, members of the Beneficial Class then living will obtain a vested beneficial interest in the trust assets no later than 1 January 2024. At that date Mario will be 96, John will be 65, Crystal will be 47. If John dies before 1 January 2024 his children, who would then be members of the Beneficial Class, will be 15 and 13.

Reasons for extending the Terminal Date

  1. Mario and John are the directors of Cisera Holdings and had been directors of Barp Nominees. Barp Nominees had been the trustee of two family trusts: one for Clelia and her family, and the other for Clelia’s sister, Giselda Sandrin and her family.

  2. Mario deposed that he was not aware that the terminating date of the Cisera Trust would fall no later than 1 January 2024. He deposed that had he been aware of that matter he would have argued strongly for as long a period as possible before the end date of the trust. He deposed that he estimated the current value of the Cisera Trust’s interests in two commercial properties in the Sydney CBD to be approximately $16 million. He deposed that the purpose of setting up the Cisera Trust was to provide long-term financial security for his wife and for him, their son and their son’s children, and that it was possible that his grandchildren might be the sole beneficiaries of the trust property on the Terminal Date when they would only be 15 and 13 years old. If so, they could take control of the trust property when they reached 18 and in his view they would be much too young to have so much money at their disposal “as they might not listen to their mother or me if we were still alive and John had died”. (Of course, in such an eventuality it would be open to the Trustee to appoint the trust property to Mario or Crystal Shin, or both before the Terminal Date.)

  3. John Cisera deposed that the vesting of the trust property on the Terminal Date of 1 January 2024 would mean that there was a “disposal” of the trust property for capital gains tax. He deposed that based on current values and under current tax law the liability for capital gains tax could be in the order of $3.4 million and this would diminish significantly the trust assets available to generate income necessary for his children’s upbringing and education, buying homes and supporting their current way of life. He said that the incurring of the capital gains tax liability as at 1 January 2024 would be the worst point for capital gains tax to become due from his children’s perspective. It would be necessary for Cisera Holdings to sell its interest in at least one of two CBD properties.

The primary judge’s reasons

  1. The primary judge referred to decisions on the scope of s 81 of the Trustee Act, including Arakella Pty Ltd v Paton (2004) 60 NSWLR 334; [2014] NSWSC 13 at [93]-[96]; In Re Downshire Settled Estates; Marquess of Downshire v Royal Bank of Scotland [1953] Ch 218; Stein v Sybmore Holdings Pty Ltd [2006] NSWSC 1004; (2006) 64 ATR 325; Re Dion Investments; and subsequent first instance decisions that applied Re Dion Investments, including decisions in which it was held that consistently with the decision in Re Dion Investments relief was not available under s 81 to extend the vesting date of a trust (Andtrust v Andreatta [2015] NSWSC 38 (McDougall J); Paloto Pty Ltd v Herro [2015] NSWSC 445 (Darke J); Bull v Boreas Pty Ltd [2015] NSWSC 761 (Rein J)).

  1. The primary judge noted (at [43]-[46]) various formulations of orders sought by the appellants under s 81 which they contended were open and were supported by prior authority, in particular Stein v Sybmore Holdings, notwithstanding the decision in Re Dion Investments, and observed that the effect of each formulation would be that the Court would permit the trustee to administer the Trust as if the vesting date were the latest of the three dates mentioned in the Trust Deed, or the later of the first two, rather than the earliest as the Trust Deed provides (at [46]).

  2. The primary judge recorded the submission for the plaintiffs that Re Dion Investments was not authority for any wider proposition than that the addition of a power of amendment to a trust deed was not a “transaction” which could be authorised under s 81(1) (at [49]) and did not affect the authority of Stein v Sybmore Holdings. The primary judge rejected those submissions (at [49]-[51]).

  3. The primary judge held that the application was precluded by the decision in Re Dion Investments (at [52]). The primary judge nonetheless went on to consider in detail the arguments presented by the plaintiffs. His Honour held that in s 81(1) the word “transaction” was to be read ejusdem generis with the words which precede it (at [55]) and that the common characteristic of all of the dealings listed with “transaction” is that they involve an exchange (whether of money, property, services or promises) between the Trustee and someone else and the same is true of the term “transaction” in the context in which the word is found and that it refers to something bilateral (at [56]). It did not include the extension of the vesting date of a trust.

  4. The primary judge also considered (at [63]-[64] and [66]) that the orders sought would authorise “transactions” in such remote and broad terms as to fall outside the scope of s 81(1) (applying Riddle v Riddle (1952) 85 CLR 202 at 220 per Williams J, 226 per Webb J) (at [63]-[64]). His Honour also said that an order that can be made under s 81(1) must be of a kind that can later be rescinded or modified (s 81(3)). The orders sought were not of that kind (at [67]).

  5. The primary judge found that the orders sought were not “expedient”. His Honour said that a determination of what is “expedient” must have regard to the intentions of the settlor, rather than the Court’s substituting its own ideas as to what is preferable (at [74]). Those intentions were to be gleaned from the terms creating the beneficial interests. The primary judge held that it should be inferred that had the settlor intended that the vesting date be deferred for as long as possible then the Royal lives period would have been used on its own. It was not. The 50-year period before vesting was intended to be the maximum period of time that should elapse before the Terminal Date. This was consistent with no provision having been made for the third generation (John’s children) to participate alongside the second generation, and no provision having been made for any spouse of John’s children, nor for John’s grandchildren or remoter descendants (at [80]). The primary judge observed that considering the position in 1974, it might reasonably have been expected that by 2024 John would have been expected to have adult children and perhaps grandchildren. If it had been contemplated that the trust would extend beyond that date, one would expect provision to be made for them to participate as beneficiaries alongside John (at [81]).

  6. The primary judge also found that a problem of some immediacy must exist before the conferral of power under s 81 could be said to be “expedient” (at [87]-[89]). In the present case there was no such immediate problem. The concern that trust assets might vest in John’s children while they were still young was purely hypothetical. The assets would only vest in the children if John did not survive until 1 January 2024. There was no reason to think that he would not survive until that date. In any event, the trustee had the power to advance the vesting date (at [90]). If the Terminal Date could be extended, the Trust Deed was ill-adapted to meet the needs in an ongoing way of John’s children, their spouses and their children. The limitations in the trust deed would become increasingly troublesome as John’s children grew up and had children of their own (at [91]). Capital gains tax would become payable upon the vesting of assets in 2024. But a capital gains tax liability will inevitably be incurred at the point of vesting and the Court could not assess whether the liability to capital gains tax could be borne more readily if the vesting were delayed (at [85]).

Background

  1. In Riddle v Riddle the trustees sought an order under s 81 that would authorise them to invest trust moneys in shares of any 16 selected companies whose shares were listed on the stock exchange. Such investments were outside the powers of investment conferred by the trust instrument or then authorised under the Trustee Act. The High Court by majority (Dixon, Williams and Webb JJ, Fullagar and Kitto JJ dissenting) held that the section would extend to the making of an order that the trustees be authorised to invest moneys in shares and vary and transpose such investments. But the matter was remitted for rehearing in the light of then prevailing economic conditions (at 216, 225). Dixon J said (at 214) that the powers given by s 81 were not to be restricted by any implications. The section authorised the making of a general order to enable trustees to select investments in shares at their discretion (at 215) so that the powers conferred by s 81 were not limited to the making of an order authorising specific investments (at 215). Williams J (at 220) approved a statement of Jordan CJ in Re Strang (1941) 41 SR (NSW) 114 at 117 that it would not be proper for the Court to make a general order authorising investments in trading companies to be selected at the discretion of the trustees. Webb J said (at 226) that the trustees should be authorised only to invest in shares selected by the Court after hearing evidence.

  2. The power of investment in question in Riddle v Riddle was clearly a matter “in the management or administration” of the trust property.

  3. In Re Downshire Settled Estates [1953] Ch 218 the Court of Appeal dealt with three appeals (In Re Downshire Settled Estates; In Re Chapman Settlement Trusts; and In Re Blackwell Settlement Trusts) which raised issues concerning the inherent or statutory power of the Court to approve alterations to trusts. In each case, the purpose of the proposed trust rearrangements was to reduce liability to tax, including death duties. The Court of Appeal considered the inherent jurisdiction of the Court of Chancery to sanction a variation of trusts or trust powers, and statutory powers available under s 64 of the Settled Land Acts 1925 (UK) or s 57 of the Trustee Act 1925 (UK). Of present relevance is the view expressed as to the scope of the power conferred by s 57 of the Trustee Act. It was in materially the same terms as s 81 of the New South Wales Act, except as follows:

  1. section 57(1) provided that “where in the management or administration of any property vested in trustees any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, expenditure or other transaction, is in the opinion of the Court” etc:

  2. section 57(1) did not include the words found in s 81(1)(a) of the New South Wales Act “including adjustment of the respective rights of the beneficiaries”; and

  3. section 57 did not include a provision to the effect of s 81(2) of the New South Wales Act.

  1. The majority of the Court of Appeal (Evershed MR and Romer LJ) held that the words “management or administration” in subsection (1) substantially overlapped and that the application of both words was “... confined to the managerial supervision and control of trust property on behalf of beneficiaries.” (at 247). The power did not extend to rewriting the terms of the trust (at 248). Evershed MR, giving the judgment of himself and Romer LJ, said (at 248, 252):

“In our judgment, the object of section 57 was to secure that trust property should be managed as advantageously as possible in the interests of the beneficiaries and, with that object in view, to authorize specific dealings with the property which the court might have felt itself unable to sanction under the inherent jurisdiction, either because no actual ‘emergency’ had arisen or because of inability to show that the position which called for intervention was one which the creator of the trust could not reasonably have foreseen; but it was no part of the legislative aim to disturb the rule that the court will not rewrite a trust, or to add to such exceptions to that rule as had already found their way into the inherent jurisdiction.

...

... unless any proposed transaction is one which is specifically related to the management or administration by trustees of trust property, quoad property, it does not fall within the scope of section 57.”

  1. In two of the appeals, the Court of Appeal found that the proposed schemes for rearrangement of beneficiaries’ interests could be approved in the Court’s inherent jurisdiction to approve of a compromise (at 259 and 268-269). It was held that the third scheme (In Re Chapman’s Settled Estates) could not be approved under the Court’s inherent jurisdiction. On appeal to the House of Lords (Chapman v Chapman [1954] AC 429) argument was confined to the extent of the Court’s inherent jurisdiction to sanction on behalf of infant beneficiaries and unborn persons a rearrangement of the trusts to secure fiscal benefits. The House of Lords took a narrower view of the inherent jurisdiction than did the Court of Appeal in that the majority considered that the jurisdiction to approve a compromise on behalf of infants and possible after-born beneficiaries was available only where beneficial interests were in dispute (per Lord Simonds LC at 445-446, per Lord Oaksey at 447, per Lord Morton at 461-462, per Lord Asquith at 470-471). Lord Morton agreed (at 465) with the comments in the majority judgment in the Court of Appeal upon s 57 and recorded that counsel conceded that that section could not possibly justify the application (at 465).

  2. In Arakella v Paton (2004) 60 NSWLR 334; [2004] NSWSC 13 Austin J observed that:

“[100]     Their Lordships' denial of any general inherent power to approve a variation of beneficial interests led to the enactment of the Variation of Trusts Act 1958 (UK), which gave the court power to make orders for the variation of trusts and to consent on behalf of infants, unborn and incompetent beneficiaries. That legislation was replicated in Victoria, Western Australia, Queensland and South Australia but not in New South Wales.”

  1. In Arakella v Paton Austin J also observed (at [101]) that s 81(1)(a) of the New South Wales Act, unlike s 57 of the UK Act expressly permitted the Court to include a provision or condition in its order adjusting the rights of beneficiaries and that subs 81(2) expressly empowered the Court to authorise the trustees to do or abstain from doing any act or thing which if done without the Court’s authorisation or the consent of beneficiaries would be a breach of trust where the Court is satisfied that “an alteration whether by extension or otherwise of the trusts or powers conferred on the trustees by the trust instrument ... is expedient ...”. His Honour observed that those words appeared to contemplate an alteration of the trusts and therefore of the interests of beneficiaries. Austin J went on to say:

“[102]     The wording of the New South Wales provision does not purport toauthorise the Court to make orders varying beneficial interests at large, but only in the management or administration of trust property. It cannot be suggested that the section is a substitute for variation of trusts legislation. ...

...

[112]   What emerges is that the Court's power under s 81 cannot be used to subvert the beneficial disposition in the trust instrument, but if an order is made in the management or administration of trust property, it is permissible under the section to accommodate the beneficial interests to the new situation created by the order.”

  1. In Arakella v Paton Austin J was satisfied that the orders sought were expedient in the management or administration of the trust property.

  2. In Re Bowmil Nominees Pty Ltd [2004] NSWSC 161 the trustee was an entity owned by a firm of chartered accountants and the trust was a self-managed superannuation fund. It had been established in 1990 by an employer for the benefit of the employees and their dependents. At the time of the employee’s death he was the sole member of the fund. After his death the trustee sought the agreement of APRA to take no action to revoke the complying status of the fund pending its dissolution in its existing format and its reconstitution by the relatives of the deceased. The trustee exercised its discretion to divide the trust moneys between the deceased member’s de facto wife and ex-wife and two daughters. The ex-wife and the two daughters wished their shares to remain in the fund so that they could be received in the form of allocated pensions to obtain taxation advantages available to members of a self-managed superannuation fund. The trustee wished to resign in favour of the ex-wife and the daughters and that would be necessary if the taxation advantages available under superannuation legislation to self-managed superannuation funds were to be available. It was also necessary for the trust deed to be amended to permit payment of benefits by way of pension (at [1]-[3]).

  3. The trust deed contained a power of amendment, but the power could only be exercised with the approval of the employer who refused to do anything because its former employee was dead.

  4. Hamilton J held that the proposed amendment to the trust deed was expedient in the management or administration of the trust property. His Honour also held that what must be expedient is “any sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure, or transaction” and that an amendment to the trust deed was a “transaction” within the meaning of s 81(1) (at [14]-[16]). In the latter respect Hamilton J applied Re Philips New Zealand Ltd [1997] 1 NZLR 93 in which Baragwanath J held (at 101) that the amendment of the trust deed was a “transaction” within the meaning of the section and could therefore be authorised by the Court.

  5. Ultimately, Hamilton J did not make an order under s 81 of the Trustee Act. Rather, he declared that the proposed amendment of the trust deed was expedient and that it would be appropriate for the trustee to act in accordance with it (at [20]). It appears that his Honour proceeded on the basis that although s 81 authorised an order to that effect, the order was unnecessary because the beneficiaries, being all ascertained and sui juris, could agree that the trust should be varied or reconstituted (at [9]).

  6. In James N Kirby Foundation Ltd v Attorney General (NSW) (2004) 62 NSWLR 276; [2004] NSWSC 1153 I followed Re Bowmil Nominees Pty Ltd. The plaintiff was the trustee of a trust known as the James N Kirby Foundation. To remain a prescribed private fund the trust deed needed to be amended (at [3]). The Foundation made grants to eligible charities and this depended upon donors making donations to the Foundation. It was likely that donations would not be forthcoming if they were not tax deductible (at [3]-[4]). The trust deed required amendment to comply with requirements of the Commissioner of Taxation. I followed the decision in Re Bowmil Nominees Pty Ltd in finding that the amendment of the trust deed fell within the definition of a “transaction” and I held that that transaction was expedient in the management or administration of the trust property.

  7. Stein v Sybmore Holdings Pty Ltd concerned an application for orders under s 81 to extend the vesting date of a trust. The trust deed in that case provided that the vesting day of the trust should be the first to occur (not the last to occur) of three specified dates, namely, a date specified in the schedule (23 December 2007), or a date being 21 years after the death of the last survivor of the descendants living at the date of the Trust Deed of His Late Majesty King George VI, or such other date as might be fixed by the trustees of the vesting date (at [4] and [5]). The trust was established on 1 April 1978. The settlor’s intention was to provide for his wife, children and grandchildren after he was gone (at [3]). It was only shortly before 2006 that the settlor read the trust deed and saw that his intention of providing for his children and grandchildren would miscarry, unless the deed could be altered. His children were then aged 35 and 29 and were unmarried and without children, and if the vesting day remained as stated, then the trust assets would need to be distributed no later than 23 December 2007 (at [18]). Significant taxation liabilities would be imposed upon the vesting date unless the vesting date could be altered.

  8. Campbell J followed the decisions in Re Bowmil Nominees Pty Ltd and James N Kirby Foundation v Attorney General in holding that “transaction” in s 81(1) extended to amendment of the trust deed (at [45]). His Honour found that the transaction was expedient in the interests of the beneficiaries (applying Riddle v Riddle per Dixon J at 214 and Re Craven’s Estate (No 2) [1937] Ch 431 per Farwell J at 436). His Honour also found that the planning to minimise the impact of tax and duties on the trust property advanced the objectives of preserving the trust property and taking steps to make the property financially productive and hence the expediency was “in the management or administration of property vested in trustees” (at [59]).

  9. Clause 18 of the trust deed contained a power of variation, except in relation to the Vesting Day (at [14]). Campbell J relied upon s 81(1) in ordering that the trustee be empowered and authorised, notwithstanding the exception to the power of amendment in the trust deed, to amend the Vesting Day to a date not later than 31 March 2058.

  10. Stein v Sybmore Holdings Pty Ltd was followed in a number of first instance decisions prior to the decision of Young AJ in Re Dion Investments Pty Ltd [2013] NSWSC 1941. Young AJ disagreed with the reasoning in Stein v Sybmore Holdings Pty Ltd and with the reasoning and decision in James N Kirby Foundation Ltd v Attorney General (NSW). Young AJ declined to make an order under s 81 giving the trustees, or other persons entitled, power to vary the trust deed by “modernising” it in a way taxation advisers had suggested (at [63]).

  11. The appeal against Young AJ’s finding that the Court was not empowered, under s 81(1) of the Trustee Act, to confer upon the appellant as trustee power to amend the terms of the trust was dismissed, although the court indicated that orders could be made under s 81 conferring powers on the trustee that would enable advantage to be taken of streaming provisions under income tax legislation (Re Dion Investments Pty Ltd). Barrett JA (with whom Beazley P and Gleeson JA agreed) summarised the scope of the orders sought as follows:

“[27]     In substance, the desire is twofold: first, to cause the specific provisions concerning matters of accounting, allocation and ‘streaming’ to be included in the trust instrument; and, second, to cause that instrument also to contain a provision allowing comprehensive alteration of the terms of the settlement trusts by unilateral action of the trustee. Implicit in the approach taken by Dion Investments Pty Ltd is the proposition that an order made by the court under s 81(1) of the Trustee Act can supply power for a trustee to alter the content of the trust instrument.”

  1. Barrett JA concluded that:

“[110]     The court could make an order to the effect that the trustee had power, in managing and administering the trust property in accordance with clause 4(a) of the trust deed, to deal separately with the income of each and every year ending on 30 June, to distinguish income from corpus on the footing that receipts or gains of such a nature as to be within assessable income for the purposes of the taxation legislation are of an income nature regardless of their character at general law, to maintain in respect of each beneficiary such account or accounts as the trustee thinks fit and to credit to each such account (and thereby allocate to the particular beneficiary) the whole or a part of an amount paid or applied under clause 4(a) in respect of that beneficiary. I do not suggest that this would be the precise wording. I am concerned only to outline the concepts.”

  1. The exercise of such powers in segregating income from corpus and apportioning or allocating income in specified ways to accommodate provisions of taxation legislation would be proposed transactions that were part of the management and administration of trust property (at [111]-[113]). On the other hand, the wider powers sought that the trustee should be empowered to revoke, add to or vary all or any of the trust terms and conditions of the trust deed or to declare, revoke and vary new trusts concerning the trust fund or any part of it, subject to provisos against infringement of the rule against perpetuities and interference with amounts already set aside for beneficiaries, was outside the scope of s 81.

  2. Barrett JA said (at [97]-[100]):

“[97]     Conferral of specific new powers pursuant to s 81(1) should not be by way of purported grant of authority to amend the trust instrument so that it provides for the new powers. Rather, the court’s order should directly confer (and be the sole and direct source of) the powers which then supplement and, as necessary, override the content of the trust instrument. And, of course, the only specific powers that can be conferred in that direct way are those that fall within the s 81(1) description concerned with management and administration of trust property.

[98]     If the power to be given to the trustee is not a specific power with respect to a particular dealing (or dealings of a particular kind) but, rather, a wide discretionary power to alter the terms of the trust as the trustee thinks fit, the case is not within s 81(1). The reason was explained in In re Downshire Settled Estates (at 247–248):

‘We have already pointed out that neither trustees nor the court itself at any time, before 1925, had any general power to depart from the precise directions (provided that they were within the law) that a settlor thought proper to declare. If Parliament, in enacting s 57, had intended to confer this power on the court it is, in our view, inconceivable that it would not have done so in express terms, having regard not only to the novelty but also to the width of the jurisdiction that it was creating; and it is equally incredible that it should have done so without imposing any kind of limit, other than expediency, upon the extent to which, or the manner in which, the court was to exercise its powers.’

[99]     If, under the guise of giving the trustee a power to undertake a ‘transaction’ of amending the trust deed by adding a comprehensive and virtually unrestrained amendment provision, an order is made that purports to put the trustee into a position from which it can make all and any alterations to the terms of the trust it thinks desirable, the court takes the impermissible course of both appropriating to itself and giving to the trustee a ‘general power to depart from the precise directions … that a settlor thought proper to declare’ (In re Downshire Settled Estates at 247). Because there is no ‘proposed transaction … which is specifically related to the management or adminis­tration by trustees of trust property, quoad property’ (at 252), the matter is notwithin the scope of the section.

[100] For these reasons, I share the opinion of the primary judge that the post-1997 decisions that have proceeded on the basis that variation of the terms of a trust is, of itself, a ‘transaction’ within the contemplation of s 81(1) rest on an unsound foundation. The court is not empowered by the section to grant power to the trustee to amend the trust instrument or the terms of the trust. It may only grant specific powers related to the management and administration of the trust property, being powers that co-exist with (and, to the extent of any inconsistency, override) those conferred by the trust instrument or by law.”

  1. Barrett JA’s reference to the “post-1997 decisions” was to the decisions at first instance that adopted the view of the meaning of “transaction” in s 81(1) in Re Phillips New Zealand Ltd.

Applicants’ submission: Re Dion Investments was wrongly decided

  1. The applicants sought leave, to the extent leave was required, to argue that this Court’s decision in Re Dion Investments was wrongly decided.

  2. The applicants submitted that there were two limbs of reasoning in Re Dion Investments, each of which was wrong. The first limb, so it was submitted, was that the trustee must take the trust as it finds it and administer the trust as it stands. Adding a power of amendment is inconsistent with that principle (Re Dion Investments at [94]-[95]). This reasoning is said to be wrong because any proposed exercise of power under s 81(1) necessarily involves an amendment or variation to the terms of the trust because any exercise of the Court’s powers under the section confers a power on the trustee outside of the current terms of the trust.

  3. What is said to be a second limb of reasoning in Re Dion Investments is that:

“... a general power of amendment necessarily means that the source of power is not solely in the Court’s order but, rather, a variation of or amendment to the trust instrument even if the relief is not so expressly framed” (written submissions, para 12).

  1. In relation to this alleged second limb of reasoning in Re Dion Investments, the appellant submits that there is no significance in a distinction drawn between the form of relief granted by conferring particular powers and a form of relief that varies the terms of the trust instrument (at [13]).

  2. The applicants also submit that an amendment to the trust deed extending the Terminal Date can fall within the term “transaction” in s 81(1) and such an extension is “in the management or administration of any property vested in trustees” because it empowers management and administration of the trust beyond its current specified end date.

  3. These submissions do not address the central reasoning in Re Dion Investments. At [94]-[100] of his Honour’s reasons in Re Dion Investments, Barrett JA approved and applied what was said by Evershed MR and Romer LJ in Re Downshire Settled Estates (at 252) that the only dealings which can be authorised by the Court under s 81(1) are dealings specifically related to the management or administration by trustees of trust property, quoad property (at [95]) so that if a power to be given to the trustee is not a specific power with respect to a particular dealing, or dealings of a particular kind, then it does not fall within the scope of the section (at [98] and [100]).

  4. In relation to the first limb of reasoning it is not obvious that every order under s 81 would involve an amendment to the trust deed, as distinct from granting authority to the trustee in a particular case to do some act or omit some act which would otherwise be a breach of trust, for example to postpone a sale where the trust deed conferred no such authority, or to invest in property not authorised by the trust instrument or the Trustee Act. The applicant argues that such a case can be characterised as the Court making an order amending the trust deed to confer power to act or authority not to act in the particular circumstances. That may be so. Barrett JA recognised as much (at [96]) when his Honour said that:

“When the court, acting under s 81(1), confers on a trustee power to undertake a particular dealing (or dealings of a particular kind), ‘it must be taken to have done it as though the power which is being put into operation had been inserted in the trust instrument as an overriding power’: Re Mair [1935] Ch 562 at 565 per Farwell J. The substantive power that the court gives comes into existence by virtue of the court’s order. It does not have its source in the terms of the trust. There is no addition to the content of the trust instrument. That content is supplemented and overridden ‘as though’ some addition had been made to it. The terms of the trust are reshaped accordingly.”

  1. The kind of orders that could be authorised under s 81(1) where a transaction in the management or administration of trust property was expedient was illustrated by Southgate v Sutton & Ors [2011] EWCA Civ 637 (Sutton v England [2012] 1 WLR 326) where the Court of Appeal held that s 57 of the UK Trustee Act authorised the conferral of powers on trustees for appropriation and partition of trust property to create a sub-trust of separated funds for the benefit of beneficiaries resident in the United States who otherwise faced double taxation, in the absence of which the trustees faced difficulties in administering the trust even-handedly in the interests of all the beneficiaries, and which only incidentally affected the beneficial interests (Re Dion Investments at [111]).

  2. Barrett JA was concerned to distinguish between orders authorising particular dealings or class of dealings in the administration or management of the assets of the trust and other amendments to the trust deed not related to dealings with the trust property, such as the proposed power of amendment to the trust deed that was in issue in Re Dion Investments, or the general amendments to the trust deed in James N Kirby Foundation Ltd v Attorney General (NSW) needed to accommodate the requirements of the Commissioner of Taxation for donations to the trust to be deductible, or the extension of the vesting day in Stein v Sybmore Holdings Pty Ltd. Barrett JA concluded in respect of the latter cases that they rested on an unsound foundation. They may be taken to have been overruled.

  3. The distinction Barrett JA drew between orders under s 81(1) between conferring on a trustee a specific power with respect to a particular dealing, or dealings of a particular kind, in the management or administration of trust assets, and a wider power not so limited, was not the focus of the applicants’ submission. But it is the kernel of the reasoning in Re Dion Investments.

  4. Insofar as that issue is addressed in the applicants’ submission, it is through their submission that the primary judge erred in holding that “transaction” in the second list of dealings in s 81(1) should be read ejusdem generis with the preceding list of dealings.

  5. In Re Dion Investments Barrett JA said that a “transaction” within the meaning of s 81(1) need not involve an outlay of money (at [91]). His Honour noted that writing extra-judicially I had suggested that “transaction” should be construed ejusdem generis with the words that preceded it (although noting that this was contrary to then authority) (at [91]) (“R W White ‘Trusts – An Australian Perspective’ [2010] NSW JSCHOL 10”). Barrett JA did not expressly endorse nor reject that view. His Honour’s conclusion (at [111]) that s 81(1) would authorise an order to the effect that the trustee had power in managing and administering the trust property to distinguish income from capital in accordance with the way receipts or gains were assessed under income tax legislation, rather than by application of the general law, and to stream capital gains or franked distributions to individual beneficiaries would be to implement proposed transactions within the meaning of s 81(1) suggests that “transaction” need not necessarily be read ejusdem generis with the other dealings listed in the second limb of s 81(1). It does not follow that it can extend to the kind of amendment in question in the present case.

  6. The power under s 81(1) must be exercised by only granting specific powers relating to the management and administration of the trust property that can be seen to be expedient. That is the ratio of Re Dion Investments and it is supported by the reasoning in Re Downshire Settled Estates. That is not to say that an order under s 81(1) must be confined to authorising a specific investment or a specific transaction in the management or administration of the trust property (Riddle v Riddle at 215 per Dixon J). But the primary judge was correct to conclude that the orders sought under s 81(1) that the trustee be empowered and authorised to manage and administer the trust property beyond the Terminal Date specified in the trust deed was in substance an application for an order to vary the terms of the trust by varying the definition of the Terminal Date that was a kind of order not authorised by s 81(1).

  7. In my view Re Dion Investments was correctly decided and the orders sought are not authorised by s 81(1).

Width of Re Dion Investments

  1. It follows from what I have said that the reasoning and effect of the decision in Re Dion Investments is not confined to the particular matter primarily in issue in that case as to whether s 81(1) authorised the making of an order giving the trustee a general power of amendment of the trust deed. Rather, this Court disapproved of decisions which had found in s 81 an authority to alter the trusts on which trust property was held which would have been beneficial to the interests of the beneficiaries, or to the fulfilment of the trust purpose, but which were not concerned with the management or administration of the trust assets.

  2. Austin J in Arakella v Paton at [102] (quoted at [38] above) and Young AJ in Re Dion (at [58]) said that s 81 cannot be construed so broadly as to provide a substitute for variation of trusts legislation that the United Kingdom and other Australian States introduced following the decision in Re Chapman. For whatever reason, or perhaps for no reason except pressure of other Parliamentary business, New South Wales did not adopt the Variation of Trusts Act 1958 (UK) that substantially broadened the jurisdiction of courts to vary trusts, although such legislation was passed in all other Australian States and New Zealand (s 63A Trustee Act 1958 (Vic); s 95 Trusts Act 1973 (Qld); s 59C Trustee Act 1936 (SA); ss 13 and 14 Variation of Trusts Act 1993 (Tas); s 90 Trustees Act 1962 (WA); s 64A Trustee Act 1956 (NZ)).

  3. P M Wood in his article Variation of Trusts in New South Wales (1990) 13(2) UNSW Law Journal 359 stated at 368-369:

“The position therefore is that whilst s 81 may be invoked to vary, in effect, the provisions of a trust in terms of the facultative powers for management or administration it cannot be availed of to produce substantive changes to the provisions of or beneficial interests under the trusts ...

For reasons which are not entirely obvious the New South Wales legislature has not followed the examples of the United Kingdom and the other States on the powers to vary trusts. This has left New South Wales courts with limited jurisdiction and has left trustees in that State, who have legitimate reasons to seek a variation to the terms of trusts, with a poorly defined path to a solution.”

  1. In Victoria, s 63A has been used by the Court to make orders which in substance extend the vesting date of a trust (Thomas Hare Investments Ltd v Raymond Thomas Hare [2012] VSC 200; Plator Nominees Pty Ltd [2012] VSC 284).

  2. The introduction of legislation in other jurisdictions to address the issues demonstrates that this is a matter for Parliament. The number of unsuccessful applications in this State for what might be beneficial changes to the terms of the trusts following Re Dion Investments indicate that the issue is ripe for Parliamentary consideration.

Would the proposed amendments be expedient?

  1. It follows that the further grounds of appeal challenging the primary judge’s reasons for concluding that in his Honour’s view the orders sought would not be expedient in the management or administration of the trust property do not arise. Had they done so, I would not see any proper basis for interfering with the primary judge’s evaluative assessment that it was not expedient to make the orders sought, having regard to the objectives of the trust and the settlor’s intentions discerned from the facts that John’s children were only contingent beneficiaries in the event of John’s not surviving to the Terminal Date, and John’s remoter issue were not included within the class of beneficiaries.

  2. Contrary to the applicants’ submissions the primary judge did not give “no weight to the timing of capital gains tax” or fail to have regard to the family reasons that made the deferral of capital gains tax liability expedient. Rather, the primary judge said that there was a lack of evidence as to what the tax consequences would actually be upon the vesting of the assets in 2024 and that he was unable to make a meaningful comparison between the tax position as it would be on the vesting of assets in 2024 and what the position would be if vesting could be deferred to a later date. The primary judge’s assessment of the expediency of making the orders sought was an evaluative judgment that should not be interfered with on appeal, except if a House v The King (1936) 55 CLR 499 error were demonstrated. In any event, for the reasons above, the question does not arise.

Conclusion and orders

  1. The appeal raises issues of importance. Leave to appeal should be granted but the appeal should be dismissed.

  2. As noted at [5] above, the second respondent, Mr Glass, was joined so that there would be a contradictor. The primary judge noted that arrangements had been made for his costs to be paid. The primary judge was advised that there was an agreement in place between the parties that the first respondent in its capacity as trustee of the trust would pay the entirety of the second respondent’s costs. I assume that the same arrangement applies to the second respondent’s costs of the appeal and there is no need to make a costs order. If that understanding is incorrect, then the second respondent can apply within 14 days for an appropriate costs order.

  3. For these reasons I propose the following orders:

  1. Grant the applicants leave to appeal from the orders of the Equity Division of 20 July 2017.

  2. The appeal be dismissed.

**********

Amendments

11 December 2018 - Minor typographical errors.

Decision last updated: 11 December 2018

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Cases Citing This Decision

36

David & Ros Carr Holdings Pty Ltd v Ritossa [2025] NSWCA 108
David & Ros Carr Holdings Pty Ltd v Ritossa [2025] NSWCA 108
David & Ros Carr Holdings Pty Ltd v Ritossa [2025] NSWCA 108
Cases Cited

18

Statutory Material Cited

11

Re Dion Investments Pty Ltd [2014] NSWCA 367
Gambotto v WCP Ltd [1995] HCA 12
Hancock v Rinehart [2015] NSWSC 646