Falkenhagen v Perpetual Trustee Company Limited

[2017] NSWSC 580

Supreme Court

New South Wales

Medium Neutral Citation:	Falkenhagen v Perpetual Trustee Company Limited [2017] NSWSC 580
Hearing dates:	10 May 2017
Date of orders:	10 May 2017
Decision date:	10 May 2017
Jurisdiction:	Equity
Before:	Lindsay J
Decision:	The administration of a trust may be brought to a practical conclusion, notwithstanding a beneficiary’s inability to terminate the trust by invocation of the rule in Saunders v Vautier, by means of partial administration orders (under the Uniform Civil Procedure Rules 2005 NSW, rule 54.3) directing the trustee to distribute trust property when: (a) contingencies which impede termination of the trust are so remote as to be disregarded as a matter of practical certainty; and (b) those contingencies can be accommodated by an undertaking by the beneficiary to account for trust property in the event that, contrary to expectations, such a contingency occurs.
Catchwords:	EQUITY — Trusts and trustees — Termination of trust — Rule in Saunders v Vautier — Assignment of respective interests to principal beneficiary who holds life estate unavailable – Possibility new beneficiary may arise – Partial administration orders – Distribution of trust property – Effective end to administration of trust EQUITY — Trusts and trustees — Partial administration orders — Uniform Civil Procedure Rules 2005 NSW, rule 54.3 - Distribution of trust property – Protection of contingent rights — Contingencies remote — Undertaking by plaintiff beneficiary to account for distributed trust property if required — Inappropriate for court to require undertakings detrimental to personal relationships — Undertaking to account sufficient — Protection of trustee – Judicial advice
Legislation Cited:	Uniform Civil Procedure Rules 2005 NSW
Cases Cited:	Bullas v Public Trustee [1981] 1 NSWLR 641 CPT Custodian Pty Limited v Commissioner of State Revenue (2005) 224 CLR 98 Gonzales v Claridades (2003) 58 NSWLR 188 Macrae v Walsh (1927) SR (NSW) 290 National Trustees Executors & Agency Co Ltd v Tuck [1967] VR 847 Re Bruxner [2010] NSWSC 718 Re Cassidy (deceased) [1979] VR 369 Re Estate late Chow Cho-Poon; Application for judicial advice [2013] NSWSC 844 Re Schneider [2009] NSWSC 566; (2009) 3 ASTLR 61 Saunders v Vautier (1841) 4 Beav 115; 49 ER 282 (affirmed (1841) Cr & Ph 240; 41 ER 482) Simpson v Trust Company Fiduciary Services Limited [2009] NSWSC 912 Trustees Executors and Agency Co Ltd v Margottini [1960] VR 417 Wilcox v Poole [1974] 2 NSWLR 693
Texts Cited:	Thomas on Powers (1998), page 176
Category:	Principal judgment
Parties:	Plaintiff: BH Falkenhagen Defendant: Perpetual Trustee Company Limited 000 001 007
Representation:	Counsel: Plaintiff: A Joseph Second Defendant: P O’Loughlin   Solicitors: Plaintiff: Priest Legal Defendant: Church & Grace
File Number(s):	2016/00299850

Judgment – EX TEMPORE (REVISED)

1. Before the Court are proceedings designed, for all practical purposes, to bring to an end a trust (constituted by a deed dated 1 April 1969):

1. the purpose of which (to provide accommodation for the plaintiff, as the holder of a life estate in trust property, with ancillary rights for his wife and his children for their respective lifetimes) may best be achieved, to the extent it has not already been achieved, by the remaining property held on trust being conveyed to the plaintiff; but

2. which (because of remote contingencies associated with the possibility that the plaintiff might in the future have a child or a new wife and, arguably, a more general possibility that other beneficiaries might materialise, although presently unknown) cannot be terminated by all presently known, existing “beneficiaries”, acting jointly, to terminate the trust upon an application of the so-called rule in Saunders v Vautier (1841) 4 Beav 115; 49 ER 282 (affirmed (1841) Cr & Ph 240; 41 ER 482).

2. As accepted by the High Court of Australia (by reference to Thomas on Powers (1998), page 176) in CPT Custodian Pty Limited v Commissioner of State Revenue (2005) 224 CLR 98 at 119[47], the rule in Saunders v Vautier may, for present purposes, be stated as follows:

“Under the rule in Saunders v Vautier an adult beneficiary (or a number of adult beneficiaries acting together) who has (or between them have) an absolute vested, and indefeasible interest in the capital and income of property, may at any time require the transfer of the property to him (or them) and may terminate any accumulation."

3. The plaintiff cannot avail himself of the rule in Saunders v Vautier, even though the remaindermen presently, presumptively known (his wife, prospectively his widow, and more remote relatives) have all purportedly assigned their respective interests in the trust to him, because there remains a theoretical possibility that he might acquire a child (by natural means or adoption), a new wife or more remote relatives whose interests need to be taken into account.

4. The plaintiff was born in 1940 and is presently aged 77 years. His wife was born in 1944 and is presently aged 72 years. They are happily married. They have no children. They plan no change in this.

5. The plaintiff has, on oath, disclaimed any intention to have or to adopt a child, or ever to remarry. Any possibility that the plaintiff will ever, in fact, have a child or remarry is remote.

6. All persons presently known to have interest in the trust, vested or contingent, seek to have the trust terminated and all trust property conveyed to the plaintiff absolutely, for his own use and benefit.

7. Any possibility that another beneficiary will materialise, from any quarter, is so remote, as a matter of practical certainty, that it can be disregarded.

8. The defendant, as trustee of the trust, does not stand in the way of the beneficiaries; provided that:

1. their objective can be achieved in a manner consistent with principle; and

2. it is protected against any prospective liability should another beneficiary materialise against all expectation.

9. The parties agree (and I accept) that two alternative means of proceeding are available in order to achieve the objective of the plaintiff and the remaindermen, all of whom are his relatives.

10. The first of these is by means of "partial administration orders" made under rule 54.3 of the Uniform Civil Procedure Rules 2005 NSW upon an undertaking by the plaintiff to the Court that, if called upon by the Court to do so, he will account for any trust property conveyed to him consequent upon the orders to be made in these proceedings. Although any possibility of the plaintiff being called upon to honour such an undertaking is remote, the undertaking is required by the Court, upon an exercise of risk management, to accommodate the unexpected.

11. 11    Such orders, according to established authority, may take the form of:

1. a declaration that the trustee defendant would be justified in transferring all trust property to the plaintiff beneficiary; and

2. a direction that the defendant do so.

12. This scheme of orders was adopted by Ward J (as the Chief Judge in Equity then was) in Simpson v Trust Company Fiduciary Services Limited [2009] NSWSC 912, relying on Wilcox v Poole [1974] 2 NSWLR 693, Macrae v Walsh (1927) 27 SR (NSW) 290 at 294-295, Bullas v Public Trustee [1981] 1 NSWLR 641 and Gonzales v Claridades (2003) 58 NSWLR 188 at 208-209. To similar effect, see Re Bruxner [2010] NSWSC 718.

13. I doubt whether a declaration that the trustee “would be justified” in effecting a transfer is a necessary prerequisite for a “direction” to transfer trust property to the beneficiary, or that it adds much to a transfer direction. Such a declaration, more often expressed as a generic order, is generally employed by way of judicial advice, leaving to a trustee an element of discretion (albeit perhaps small) about whether to act upon it: Re Estate late Chow Cho-Poon; Application for judicial advice [2013] NSWSC 844 at [30]-[34]. Nevertheless, in the present case, the declaration serves to explain the “management” rationale of the direction, and the trustee raises no objection to it.

14. In technical terms, partial administration orders of the type in contemplation do not determine the legal or equitable rights of parties interested in trust property but, rather, act in the convenient administration (management) of a trust. The trust is not terminated, only its administration.

15. In practical terms, the orders provide protection for the trustee who obtains judicial advice, or a direction of the Court, and acts in accordance with it. Should a new beneficiary materialise with a claim on trust property, any remedy he or she might pursue can take the form of a claim against the plaintiff, or trust property, rather than a claim against the trustee: Re Schneider [2009] NSWSC 566; (2009) 3 ASTLR 61 at [50]-[51]; Trustees Executors and Agency Co Ltd v Margottini [1960] VR 417 at 421; National Trustees Executors & Agency Co Ltd v Tuck [1967] VR 847; Re Cassidy (deceased) [1979] VR 369. Any claim that such a beneficiary might have, according to this scheme of orders, is enhanced by the Court’s requirement that the plaintiff give an undertaking to account.

16. The plaintiff has offered to the Court undertakings that he will not have children (by adoption or otherwise) and that he will not remarry should an occasion for remarriage present itself.

17. In my opinion, it is not appropriate for the Court to extract, or accept, any undertaking other than an undertaking to account tailored to the facts of the case.

18. In making the management decision implicit in this scheme of orders, the Court must be satisfied that contingencies (such as those associated with having a child or remarriage) are remote. That is something that needs to be assessed upon a factual inquiry. It is not necessary or (in my opinion) appropriate to convert a factual inquiry into what could operate as a coercive undertaking capable of operating to the detriment of personal relationships.

19. The alternative means of proceeding arises out of the judgment of Windeyer J in Bassett v Bassett (2003) 58 NSWLR 258. His Honour there dealt with a problem similar to the present, in circumstances in which the holder of a life estate proposed, by surrender of the life estate, to accelerate the entitlements of remaindermen beneficiaries who would then be at liberty to assign their respective shares of the trust fund to the former life tenant.

20. The plaintiff in the present proceedings prefers the former of these two means of proceedings and, in my assessment, it is the better way of proceeding in any event. The partial administration route squarely recognises the possibility that a new beneficiary might materialise (remote though that possibility is) and makes provision for protection of the interests of such a person. The life estate surrender route effectively extinguishes any contingent right.

21. Accordingly, on the application of the plaintiff, and without any opposition on the part of the defendant, I make the following notations and orders:

1. NOTE that the plaintiff, by his counsel, gives to the Court an undertaking that he will submit to such order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct), or otherwise (as the Court may direct) to account for trust property transferred to him, or at his direction, pursuant to these orders in the event that any person (other than his wife Lola Patricia Falkenhagen, and Robert John Lamph, Dougal Richard Lamph, Helen Patricia Heslop, Bruce Darley Thompson, Anne Louise Brickwood, John Darley Thompson and Jennifer Jane Loft, who have submitted to the making of these orders) is in the future found to have an entitlement to participate as a beneficiary in property the subject of the “Vera Whittaker Trust” (“the Trust”) constituted by a Deed dated 1 April 1969.

2. Upon that undertaking:

1. ORDER that the defendant would be justified in distributing to the plaintiff, or as he should direct, all of the assets of the Trust; and

2. ORDER that, subject to further orders of the Court and any and all just claims the defendant may have against such assets, the defendant transfer to the plaintiff the whole of the assets of the Trust.

3. ORDER that the plaintiff’s costs of these proceedings be paid out of the Trust estate on the ordinary basis.

4. ORDER that the defendant’s costs of these proceedings be paid out of the Trust estate on the indemnity basis and that those costs be charged against the Trust estate.

5. ORDER that the amended summons and the defendant’s amended notice of motion (both filed today, 10 May 2017) otherwise be dismissed.

6. RESERVE liberty to apply for consequential or ancillary relief in implementation of these orders.

7. ORDER that the parties’ written submissions (marked for identification as MFI P3 and MFI D4) remain on the Court file, subject to any further order of the Court.

8. ORDER that the solicitor for the plaintiff (Nicholas Lawton), no later than 15 May 2017, cause to be served on each of the persons identified by name in the plaintiff’s undertaking to the Court, a copy of these orders.

9. ORDER that exhibits and subpoenaed material may be returned forthwith; any exhibits returned must be retained intact by the party or person that produced the material until the expiry of the time to file an appeal, or until any appeal has been determined.

10. ORDER that these orders be entered forthwith.

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Decision last updated: 12 May 2017