On appeal from the Supreme Court of New South Wales
Representation
N C Hutley SC with A B Edington and R A Yezerski for the appellants (instructed by S Moran & Co Solicitors)
Submitting appearance for the first respondent
C J Birch SC with B DeBuse for the second and third respondents (instructed by Curwoods Lawyers)
Submitting appearance for the fourth to twelfth respondents
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.
CATCHWORDS
Fischer v Nemeske Pty Ltd
Trusts – Trustees' powers – Power of advancement – Where trust property included shares in a company – Where value of shares recorded in "asset revaluation reserve" – Where trustee made resolution to distribute entire asset revaluation reserve to specified beneficiaries – Where trustee covenanted to pay specified beneficiaries on demand – Whether valid exercise of power to "advance" and "apply" trust capital or income – Whether trustee indebted to specified beneficiaries – Whether action for money had and received maintainable.
Words and phrases – "advance", "apply", "pay", "pay or apply", "raise".
This appeal, from a decision of the Court of Appeal of New South Wales[1], primarily concerns the power of the trustee of a discretionary trust to advance and apply to two designated beneficiaries, by resolution and entry in the trust accounts, an amount of money representing the value of unrealised trust assets comprising shares in a company. Also in issue is the effect of a deed reciting the alleged indebtedness of the trustee to the designated beneficiaries in that amount and purporting to charge the shares in their favour. The detailed facts are set out in the judgments of Kiefel J and Gordon J[2].
[2]Reasons of Kiefel J at [35]-[47]; reasons of Gordon J at [116]-[145].
The trust was the Nemes Family Trust ("the Trust"). Nemeske Pty Ltd was its trustee ("the Trustee"). The designated beneficiaries were Mr Emery Nemes and his wife, Madeleine. The shares were in a company, Aladdin Ltd ("Aladdin"). The value of the shares in September 1994 was recorded in an "Asset Revaluation Reserve" in the amount of $3,904,300, created as an entry in the accounts of the Trust. The entry did not describe an asset or a fund from which amounts could be withdrawn or paid. On 23 September 1994, the Trustee passed a resolution in the following terms:
"RESOLVED that pusuant [sic] to the powers conferred on the Company as Trustee in the Deed of Settlement…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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Details
AGLC
Fischer v Nemeske Pty Ltd [2016] HCA 11
Case
[2016] HCA 11
Decision Date
CaseChat Overview and Summary
The High Court of Australia considered an appeal concerning the exercise of a trustee's powers under a deed of settlement. The dispute involved the Fischers, who alleged that a distribution of an "asset revaluation reserve" by the trustee to Mr and Mrs Nemes was void. The executors of Mr Nemes' estate (the Loblays) cross-claimed against the trustee, asserting a debt owed to them in the amount of $3,904,300, representing the distributed reserve. The parties agreed to treat all documents as genuine and effective according to their terms.
The central legal issues before the High Court were whether the trustee had validly exercised its power under the deed of settlement to "advance" and "apply" trust capital or income to Mr and Mrs Nemes, and consequently, whether the trustee was indebted to Mr and Mrs Nemes' estate. This also raised the question of whether an action for money had and received was maintainable by the beneficiaries against the trustee.
The High Court, affirming the decision of the Court of Appeal, found that the trustee had validly exercised its power under clause 4(b) of the deed of settlement. This power allowed the trustee to earmark and use capital or income for the "advancement in life or benefit" of specified beneficiaries. The court held that the asset revaluation reserve, representing an accretion in the value of shares, constituted part of the trust's capital or income. The trustee's resolution to distribute this reserve to Mr and Mrs Nemes, and the subsequent crediting of their loan account, effectively created an immediate and absolute vested interest in them, thereby constituting a valid exercise of the power to advance and apply trust funds. This created a debt owed by the trustee, making an action for money had and received maintainable.
The appeal was dismissed with costs.
Orders
Orders of the court
Appeal dismissed with costs.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
FRENCH CJ
KIEFEL J
GAGELER J
(dissent)
For the reasons that follow, the Court of Appeal was correct to find that the Trustee had validly exercised the power conferred on it by cl 4(b) of the Deed of Settlement. The appeal should be dismissed with costs.The decision of the primary judge The Fischers' statement of claim, so far as relevant to this appeal, included allegations that the purported distribution of the Asset Revaluation Reserve and the associated creation of the loan account in favour of Mr and Mrs Nemes were void and of no effect. The Fischers claimed declarations accordingly. The Loblays joined issue and contended that on entry into the Deed of Charge the Trustee and the Fischers were estopped from disputing the debt recited in it[14]. The Loblays filed a cross-claim against the Trustee and Mr Robert Fischer, the first appellant, alleging that the Trustee was indebted to them, as executors of Mr Nemes' estate, in the amount of $3,904,300.[14]The other defendants entered submitting appearances. They have taken no active role in the proceedings. The parties agreed at trial that all purported actions and transactions reflected by documents in evidence (even though some were unsigned) were to be accepted as genuine and effective according to their terms. The primary judge, who proceeded on that basis, relevantly found in favour of the executors that:1.The resolution of 23 September 1994 should be construed as written in the Minutes with the last sentence to read[15]:"An amount equal to the entire reserve ... to be distributed to [Mr and Mrs Nemes] as joint tenants."[16]That construction was not disturbed by the Court of Appeal nor challenged on appeal in this Court.2.The Trustee had resolved to make an advance or distribution to Mr and Mrs Nemes pursuant to cl 4(b) of the Deed of Settlement of an amount equal to the recently created Asset Revaluation Reserve, namely $3,904,300, and gave effect to that resolution by crediting Mr and Mrs Nemes' loan account with the Trustee in the same amount[17].3.In the result Mr and Mrs Nemes became creditors of the Trust rather than discretionary objects. As creditors they had the ability, at any time, to call on the Trustee to repay the debt; a result which conferred a "benefit" on them within the meaning of cl 4(b) of the Deed of Settlement[18].[15][2014] NSWSC 203 at [84].[16]The emphasised words were read into the minuted text.[17][2014] NSWSC 203 at [101].[18][2014] NSWSC 203 at [109]-[110].The Court of Appeal The judgment of the Court of Appeal, dismissing the appeal against the decision of the primary judge, was given by Barrett JA, with whom Beazley P and Ward JA agreed. His Honour's reasoning, so far as relevant to this appeal, involved the following steps:1.Clause 4(b) of the Deed of Settlement conferred on the Trustee a single composite power "to earmark or assemble capital or income for use and to use it ... 'for the maintenance education advancement in life or benefit of' any of the specified beneficiaries". That power extended to the "unrealized but expressly recognized accretion in the value of the shares to the extent of $3,904,300" as it was part of the income or capital of the "Trust Funds" as defined in the Deed of Settlement[19].2.The resolution of 23 September 1994 caused the Trustee's obligations with respect to the trust assets to change so that, to the extent of $3,904,300, the Trustee was required to recognise and accommodate an immediate and absolute vested interest of Mr and Mrs Nemes[20]. The Trustee on 23 September 1994 had thereby exercised its power under cl 4(b) to advance and apply capital or income of the Trust Funds to the extent of $3,904,300[21].3.The powers and duties of the Trustee with respect to the sum so advanced and applied were those applicable to and consistent with holding the Trust Funds upon trust to pay thereout $3,904,300 to Mr and Mrs Nemes in satisfaction of an absolute entitlement on their part[22].4.In order for an action at law to be maintainable by the beneficiary against the trustee, something more was necessary than the unconditional and absolute equitable obligation upon the trustee to account to the beneficiary. It had to be found that the trustee had "stated an account" or "admitted himself to the plaintiff that he held any sum of money in his hands payable to him absolutely"[23]. In this case, an action for money had and received was available against the Trustee by reason of the resolution and account entries.5.There was no power under the Deed of Settlement or the Trustee Act 1925 (NSW) to subject the shares to the purported security under the Deed of Charge. The Trustee did, however, have the power to confirm by separate covenant, as it did in cl 5 of the Deed of Charge, that the debt created was payable on demand[24]. That finding was relevant to a limitation argument which was not pursued in this Court.6.Due to the conclusion reached on the availability to the estate of a cause of action in debt, it was not necessary to deal with the estoppel arguments raised by the executors[25].[19][2015] NSWCA 6 at [53]-[54].[20][2015] NSWCA 6 at [62].[21][2015] NSWCA 6 at [64].[22][2015] NSWCA 6 at [76].[23][2015] NSWCA 6 at [83], citing Bartlett v Dimond (1845) 14 M & W 49 at 56 per Pollock CB [153 ER 385 at 387].[24][2015] NSWCA 6 at [92], [100].[25][2015] NSWCA 6 at [115].The issues