Davidson v Davidson

[1991] HCATrans 128

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sll of 1991

B e t w e e n -

KEITH ROBERT DAVIDSON

Applicant

and

MIRIAM IRENE DAVIDSON

Respondent

Application for special
leave to appeal

MASON CJ DAWSON J GAUDRON J

Davidson 1 10/5/91

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 10 MAY 1991, AT 12.29 PM

Copyright in the High Court of Australia

MR M.D. BROUN, QC: If the Court pleases, I appear with

MR R.C.P. MATER for the applicant for leave.

(instructed by Henry David York). I have some

copies of the cases I will refer to and a couple of

pages which summarize our submissions.

MR J.W. BLACK, QC: If the Court pleases, I appear with my

learned friend, MR T.R. OSTINI-FITZGERALD, for the

respondent. (instructed by Laurence & Laurence)

MASON CJ: Did we not reject a similar invitation in

Ashton's case some years ago?

MR BROUN: Well, Your Honour, the Full Court in fact

referred to that very fact as indicating in some

way this Court's approval of Ashton.

MASON CJ:  No, the Court did not approve Ashton, but what

the Court did was to decline an invitation to take

Ashton on.

MR BROUN: That is so, Your Honour. There are big

differences in Ashton but the first matter we would
point to is that the Full Court, since Ashton, has

been developing the law of trust - the modern law

of trust, perhaps me might call it - still further

in a way which we would submit is not permissible.

But the big differences with Ashton was that the

Full Court of the Family Court there proceeded on

the basis that the trust was, in substance, a sham,
that it was in fact just the husband who had total

control of everything, total control of the assets,

benefitted himself from it and that there was no

apparently real trust being administered or never

intended since the money had, in substance, come in

a way that was his also.

MASON CJ: But is that an accurate description of what

occurred in Ashton?

MR BROUN: Well, Your Honour, the Full Court as a secondary

thing in Ashton said, in effect, exactly the same

as they have said in this case, that alternatively

to it not being a sham - in this case the court

found that the trust was not a sham, and I will

take Your Honours to that - but in Ashton the

Full Cotirt said, as an alternative to finding it is

a sham, in fact, the husband has the power to

appoint a compliant trustee who will then be able

to distribute assets to a company in which he is
the majority shareholder as long as one of the

other beneficiaries is a minority shareholder and

can then give himself, in effect, the whole of the

assets of the trust. But they put that up as what

we might call a second alternative. In this case,

it comes forward as the first proposal.

Davidson 2 10/5/91

MASON CJ: But it not the second alternative the basis on

which this Court considered the application in

Ashton?

MR BROUN:  I do not know, Your Honour. I do not know what

were the arguments advanced to Your Honours in

Ashton. I am not even sure - Your Honours may know

better than I - whether the husband was the
applicant for leave because the wife was also an

appellant before the Full Court and did not receive

what she wanted.

MASON CJ:	I think the husband was the applicant for leave.
MR BROUN:	It may well be so but, unfortunately, I do not

have any knowledge of the Court's basis for

rejecting that one. But certainly there are a

number of similarities. For example, the deed

seems to be from the same precedent book, it is the

same deed, substantially. But the big difference

is in Ashton it was found that the trust instrument

was - there was no valid genuine trust; that it was

a sham; that it was just the husband in another

guise. In this one, it has been found in a number

of respects that this was a genuine trust, even to

the point of the court, both the trial judge and
the Full Court carefully giving thought to orders

which would give effect to the trust as a genuine

trust and the Full Court seems to have accepted
that it was a genuine trust. It had, after all, at

the date of the hearing before the Full Court -
there were, I think, 25 living beneficiaries, apart

from any company or other trust, nine of whom had

in the recent past received distributions.

Now, the husband may not have been a very good

administrator of that trust and may have made lots

of errors in his administration and done things

that he should not have done but none the less it

was found it was a genuine trust and it was

therefore quite a different case on the facts from

Ashton.

MASON CJ: But there is a finding, is there not, that the

trust was the creature of the husband?

MR BROUN:  No, no, a finding that the trustee was·a creature

of the husband.

MASON CJ: Yes, I think that is probably more accurate

although it is expressed by the primary judge in

the first way as well as the second but I think it

is very likely that he was proceeding on the

footing that his basic finding was a finding that

the trustee company was a creature of the husband.

Davidson 10/5/91

MR BROUN:  Yes. The Full Court certainly seems to have

proceeded on the basis that the trustee company was

the creature of the husband. The trust instrument

itself prohibits the husband from being the trustee

but the Full Court and the trial judge seem to have

accepted that the trustee was, for all practical

purposes, the husband, namely, a company completely

under his control.

MASON CJ: 

And then the trust instrument enabled the trustee

to appoint the capital of the trust fund for the
benefit of the wife and various classes of

beneficiaries including a company in which one of

the classes of beneficiaries was a shareholder.

MR BROUN: That is so, yes.

MASON CJ:  And in that respect the provision was the same as

the provision in Ashton.

MR BROUN: That is so, yes, Your Honour. We would, of

course, submit that a power to make such a - number

one, that the husband should not be trustee at all

and he should not, therefore, be ordered to do

things as trustee because -

DAWSON J: But he was not ordered to do things as trustee,

was he? He was restrained, was he not? He was

restrained from using the trust funds for some

other purpose?

MR BROUN: Well, Your Honour, in final form, yes, but the

effect of it was that he had to pay and that that

was the suggested source from which he pay and he

was, in effect, being obliged - - -

DAWSON J:  He could have paid from another source if he had

the wherewithal.

MR BROUN:  But there was the finding that there was not any

other source.

DAWSON J: Yes, I appreciate that.
MR BROUN:	So that, effectively, the form of the order is

not much to the point. The substance of the order

was that he was required, in the position that he

in fact held as trustee in breach of the trust

instrument, to distribute the trust moneys in a way

which would be to the loss of the other

beneficiaries, namely, all to one.

DAWSON J: Well, I am not sure that that is accurate. He

was restrained from using those funds. That may

have been a strong incentive for him to use them

for the purpose of paying the wife and that may

have been because of his economic circumstances,

Davidson 4 10/5/91

but that is not the way the order was worded, that

he was required to do so.

MR BROUN:  But it is clear from the judgments, Your Honour,

that the whole purpose of the orders was to give
the wife access to those funds, in effect. That

was the only funds there were.

DAWSON J:  I do not think it would have worried the Court,

had the funds come from another source.

MR BROUN: Well, except that the findings were there was not

another source.

DAWSON J: True.

MR BROUN:  So that the effect of the order, though it may be

presented in a more palatable form, is that in

substance he was required to use his position of

trustee, which he should not have been held, for

the benefit of satisfying the order and that all

being done without any notice to any of the other

beneficiaries.

MASON CJ:  So that, really, you are here, as it were, pro

bono publico or, as it were, in the interests of

other beneficiaries because your client has no

interest in these funds and you are taking the

altruistic objection that it would be wrong for him

to be required or expected to appoint from this

fund?

MR BROUN: That puts it a little more strongly than I would,

Your Honour. What we say is that the Full Court in

this and Ashton and in other cases have got the law

wrong, in our submission. The law has not changed.

Trustees still have fiduciary obligations.

Your Honours should tell them that and that they

should then look at it again to see what other

basis - - -

DAWSON J:

But what is the fiduciary obligation here? I

mean, there is a complete and absolute discretion

on the part of the trustee to pay to whomever he

wishes to amongst the beneficiaries.

MR BROUN: That is so, Your Honour.

DAWSON J:  Now, if he can kill two birds with one stone,

what is wrong with that?

MR BROUN:  Because the court is making a decision about what

is to happen with the assets of the trust, not the

trustee. The court is doing it on the application

of the wife for the wife's benefit - - -

Davidson 10/5/91

DAWSON J: What I am getting at: there is no breach of duty

to the other beneficiaries. I mean, one does not

have to decide between the beneficiaries on any

basis at all. It is complete discretion.

MR BROUN: Indeed, Your Honour, but it is a discretion which

the law and the trust instrument itself says is to

be exercised by the trustee.

DAWSON J: But not in any particular manner.

MR BROUN:  No, that is so but he is to, presumably, have

regard to the purposes and objects of the trust

which was to benefit a large number of

beneficiaries.

DAWSON J:  One of which was the maintenance and advancement

of the wife.

MR BROUN: Again, certainly so, but can one, in effect,

under the existing law of trusts, order a trustee

to do something within - require a trustee to do

something within his power - - -

DAWSON J: Well, in the first place - you keep saying that -

he was not ordered to do anything.

MR BROUN:  No, I amend "order" to "require" - requiring a

trustee to do something within his power for a
purpose quite foreign to the purposes of the trust,
particularly, in a case such as this where the law

gives the Family Court - - -

DAWSON J: Again, I do not understand: why was it foreign

to the purposes of the trust? The maintenance of

the wife was one of ·the objects of the trust.	If,
within that object, the husband could advance
capital to the wife and, as it happens, kill two

birds with the one stone, why should he not within

the objects of the trust?

MR BROUN: Well, Your Honour, first and foremost, because he

should not be trustee.

DAWSON J: Well, that is another point.

GAUDRON J: But he is not even ordered as trustee, Mr Broun.

He is restrained from using any power he has and

his power is not as trustee, it is as controller of

the company. Now, he is simply restrained from

exercising a power.

MR BROUN:  But it is clear from the judgment, Your Honour,

both of the trial judge and the Full Court, what
they were seeking to do was to provide a benefit to

the wife on the basis that the assets of that trust

were taken into account as part of the divisible

Davidson 6 10/5/91

assets between the husband and the wife. So, our

submission is the court should not have made such

orders because their purpose was, in effect - what

they were doing was treating the assets of that
trust as the assets available for division between

the husband and wife.

GAUDRON J: But they were, of course, available for

division, if not between the husband and wife, but

they were available for division in favour of the

wife under the terms of the trust deed.

MR BROUN: Subject to two things: it must not be the

husband doing it as trustee because he is excluded

and subject to the further principle, that he is to

act in a discretion, having regard to the

objectives of the trust, and not - - -

GAUDRON J:	Which include the maintenance of his wife.
MR BROUN:	This was not an order for the maintenance of the

wife by the court, Your Honour.

GAUDRON J: Well, the objects of the trust include it.

MR BROUN: Well, yes, but the objects of the trust did not include the providing of a property settlement to

an ex-wife upon divorce.

GAUDRON J:  No one is going to argue in the context of this,

are they, that the order is not satisfied because

the moneys ultimately come from the trust? That

could be the only legal issue, can it not: whether

or not the wife can take the money from the trust

and say, "Thank you very much, and now give me the

money that the court ordered."?

MR BROUN:  Your Honour, could I put it this way:

section 85A of the Act which is at the bottom of the bundle says, in effect: "The court may deal with the assets held in the trust providing two

conditions are fulfilled; that it is an ante-

nuptial or post-nuptial settlement - - -

GAUDRON J: But it has not dealt with the assets of the

trust only indirectly to restrain the distribution

pending a certain event and save for a certain

event.	Now, it does not directly deal with the
assets of the trust at all.	If your client should

go and borrow the money and pay it that way, the

order will be satisfied.

DAWSON J: It merely says to the husband that, "You shall

not put it out of your power, if you have the

power, to satisfy the order in this way."

Davidson 7 10/5/91

MR BROUN:  The trial judge, Your Honours, got the matter, in

our submission, quite confused. The Full Court, in

our submission, has endeavoured to resolve the
confusion that arose from the way the trial judge

approached it by treating still the assets of the

trust as if they were property of the parties to be

taken into account and divided between the husband

and the wife, which we would submit they plainly

were not, they were assets of that trust.

DAWSON J: But that is not the point which you raise here.

MR BROUN: Well, Your Honour, it is, as it were, fundamental

to the proposition. The Full Court seems to have

said, on the one hand, it is property of the

parties and could have been -

DAWSON J:  But you are not complaining about the sum which

was ordered.

MR BROUN:	Not in - - -
DAWSON J:	No.
MR BROUN:	No, Your Honour. That is a matter, we submit,

for the Full Court to have another look at, guided

on the proper principles by this Court. What we

say is that the Full Court still was accepting the

trial judge's confusion of saying, "Well, the
assets of the trust are held in a genuine trust but

they are none the less available for division

between the husband and the wife", and the

Full Court was saying, "Well, it is a genuine

trust. We can adopt this device or mechanism to

achieve the purpose of giving the wife the money"

but overlooking that that left them with the oddity
that the property should not have been taken into

account in the division in the first place if it

was a genuine trust. So that, in effect, the

husband has been required to pay to the wife more

property than he has got which is not what the Act

seems to say. It only directs attention to the

property of the parties being divided between the

husband and the wife. So, by being ordered to pay more than he has got, the assets of the trust have

been taken into account as property of the parties

which the trial judge and the Full Court held it

was not.

Now, Your Honours, I was mentioning

section 85A of the Act which is at the bottom of

the bundle of papers handed to Your Honours. That

is a section which empowers the court to do

something for the benefit of the parties with

assets that are not property of the parties but are

held in a trust. Now, the trial judge specifically

considered that application of that section and

Davidson 10/5/91

held that this was not a post-nuptial settlement
made in relation to the marriage because primarily
of the large number of beneficiaries who were
outside the marriage with which he was concerned.

Now, it would seem very odd that a section of the Act lays down a way in which assets held in a

genuine trust - and this was held to be a genuine

trust - can be dealt with by the court and that a

judge who finds that that section does not apply

can still set out to achieve the same result by a

different mechanism. In our submission, that would

defeat the basic structure of the Act.

Your Honours, there is an entirely separate

second ground which has a factual element but which

we do not invite Your Honours to consider the

detailed factual errors in the original trial

judge's judgment. What we wish to ask Your Honours

to consider is the grossness of the trial judge's

error, coupled with the Full Court's, as it were,

brushing it under the carpet.

The substantial error set out in the

application book was simply that the trial judge

said that he had heard the valuer for the wife and

heard the evidence of the valuer of the husband and

judged their demeanour in the witness box and

preferred one to the other when, in fact, the

position was the valuer to whom he referred of the

husband had not been in the witness box at all.	It
was a very gross kind of error and the Full Court
seems to have accepted that that is not an error
that calls for appellate intervention.

Now, there were a number of others, and they

refer specifically to those others, but the gross

error, as it were, is passed over. In our

submission, that cannot be a proper thing for the

Full Court to do in respect of an error which must

leave a real question as to whether justice has

been done. It cannot give the appearance of

justice when that occurs.

The facts of the matter are set out in the

application book in the affidavit at page 100,

beginning at line 20 and going to page 102,

line 80. It is set out in the affidavit because

otherwise we would, of course, have to show

Your Honours the whole of the transcript, but it

begins at paragraph 7. Yes, those are our

submissions.

MASON CJ:  The Court need not trouble you, Mr Black.

We are not persuaded that there was an error

of principle on the part of the Full Court of the

Davidson 9 10/5/91

Family Court in concluding that the applicant could

cause the trustee company to apply the capital of
the trust fund for the benefit of the respondent or

for the benefit of a company in which he was a

shareholder, so long as a beneficiary is a

shareholder.

The primary judge found as a fact that the

trustee company was a creature of the applicant and
the provisions of the trust deed are well open to

an interpretation which supports the conclusion

reached by the Full Court.

In the ultimate analysis, the correctness of

that conclusion rests on the particular facts of

this case and the interpretation of the provisions

of the particular trust leed. As such, the case is

not appropriate to the -~ant of special leave.

Another ground relating to an error of fact

was raised but we are not persuaded that it

warrants the grant of special leave to appeal.	The
application is therefore refused.

MR BLACK:	We ask for costs, Your Honour.
MASON CJ:	What do you say about that, Mr Broun?
MR BROUN:	Your Honour, other than section 117 of the Act, I

cannot advance anything to Your Honours.

MASON CJ: Yes, but we have, I think, in the past, have we

not, made an order for costs, Mr Broun, in your

favour, I think, in appropriate cases?

MR BROUN:	I think more often·against me than in favour.
MASON CJ:	The application is refused with costs.
AT 12.53 PM THE MATTER WAS ADJOURNED SINE DIE

Davidson 10 10/5/91