Edwards v Brougham

[2022] SASC 8

SUPREME COURT OF SOUTH AUSTRALIA

(Civil: Application)

EDWARDS & ANOR v BROUGHAM

[2022] SASC 8

Judgment of the Honourable Chief Justice Kourakis  

DEEDS - DEED POLL

EQUITY - TRUSTS AND TRUSTEES - APPOINTMENT, REMOVAL AND ESTATE OF TRUSTEES

Application for declarations concerning the administration of the Brougham Farm Trust. The Brougham Farm Trust includes a family farm referred to as the ‘Lipson Farm’. The applicant is both the executor of the will of Mr Peter Brougham and trustee of the Brougham Farm Trust. The respondent, on the applicants’ submission, is a former trustee of the Brougham Farm Trust.

The applicants submit that the respondent, purportedly relying on clause 11 of the Trust Deed, distributed the Lipson Farm to himself (transfer) and that the transfer is null and void.

Held:

1.The Deed of Appointment is valid, such that Mr Peter Brougham and Mr James Edwards became the Trustees with effect on 15 October 2020.

2.The Deed of Transfer executed by Mr John Brougham purporting to distribute the capital in specie to himself is null and void on the grounds inter alia that:

a.      It was not in writing and not irrevocable as required by cl 11.2 of the Trust Deed;

b.      Mr John Brougham was not at the relevant time the Trustee; and

c.      The Deed of Transfer could not be backdated.

Trustee Act 1936 (SA) ss 35, 36(1)(a), 36(2), 37, referred to.
Hudson v Hudson (1735) Cases T. Talbot 127; 25 ER 700, considered.

EDWARDS & ANOR v BROUGHAM
[2022] SASC 8

Civil

1. KOURAKIS CJ:     This is an application for declarations concerning the administration of the Brougham Farm Trust.  The first applicant, James Edwards, is the trustee of the Brougham Farm Trust.  The second applicant, Peter Brougham, together with his wife Pamela Brougham (Pamela) was an appointor under the terms of the Brougham Farm Trust Deed (the Trust Deed).  As appointors Peter and Pamela were empowered pursuant to cl 18 of the Trust Deed to appoint a new trustee, and by cl 8.1.2 of the Trust Deed could grant or withhold consent to a proposed declaration by the Trustee that a person, or class of persons, no longer be included as a beneficiary.  Pamela died on 3 March 2018. 

2. At the time the proceedings were commenced on 25 November 2020 Peter Brougham (Peter) was terminally ill and by that time had purportedly exercised his power of appointment to appoint himself and his accountant, Mr Edwards, as Trustees of the Brougham Farm Trust in place of his son, the respondent, John Brougham.  Peter died on 29 November 2020 and James Edwards, as executor of the will of Peter Brougham, replaced Peter Brougham as the second applicant. 

3. John Brougham (John) was the sole and inaugural trustee of the Brougham Farm Trust when it was first constituted by the Trust Deed on 9 May 2016.  Peter and Pamela were beneficiaries pursuant to cl 7 of the Brougham Farm Trust, together with John, and all persons related to them.  Peter, Pamela and John were also nominated as default beneficiaries by cl 40.2.4 of the Trust Deed.

4. The family farm at Lipson on the Eyre Peninsula, to which I will refer as the Lipson Farm, was transferred to John as Trustee of the Brougham Farm Trust on 17 May 2016, about a week after the constitution of the Brougham Farm Trust. 

5. In late September 2020, Peter and John fell into dispute over Peter’s request for a distribution from the Brougham Farm Trust when he found himself in straitened circumstances. 

6. On 2 October 2020, John instructed a solicitor to distribute the capital of the Brougham Farm Trust to himself and signed a client authorisation form authorising the registration of that transfer.  Mr Edwards does not dispute John’s deposition that he told the solicitor that he was doing so in exercise of his discretion as the Trustee of the Brougham Farm Trust, but there is no writing to that effect.  The heading to the client authorisation form declares that, once signed, the person nominated as a representative is authorised to act for the person named as a client in a conveyancing transaction.  The client authorisation form executed by John specifies that the authorisation is a specific one with respect to the Lipson Farm being the whole of the land in Certificate of Title Volume 5784 Folio 178.  It authorises conveyancing transactions described as ‘transfer’ and ‘priority notice’, caveat and withdrawal of caveat.  The nominated client is John Brougham and the representative is his solicitor.  A caveat was lodged by the solicitor on the same day protecting what is described as a beneficial entitlement to an estate in fee simple in the Lipson Farm on the grounds that he had contributed to the acquisition, maintenance and improvement of the land described (the first constructive trust caveat).  The caveat does not refer to a distribution pursuant to the Trust Deed.

7. On 9 October 2020, Peter consulted a solicitor whom he instructed to take steps to remove John as a trustee and appoint Peter and Mr Edwards in his stead.  On 15 October 2020, Peter executed a Deed (the Deed of Appointment).  Clause 2 of the Deed of Appointment removed John as the Trustee and cl 3 appointed Peter and Mr Edwards as the new Trustees.  By cl 4 Peter and Mr Edwards accepted their appointment.  A copy of the Deed of Appointment was posted to John Brougham on 16 October 2020.  John did not receive it until 21 October 2020. 

8. On 16 October 2020, John, purportedly relying on cl 11 of the Trust Deed, determined as Trustee to distribute the Lipson Farm to himself in specie in his personal capacity as a beneficiary of the trust.  To give effect to his determination, he executed a Deed of Transfer (Deed Poll) and backdated it to the 2^nd of October 2020, the day on which the conveyancing authority was signed, on the suggestion of his solicitor.  John also purported to declare that until such time as its transfer he, as Trustee, held the Lipson Farm on a separate trust. 

9. On 22 October 2020, Peter and Mr Edwards, purporting to act in their capacities as Trustees, wrote to John’s solicitor demanding the removal of the first constructive caveat and on the same day lodged an application to remove it.  The Land Titles Office ‘requisitioned’ that application directing that it be withdrawn because Peter and Mr Edwards were not the proprietors/caveatees and because the Deed of Appointment was made after the filing of the absolute caveat by John. 

10. On 30 October 2020, John lodged a transfer of the Lipson Farm to himself for nil consideration.  The transfer has not been registered.  John also lodged a second caveat over the Farm in the same terms as the earlier caveat. 

11. On 9 November 2020, Peter and Mr Edwards executed a Deed purporting to exercise the power conferred by cl 29.1 of the Trust Deed to vary cl 18 of the Trust Deed to provide that on and from the death of Peter, Mr Edwards would take the office of appointor under the Trust Deed.  Peter, in his capacity as appointor, consented to that variation. 

    Relief claimed

12. Mr Edwards, seeks the following relief:

    ·A declaration that the Deed of Appointment is valid, such that Peter and Mr Edwards became the Trustees with effect on 15 October 2020.

    ·A declaration that the Deed of Transfer executed by John purporting to distribute the capital in specie to himself is null and void on the grounds inter alia that:

    ·it was not in writing and not irrevocable as required by cl 11.2 of the Trust Deed;

    ·John was not at the relevant time the Trustee; and

    ·the Deed of Transfer could not be backdated.

    ·Removal of the caveats lodged by John.

    ·Orders directing the Registrar General not to register the transfer to John and instead enter a transfer to Mr Edwards as the surviving Trustee.

    Standing of James Edwards

13. Mr Edwards plainly has standing to seek a declaration as to the validity of his appointment as a Trustee.  The validity of that appointment is not affected or rendered futile by the purported transfer of the Lipson Farm by John to himself.  If validly appointed a Trustee, Mr Edwards is possessed of such chose in action as the Trust may have arising out of John’s dealing with the trust property.  Mr Edwards therefore has standing to bring these proceedings, one of the purposes of which is to seek relief against John for breaches of the Trust Deed.

    Was John’s removal effective in the absence of notice?

14. The Trust Deed contains no express provision conditioning the effectiveness of a removal of a trustee on the giving of notice to that trustee.  In the absence of any such provision, the terms of the Deed, which operate to confer or remove power under that Deed, must operate on their own terms.  A power to remove a trustee will generally, if not always, be exercised contemporaneously with the appointment of his or her successor.  If the removal and appointment respectively was only effective on the giving of notice, an irreconcilable conflict of powers might arise if notice is not given to both contemporaneously.

15. I observe here that s 36 of the Trustee Act 1936 (SA) (the Trustee Act) does not expressly require the giving of notice to a trustee who is removed pursuant to s 36(1)(a) and that s 36(2) provides that an order under that section does not operate as a discharge beyond which such an order would have operated under an equivalent power or instrument. Section 37 of the Trustee Act empowers the Court to make an immediate order vesting the real property of the trust in the new trustee.

16. A construction of the Trust Deed which does not condition the removal of the Trustee on the giving of notice is unlikely to unfairly prejudice the Trustee so removed. 

17. A former trustee who continues to exercise powers honestly without notice of his or her removal may be protected in several ways. Section 35 of the Trustee Act grants an immunity from liability for losses other than those occasioned by the trustee’s wrongful or neglectful conduct.  The immunity arguably extends to a former trustee acting without notice of his or her removal.  In addition, the Trust Deed may confer an immunity on a former trustee who acts honestly, but if it does not, the Trustee must take steps to protect himself or herself against that risk.  A trustee who might be removed without notice should take care to ensure that he or she has not been removed before exercising the powers of a trustee.  Clause 18 of the Trust Deed in this case arguably also extends to a former trustee.  There is a further ground on which a trustee who has been removed may be protected.  Even though removed as a trustee under a trust deed, the person so removed holds the trust property on a trust for the sole purpose of conveying it to the new trustee(s).  An honest breach of that trust will not ordinarily result in liability.

18. The entitlements or rights of a third party, whether a beneficiary or a contractor with whom the trustee deals, is affected by the purported exercise of power, will be determined in the former case on a proper construction of the trust and equitable principles particularly in the case of self-dealing by a trustee/beneficiary, and in the latter case will be determined by principles of agency including ostensible authority of the trustee.

19. The Deed Poll executed by John on 16 October 2020 was therefore invalid in that it purported to exercise a power with which he was no longer invested.  John as a beneficiary and volunteer can have no right to the distribution of the Lipson Farm he made in excess of his power. 

    Was Peter Brougham empowered to exercise the power of appointor alone after the death of Pamela?

20. Clause 18 of the Brougham Farm Trust provides:

    18.Appointment and Removal of Trustee

    18.1  Power of appointment

    The power to appoint a new trustee in place of the Trustee or in addition to and jointly with the Trustee and the power to remove the Trustee is, subject to the following provisions of this clause 18, vested:

    18.1.1in Peter Henry Brougham (‘Peter’) and Pamela Gwen Brougham (‘Pamela’) during their lifetimes;

    18.1.2on and from the death of Peter and Pamela in John Victor Henry Brougham (‘John’) during his lifetime;

    18.1.3 in such persons as John appoints by deed or Will;

    18.1.4on and from the death of the survivor of Peter, Pamela and John with no nomination having been made or the nominee having died or ceased to be in existence or unwilling or unable to act as Appointer, in the personal representatives of the survivor.

    18.2  Relinquishment of powers of appointment

    The power and authority vested in the Appointor by this clause 18 may at any time be relinquished by notice in writing given to the Trustee in which event the Appointor, upon giving the notice, will cease to act as the Appointor and the following provisions apply:

    18.2.1subject to sub-clause 18.2.2, where there are joint Appointors, the other or others as the case may be will so act; or

    18.2.2the person who holds office as Appointor and wishes to retire as Appointor may with the written consent of another person by written instrument on or prior to retirement appoint that other person in his or her place.  The appointee will be the Appointor or a joint Appointor during the lifetime of the Appointor who so retires or until the appointee relinquishes the power of appointment.  An appointee upon being so appointed may exercise the power given by his or her appointor under this deed during that period.

    18.3  Residual power of appointment

    If at any time no person has the power to appoint a new trustee or an additional trustee, the power is vested in the Trustee for the time being of the Trust, or if there is no living or current Trustee, in such persons as appointed by the President (or equivalent) for the time being of the Law Society of South Australia or its successor.

    …

    18.6  Manner of exercise of power of appointment

    18.6.1The power to appoint or remove a trustee or appoint or remove an Appointor may be exercised by Will or by deed.

    …

    18.7  Appointor under a legal disability

    18.7.1If an appointor becomes subject to a legal disability (‘Disabled Appointor’), then from the time of the disability and during the continuance of the disability, the power of appointment and removal vested in the Disabled Appointor will vest in the Disabled Appointor’s attorney.

    18.7.2If no attorney has been validly appointed by the Disabled Appointor, the power will vest in the other appointor/s (if any) referred to in sub‑clause 18.1 who are living and not under a legal disability.

    18.7.3If there are no such appointors referred to in sub-clause 18.1, the power will vest in the Trustee.

    18.7.4If the Trustee is also under a legal disability, the power will vest in such persons as appointed by the President (or equivalent) for the time being of the Law Society of South Australia or its successor.

    18.7.5Upon the Disabled Appointor ceasing to be subject to a disability, the power to appoint and remove trustees vested in the alternative persons referred in this sub-clause 18.7 will cease and revest in the Disabled Appointor.

    18.8  Appointment of one or more trustees

    18.8.1The place of the Trustee who retires, resigns or is removed may be filled by a sole appointment or the appointment of more than one new trustee.

    18.8.2Section 14(2)(c) of the Trustee Act 1936 (SA) does not apply.

21. In the absence of a contrary intention, the appointment of two or more persons to an office like that of an executor under a will is both joint and several.[1]  The position of an appointor under a trust deed is in the nature of an office.  The complex of provisions under the Trust Deed for filling the position in the event of relinquishment, retirement, death and disability are also indicative of an office.  Moreover, under the Trust Deed the appointors’ powers extend beyond replacement of Trustee to control over any change in beneficiaries.

    [1]    Hudson v Hudson (1735) Cases T. Talbot 127; 25 ER 700.

22. A proper construction of cl 18 yields the same result.  First, the use of the word ‘lifetimes’ implies that Peter and Pamela were appointed jointly and severally, in that the duration of the appointment is for ‘their lifetimes’.  The use of the plural contemplates that the lifetime of each of them may differ.  The plural is inconsistent with the respondent’s construction that the appointment was only for a single lifetime, namely the lifetime of the first of them to become deceased.

23. Secondly, cl 18.1.2 provides for the appointment of John ‘on and from the death of Peter and Pamela’.  The manifest purpose of cl 18.1.2 is to provide for the succession to the office of appointor when the vesting effected by cl 18.1.1 comes to an end.  That succession clause is premised on the deaths of both Peter and Pamela.

24. Thirdly, the purpose of cl 18.2.1 is not to overcome what is otherwise only a joint appointment but to expressly provide for an alternative if the retiring Appointor secures a successor.  Together cl 18.2.1 and cl 18.2.2 suggest a joint and several appointment in that the appointee can hold office for no longer than the lifetime of the retired appointor. 

25. Fourthly, cl 18.7 creates a similar scheme of succession in the case of appointor who becomes subject to a legal disability. In particular if the disabled appointor has no attorney, the powers of the appointor may be exercised by the remaining Appointors.

26. Overall, cl 18 provides that as Peter and Pamela jointly, or on the retirement, relinquishment or disability of one of them, the other alone, or with a duly appointed successor, will exercise the powers of an appointor.  There is no apparent reason why on the death of one of them a different result would pertain.

27. I accept the respondent’s submission that on his contention that Peter and Pamela were appointed jointly there is no vacancy in the office of appointor, between the death of the first of Peter and Pamela because cl 18.3 would vest the power of appointment in the Trustee.  However, the relatively unusual position of the appointor being both the trustee and the appointor would naturally be expected only as a measure of last resort.  The Trust Deed, in a number of its provisions, deploys the appointor as a check on the power of the Trustee.  The placement of cl 18.3 outside the order of succession in cl 18.1 also suggests the same.  An intention to have John succeed to the office of appointor on death of the first of Peter and Pamela could most readily have been effected by using the disjuncture “or” in cl 18.12 instead of the conjunctive “and”.

28. There is no apparent reason for the Trustee taking on the office of appointor in the period between the death of the first of Peter and Pamela and the death of the survivor.  It must be remembered that Peter and Pamela, in the course of their joint lives, may well have appointed someone other than John to be the Trustee.  There is no reason therefore to read into the clause an intention to terminate the power of a surviving appointor in order to protect John from an adverse exercise of the power of an appointor.  If that were the intention, the Trust Deed would have provided expressly for the powers of the appointor to be conferred on John, whether he was the Trustee or not, on the relinquishment, retirement, legal disability or death of either Peter or Pamela.

29. Finally, I observe that s 32 of the Trustee Act enacts a presumption that the survivor of the joint trustees may continue to exercise or perform the powers on trust.

30. For the above reason I find that the removal of John as Trustee and his replacement by Peter and Mr Edwards was valid.

    Distribution v hypothecation of the capital

1. If the removal of John was not effective until he had notice, I would nonetheless find that he had not distributed the Lipson Farm before that notice was given. 

   10.Income

   10.1. Discretionary Distribution

   The Trustee holds the Income of a Financial Year which is available for Distribution upon trust to pay, apply or set aside the Income, to or for the benefit of the Beneficiaries, other than a Default Beneficiary who is not otherwise a Beneficiary, or any one or more of them exclusive of the other or others who are living or which are in existence at the time the Distribution of the Income is made in such shares or proportions and from such Category of Income as the Trustee may in its discretion determine.

   10.2. Accumulation

   10.2.1.The Trustee may before the end of a Financial Year resolve to accumulate the whole or a part of the Income of that Financial Year whereupon the accumulation will, subject to sub-clause 10.2.3, form part of Capital.

   10.2.2.A resolution to accumulate may be in respect of the whole or a part of one or more Categories of Income.

   10.2.3.The Trustee may pay Tax in respect of an accumulation out of the accumulation or out of Capital.

   10.3. Default Distribution of Income

   If the Trustee fails to effectively Distribute the whole of the Income of a Financial Year as provided in sub-clause 10.1 or to effectively resolve to accumulate the Income as provided in sub-clause 10.2, the Trustee must set aside the Income which has not been Distributed or so accumulated on trust absolutely for the Default Beneficiaries named or described in sub-clause 40.2.4 and the provisions of sub-clause 10.4 will apply to any Distribution under this sub-clause 10.3.

   10.4. Income set aside for a Beneficiary

   If the Trustee has determined that the whole or part of the Income of a Financial Year is set aside for the benefit of a Beneficiary or Income is set aside for a Default Beneficiary pursuant to sub-clause 10.3 (whether the Beneficiary is under a legal disability or not), upon that determination being made or the default Distribution occurring, those moneys until paid to, or applied for the benefit of, the Beneficiary:

   10.4.1.become the unpaid entitlement of that Beneficiary;

   10.4.2.if held for that Beneficiary at the end of a Financial Year must be recorded as such in the accounts of the Trust for that Financial Year;

   10.4.3.are held by the Trustee on trust for the Beneficiary (separately from the Trust Fund);

   10.4.4.may be mixed with the Trust Fund as provided in sub-clause 35.13; and

   10.4.5.the Beneficiary will not be entitled to any Income which may accrue in respect of those moneys or any payment of interest (unless the Trustee is required to provide accrual of Income or interest to the Beneficiary by reason of an act of parliament, tax ruling, judgment, policy, practice statement or similar document).

   10.5. Payment or application to a Beneficiary who is not under a legal disability

   10.5.1.If the Trustee has determined that the whole or part of the Income, or the unpaid entitlement to Income, of a Beneficiary who is not under a legal disability is to be paid to, or applied for the benefit of, that Beneficiary, the Trustee may deal with those moneys by:

   (a)     paying the moneys to the Beneficiary or in such other manner as the Beneficiary may authorise or direct;

   (b)     payment to a bank or other account in the name of the Beneficiary where the Trustee considers it advisable, appropriate and in the interest of the Beneficiary to do so; or

   (c)     applying the moneys in any manner referred to in sub‑clause 10.6.1(f) to 10.6.1(k).

   10.5.2.Payment may be made to a Beneficiary, not being a natural person, notwithstanding that the Beneficiary may have a liquidator, provisional liquidator, receiver, receiver and manager or administrator appointed to it or in respect of its assets.

   10.6. Payment or application to a Beneficiary who is under a legal disability

   10.6.1.If the Trustee has determined that the whole or part of the Income of a Financial Year or the unpaid entitlement to Income of a Beneficiary who is under a legal disability is to be paid to, or applied for the benefit of, that Beneficiary, the Trustee may deal with those moneys by:

   (a)     payment to an account with a bank or financial institution in the name of the Beneficiary or in the name of the Trustee or one or more parent, guardian, or other responsible person, operating the account as Trustee for the Beneficiary; or

   (b)     by payment to a parent or guardian of the Beneficiary to be applied for the benefit of the Beneficiary;

   (c)     by payment to any other person or institution as the Trustee may decide to be applied for the benefit of the Beneficiary;

   (d)     by setting the moneys aside in a separate account in the books of the Trust in the name of the Beneficiary in which event the provisions of sub-clause 10.4 will apply to those moneys;

   (e)     by paying the moneys to any person who by law is entitled to receive moneys on behalf of, or to administer property of, the Beneficiary;

   (f)    the Trustee directly expending moneys on goods or services for the maintenance, support, benefit, advancement in life or comfort of the Beneficiary;

   (g)     payment whether by way of reimbursement, remuneration, payment in advance or otherwise, to any person or organisation for the provision of goods or services wholly or substantially to or for the maintenance, support, benefit, advancement in life or comfort of the Beneficiary;

   (h)     payment of expenses incurred by any person for the Beneficiary with respect to education, sporting and associated activities for the Beneficiary;

   (i)    payment of expenses incurred by any person in respect of the Beneficiary with respect to health services (including health fund expenses and payment for orthodox or alternative medical or paramedical services or expenses) for the Beneficiary whether in Australia or overseas;

   (j)    paying for accommodation for the Beneficiary (whether of a permanent or temporary nature) or in maintaining or paying any expense in respect of premises where the Beneficiary for the time being resides solely or with others; or

   (k)     payment of Tax assessed to the Beneficiary whether in relation to any Income or Capital (whether or not relating to this Trust) or otherwise.

   10.6.2.The Trustee may, unless otherwise precluded by law, pay from an account referred to in sub-clause 10.6.1(d), or an account in the name of the Trustee under sub-clause 10.6.1(a), moneys which are to be applied for the maintenance, education or advancement of the Beneficiary for whom the account is held.

   10.6.3.Where the Trustee pays or applies moneys for the benefit of a Beneficiary under a legal disability in accordance with this clause, whether made with or without the obtaining of a receipt:

   (a)     the payment or application constitutes a full discharge to the Trustee in relation to the moneys so paid or applied; and

   (b)     the Trustee is not bound to see to the application of the moneys so paid or applied.

   10.7. Determination to Distribute Income

   10.7.1.A Distribution of Income may be made by a determination or resolution of the Trustee and upon the determination or resolution being made, the Beneficiary will have an immediate vested indefeasible interest in and to that part of the Income so Distributed for the Financial Year to which the determination or resolution relates.

   10.7.2.The determination or resolution may specify a Category and the amount of Income from that Category to which a Beneficiary is entitled and the determination or resolution may provide to Distribute Income by reference to a specific sum, a percentage of the Income or any Category of Income of a Financial Year.

   10.7.3.Determinations or resolutions of the Trustee Distributing Income as previously provided in this clause are irrevocable and the Income of a Financial Year must be dealt with as required by the determination or resolution.

   10.8. Determination not affected by amendment of deed

   A determination or resolution to Distribute Income to Beneficiaries or a Distribution of Income under sub-clause 10.3 to Default Beneficiaries is not affected by the subsequent exercise of any power of revocation or amendment of this deed.

   10.9. Tax

   Where the Trustee is required by law to pay Tax:

   10.9.1.in respect of Income of a Financial Year Distributed to a Beneficiary or to any entitlement or benefit of a Beneficiary out of the Trust Fund or moneys held by the Trustee on trust for the Beneficiary pursuant to a provision of this deed, the Trustee may pay the Tax out of Income or Capital to which the Beneficiary is presently entitled or may deduct the Tax out of moneys which may then or thereafter come into the hands of the Trustee or over which the Trustee has control and to which the Beneficiary is or become entitled; and

   10.9.2.in respect of an accumulation of Income, it may pay the Tax out of the Income or from Capital as it may decide.

   11.Capital

   11.1. Distribution of Capital

   Until the Trust is wound up, the Trustee holds Capital for the Beneficiaries as follows:

   11.1.1.on or prior to the Termination Date the whole or any part of the Capital, or of any Category of Capital, is held for such one or more of the Beneficiaries to the exclusion of the others as are then living or in existence at the time the Distribution of Capital is made and if more than one in such shares or proportions as the Trustee in its discretion may at any time determine in the manner provided in this clause 11; and

   11.1.2.on termination of the Trust, the Capital available for Distribution which has not been the subject of an effective determination of the Trustee pursuant to clause 11.1.1 must be held for the Default Beneficiaries named and in the manner described in sub-clause 40.2.4.

   11.2. Determination of the Trustee

   A determination of the Trustee pursuant to sub-clause 11.1 must be either:

   11.2.1.an irrevocable written declaration, instrument or resolution of the Trustee; or

   11.2.2.a written declaration, instrument or resolution of the Trustee made prior to the Termination Date and expressed to be revocable during a period which expires prior to the Termination Date.  Such determination will become effective upon the expiration of the relevant period and the Trustee failing to revoke the determination.  The period expressed in a revocable determination may be expressed as a fixed period by reference to the occurrence of an event or by reference to the life of a person or the last survivor of the joint lives or two or more persons. 

   11.3. Manner of Distribution

   Capital to be Distributed by way of a determination, or to a Default Beneficiary pursuant to the provisions of this clause 11, may be effected:

   11.3.1.in any manner in which Income is able to be Distributed in accordance with the provisions of this deed; or

   11.3.2.by the transfer in specie of any asset comprised in the Trust Fund at a valuation determined by or acceptable to the Trustee.

   11.4. Effect of determination

   11.4.1.When a determination of the Trustee in favour of a Beneficiary becomes irrevocable, the Beneficiary will have an immediate vested indefeasible interest in the Capital the subject of the determination.

   11.4.2.If the Distributed Capital is set aside for a Beneficiary or is otherwise held by the Trustee on trust for a Beneficiary, the Trustee must hold it on a separate trust for the Beneficiary and the provisions of sub‑clause 10.4 with appropriate changes will apply to the Capital so set aside or held in trust.

   11.5. No resulting trust

   A determination of the Trustee pursuant to this clause 11.1 is not effective to the extent to which the determination creates a resulting trust:

   11.5.1.in favour of an Excluded Person; or

   11.5.2.where the resulting trust would result in a liability arising at any time under any applicable law on account of death or estate duties.

   11.6. Tax

   Where the Trustee becomes liable to pay Tax in respect of or arising out of a Distribution of Capital, it may deduct and pay the Tax out of the Distribution, and to the extent to which the Distribution may be insufficient to fully discharge the liability, the Trustee may pay the Tax from other moneys or property which may be in its possession or control as it may decide.

2. Before turning to a consideration of clauses 10 and 11 which are central to this issue it should be noted that the definitions include the following:

   2.6‘Distribution’ includes a payment application or setting aside of Income of Capital as the case may be and ‘Distribute’ has a similar meaning.

3. Clause 10.1 empowers the Trustee to ‘pay, apply or set aside the Income or any part of the Income’ for a beneficiary ‘in such shares or proportions and from such Category of Income as the Trustee may in its discretion determine’.  Alternatively, the Trustee may resolve to accumulate the whole or part of the Income pursuant to cl 10.2 whereupon the accumulation will form part of the Capital.  The effect of 10.4 is that if monies set aside pursuant to cl 10.1 are not paid or applied to the benefit of a beneficiary, in a way described by cl 10.5 9 or cl 10.6, the monies so set aside are held on a separate Trust for the beneficiary in whose favour the distribution was made such that those monies ‘become the unpaid entitlement of that Beneficiary’.

4. Clause 11.1.1 implicitly empowers the Trustee to hold the capital of the Trust on separate Trusts for particular Beneficiaries to the exclusion of others in the same way as income which might have been distributed is held on trust until paid in accordance with cl 10.4.  Clause 11.1 does not prescribe any method or form by which the distribution which is left to the absolute discretion of the trustee must be effected.  Clause 11.1.2 provides that any of the capital which has not been the subject of an effective determination of the trustee pursuant to cl 11.1.1 distributing the capital must be held for the Default Beneficiary. 

5. Clause 11.2 regulates the way in which the capital of the Brougham Farm Trust may be distributed.  It provides that a determination to hold capital for one or more of the Beneficiaries to the exclusion of the others may be a written declaration, instrument or resolution of the Trustee made prior to the determination date but expressed to be revocable during a period which expires prior to the termination date, and if not revoked becoming effective on the expiration of that period.  Alternatively, the distribution may be made by a written declaration, instrument or resolution of the Trustee which is not expressed to be revocable in accordance with cl 11.2.2.  A declaration, instrument or resolution other than in that form is, by necessary implication, immediately effective.  It is irrevocable because it is not made in conformity with cl 11.2.2; it is not necessary that the determination self-declare itself to be irrevocable.   

6. Clause 11.3 then provides the mechanism for giving effect to a Distribution.  It provides that it can be Distributed in the same way as income may be Distributed or by transfer in specie of any asset.  It is important here to bear in mind the inclusive definition of Distribution which includes both payment or application on the one hand and a setting aside on the other.  Just as income may be distributed by a payment to or on account of a beneficiary, or held on a separate trust once set aside but not yet paid, so too with the capital.  It may be distributed by a transfer in specie and until the legal transfer is effected, the beneficial estate is held on a separate trust.  Accordingly, cl 11.4.1 provides that the beneficiary has an immediate vested indefeasible interest in the Capital the subject of the determination when an irrevocable determination is made and any such capital is held on a separate trust for the capital Beneficiary until it is transferred.

7. However, the client authorisation did not set aside or distribute the Lipson Farm.  Its legal effect was limited to appointing the solicitor as John’s agent.  As agent, it authorises the solicitor to sign documents required for the conveyancing transaction of the Lipson Farm, to submit the documents to the registry, to authorise a financial settlement and to do anything else necessary to complete the conveyancing transaction.  Importantly, by cl 3 the authorisation to the solicitor was revocable.  The question is therefore whether it was a written declaration, instrument or resolution of the trustee setting aside the Lipson Farm for John such that it was then held for John to the exclusion of all other beneficiaries.  It plainly was not, and did not purport to be, such a document.  The agency with the solicitor could have been revoked at any time ending that relationship.  On the termination of the agency relationship there could not be any continuing resolution to set aside the farm for John exclusively.  The determination of John as Trustee was not made until 16 October.  The decision of John on the advice of his solicitor to backdate the Deed of Transfer was not in itself effective to make a retrospective determination for the purposes of the Trust Deed.  If the effect of the agency agreement was that there was a determination made on that day, the deed of transfer would have been unnecessary.  However, the agency agreement was not effective for the reasons I have given.  Insofar as only the Deed of Transfer embodies John’s purported determination, and would have been necessary to give effect to it, it was, as a matter of fact, not made until 16 October 2020, the day after John was removed. 

8. Clause 11.1 and cl 11.2 do not deal with the distribution of capital.  They are a mechanism whereby what would otherwise be an unfettered discretion of the trustee as to the distribution of the capital of the trust can be limited in advance by the creation and the conferral of a fixed interest on particular beneficiaries to the exclusion of others.  There are many personal, commercial and taxation reasons and financial reasons why that approach might be taken, though much is common ground.

9. However, the disagreement between the parties is as to whether the determination and the power to make a determination to distribute the capital of the trust pursuant to cl 11.2 can be exercised without first making an allocation of the trust property pursuant to cl 11.1.  The use of the word ‘determination’ and ‘irrevocable’ suggests that the clause allowing a distribution of the capital assumes, and is premised on, an earlier hypothecation of the capital to certain beneficiaries.  Importantly too are the words in cl 11.3 that in order to give effect to a distribution, the provisions relating to income distribution can be engaged.  Those provisions are clauses 10.4-10.7. 

10. A question arises as to why the power to distribute should be limited to the making of the allocation as between the beneficiaries.  That may be connected to the irrevocable allocation and the revocable allocation when a termination date has been fixed.

    Conclusion

11. I will make the declarations sought by the applicant. 

12. I would hear the parties on the orders necessary to effect the conveyance of the Lipson Farm to Mr Edwards.