Hornsby v Playoust
[2004] VSC 472
•23 November 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 7676 of 2004
IN THE MATTER OF AN APPLICATION BY HORNSBY & ORS
| RAYMOND JAMES HORNSBY & ORS | Plaintiffs |
| V | |
| JULIEN PHILIP FERNAND PLAYOUST & ORS | Defendants |
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JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 8, 9 November 2004 | |
DATE OF JUDGMENT: | 23 November 2004 | |
CASE MAY BE CITED AS: | Hornsby v Playoust | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 472 | |
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WILLS – construction – preliminary question – restructure proposal in relation to sweeps consultation business conducted by trustees of estate involving transfer of the business to a company – to whom and in what proportions should the shares in the company be distributed by the trustees in the event that the restructure proposal proceeds
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr N J O’Bryan SC with Mr A J Kelly | Herbert Geer & Rundle |
| For the First Defendant | Mr J D Merralls QC with Mr M R Pearce | Norton Gledhill |
| For the Fourth Defendant | Mr A C Archibald QC with Mr J P Moore | Aitken Walker & Strachan |
HIS HONOUR:
By originating motion dated 20 August 2004, the plaintiffs, who are the trustees of the estate of the late George Adams (“the Trustees”), seek a determination of certain questions arising under the will and estate of the deceased (“the Testator”) and apply for certain other orders, including the grant of additional administrative powers, if necessary, under s.63 of the Trustee Act 1958 (Vic).
The proceeding arises in the following context. The Trustees wish to advance a proposal for the “restructure” of the business presently conducted by the estate (“the restructure proposal”). Before outlining that proposal it is convenient to briefly refer to the relevant history of the estate.
The Testator died in Tasmania on 23 September 1904 leaving a will dated 16 March 1901 and a codicil thereto dated 31 May 1902, both executed in Tasmania. At the time of his death, the Testator was a resident of and domiciled in Tasmania. Prior to his death he conducted at Hobart a sweep under the style or name of “The Tattersalls Sweep Consultation care of George Adams” (“the Sweeps business”).
In his will the Testator authorised and empowered the Trustees "to carry on and continue or to use their best endeavours to carry on and continue in Tasmania or in any other place whatsoever [the Sweeps business]... as heretofore carried on by me with the fullest most complete and most absolute powers in all respects as if they were the sole owners thereof."
Since the Testator's death, the Trustees have continuously conducted the Sweeps business and, for many years now, the Testator's estate has been administered in Victoria. The Sweeps business has expanded and now includes sweeps, lotteries (including Tattslotto), Club Keno and electronic gaming machines. It is a very substantial business conducted throughout Australia and in a number of other countries. The Sweeps business has been incorporated and the Trustees hold all the issued shares in the relevant corporations.
The restructure proposal, which is described in exhibit “SGD1” to the affidavit of Simon Doyle sworn 29 October 2004, involves the following, inter alia:
(a) the incorporation of a public company, Tattersalls Ltd (which has occurred);
(b)legislation (see the Gambling Regulation (Amendment) Act 2004 (Vic)) to enable the transfer of relevant licenses from the Trustees to Tattersalls Ltd;
(c) the approval by the beneficiaries of the restructure proposal;
(d)various orders from the Court;
(e)a transfer of substantially all of the assets of the estate, including the shares in existing companies operating the business, to Tattersalls Ltd and, in consideration thereof, the issue of shares in Tattersalls Ltd to the Trustees;
(f)the distribution of the shares in Tattersalls Ltd by the Trustees to the beneficiaries who are entitled thereto in the proportions to which they are so entitled;
(g)the public flotation of Tattersalls Ltd and its listing on the ASX;
(h) the winding up of the estate of the Testator.
The firstnamed plaintiff, Mr Hornsby, deposes in an affidavit sworn 24 August 2004 that:
“The entirety of the business is proposed to be transferred to a new company called Tattersalls Limited in exchanged for a large number of shares to be issued to the trustees of the Estate. It is proposed there will be a distribution of shares to beneficiaries, the provision of shares to current employees and the provision for shares to be issued to a trustee (or trustees) on behalf of current and future employees. Tattersalls Limited will then be floated and listed on the Australian Stock Exchange, with additional shares being offered to the public. Beneficiaries of the Estate will be given the opportunity to sell their shares to the public in the float via a special purpose entity established [f]or the purpose. The trustees will then wind-up the Estate. Those beneficiaries who have not sold all their shares to the public will remain as shareholders in the listed company, Tattersalls Limited.”
In his affidavit, Mr Hornsby deposes that there are a number of reasons why the Trustees consider that it is in the best interests of beneficiaries (including the employees) that the restructure proposal be implemented. Those reasons include greater scope for business expansion, greater marketability of investments in the business and so on.
An initial question has been raised for determination by the Court (“the preliminary question”) which I paraphrase as follows:
“On the assumption that the Trustees of the estate restructure the Sweeps business in terms of the restructure proposal by the sale of the assets of the Sweeps business to Tattersalls Ltd and the issue of the shares in Tattersalls Ltd to the Trustees, to what persons and in what proportions should the Trustees distribute those shares?”
The answer to the preliminary question depends upon the proper construction of the will. Defendants have been joined for the purpose of representing two classes of beneficiaries whose entitlements will differ depending upon the answer to the question. For the purpose of the preliminary question, the first defendant (for whom Mr Merralls QC and Mr Pearce appear) represents those beneficiaries who derive their interests from the persons named in clauses T and Y of the will, (excluding those beneficiaries whose interests derive solely from clause Y of the will, the trustees and the employees). The fourth defendant (for whom Mr Archibald QC and Mr Moore appear) represents the beneficiaries of the estate whose interests derive solely from clause Y of the will (excluding the trustees and the employees).
For the purposes of this preliminary question, no submissions were advanced on behalf of the present and future employees of the Sweeps business, because the interests of the employees as affected by the restructure proposal have been the subject of a compromise that has been approved by the Court. So the interests of the employees of the Sweeps business who are the objects of a discretionary trust for their benefit under clause Y of the will are not affected by the answer to the preliminary question.
It was common ground between Mr O’Bryan SC, who appeared with Mr Kelly of counsel for the Trustees, and counsel for the first and fourth defendants that it was appropriate for the Court to answer the preliminary question notwithstanding that other questions in relation to the restructure proposal, under the originating motion, were yet to be determined, and that the preliminary question was hypothetical. The basis for this consensus was primarily the practical necessity[1] for determining the ultimate entitlements to the shares in Tattersalls Ltd in order that the beneficiaries would know precisely how they were affected before voting on the restructure proposal. I am independently satisfied that it is appropriate for this preliminary question to be determined at this stage but, having regard to the consensus of the parties, it is unnecessary to say anything further.
[1]See Church Property Trustees, Diocese of Newcastle v Ebbeck (1960) 104 CLR 394, 400-401 per Dixon CJ.
In order to understand the question disputed between “the clause Y and T beneficiaries” and “the clause Y beneficiaries” it is necessary to go to the provisions of the will[2] in some detail.
[2]The will has, since the Testator’s death, been paragraphed for ease of reference and the paragraphs bear letters A to Z and AA to RR. The codicil to the will is not relevant.
By his will the Testator dealt with his estate in two parts: the Tasmanian estate and the non-Tasmanian estate. In respect of each of those parts he dealt separately with the right to share in the income from those parts of his estate and the right to the corpus of those parts of his estate.
By clause B the Testator gave his non-Tasmanian real and personal estate (“the clause B estate”) to his trustees upon trusts thereinafter set out. By clause C the Testator directed his trustees to stand possessed of that part of his clause B estate comprising certain hotels and other buildings in Sydney upon trust “with the full and absolute power of owners to carry on the business or businesses which I shall be carrying on at the time of my decease” in the said buildings (“the clause C businesses”). By clause D the Testator directed his trustees, out of the net profits from the clause C businesses, to pay certain annuities and, by clause E, subject to those annuities to pay the said net profits to a number of named persons. By clause F the Testator directed his trustees to apply anything remaining undisposed of under the previous clauses to certain trusts in favour of “Charities”[3] thereinafter contained. By clause I the Testator directed his trustees, if they thought fit, to carry on certain other businesses in NSW and to use the net profits to pay certain debts and then in favour of the Charities.
[3]The references to “Charities” in clauses F, G, I and P are explained in clause Q which, for present purposes, is irrelevant.
Subject to all of the provisions of clauses B to J, by clause K the Testator directed the trustees to stand possessed of his clause B estate on trust to sell the same and, by clauses L to P, to apply the net proceeds in payment of various debts and obligations and to apply any residue to the Charities.
It can be seen from the foregoing that the structure of the will in relation to the Testator’s non-Tasmanian estate is that the Testator first dealt with the entitlement to the income thereof and then separately with the entitlement to the corpus thereof.
Commencing with clause R, the will turned to the Tasmanian estate. By clause S the Testator gave the whole of his real and the residue of his personal estate in Tasmania to his Trustees with an important exception, namely, the Sweeps business, which is described as “the business as carried on by me at Hobart … as a Conductor of Sweep Consultations and the goodwill and interest thereof and therein and … the personal estate, effects and monies belonging to such business…” It is convenient to refer to the Testator’s Tasmanian estate under clause S as “the Hobart property”. By clause T the Testator declared that his Trustees stood possessed of the Hobart property, upon trust to divide the same between five named persons in specified proportions (“the Hobart property beneficiaries”). The Hobart property has long since been distributed, but clause T remains of relevance.
Commencing with clause U, the Testator dealt with the Sweeps business in the following terms:
“U WHEREAS I have for many years past carried on and do now carry on at Hobart in Tasmania under license from the Government of the State of Tasmania issued pursuant to the provisions of … “The Suppression of Public Betting and Gaming Act 1896”… the business and occupation of a Conductor of Sweep Consultations under the style or name of the ‘Tattersall Sweep Consultation care of George Adams’ AND WHEREAS I have always endeavoured to conduct such business faithfully and honestly and to the satisfaction of all the subscribers to the said Sweep Consultations to which I attribute the success which has attended my business AND WHEREAS I am desirous that my Trustees shall continue to carry on and conduct the said business under the aforesaid style or name and under the aforesaid license … AND that the said business shall be so carried on and conducted in the same manner in all respects as I have hitherto endeavoured to carry on and conduct the same NOW THEREFORE I HEREBY AUTHORISE EMPOWER AND DIRECT my Trustees to apply for and obtain … the necessary permission to carry on and conduct the said business …”
Then by clause V the Testator gave the Sweeps business “carried on by me at Hobart aforesaid under the style or name of the ‘Tattersall Sweep Consultation Care of George Adams’ and all my estate and interest therein and the goodwill thereof …” to the Trustees and, by clause W, declared that the trustees should stand possessed of the “said business and the goodwill thereof and the assets thereof … all of which are hereinafter referred to as ‘my Sweep Consultation Business’” upon trust to pay various debts and liabilities, and the will went on, in clause X, to provide:
“X AND I HEREBY AUTHORISE AND EMPOWER MY Trustees to carry on and continue … in Tasmania or in any other place whatsoever under the said style or name of the ‘Tattersall Sweep Consultation Care of George Adams’ the said business of a Conductor of Sweeps as heretofore carried on by me with the fullest most complete and most absolute powers in all respects as if they were the sole owners thereof”.
I note that both clauses V and W expressly refer to the goodwill as part of “my Sweep Consultation Business”.
The Testator then dealt with the net profits from the Sweeps Business, by providing in clause Y that the Trustees should stand possessed of “the net profits which may arise from the carrying on and continuance of my said business under the power for that purpose hereinbefore given” upon trust to pay the same to certain persons and purposes thereinafter named and in the proportions therein set out. Clause Y then listed twelve individuals (“the named Legatees”) and their share of net profits, totalling 80% of the net profits. The twelve named Legatees included the five Hobart property beneficiaries (in respect of 40% of the 80% share of net profits). Clause Y further provided for a distribution of 10% of the net profits “between and amongst such of the Employees for the time being engaged in the said business and in such proportions in all respects as my Trustees shall in their absolute discretion think fit …” The provision for the employees has been the subject of consideration or comment in a number of cases[4] but it is sufficient for present purposes to note, as was common ground, that clause Y created a discretionary trust in relation to 10% of the net profits in favour of the employees. The effect of the restructure proposal upon this discretionary trust and the rights of the employees generally has, as I have said,[5] been the subject of a compromise.
[4]Barry v Adams (PW Street J (Judge in Equity), Supreme Court of New South Wales, 15 October 1907, unreported); Blair v Curran (1939) 62 CLR 464, 488-9, 527; Turner v Watchorn (Green J, Supreme Court of Tasmania, 3 February 1954, unreported); Millar v Hornsby [2000] VSC 270.
[5]See para [11] above.
Clause Y thus dealt with 90% of the net profits of the Sweeps business. The remaining 10% was dealt with by clause Z. Clause Z directed the trustees to stand possessed of the remaining one-tenth of the net profits (and any parts of the net profit undisposed of for any reason) on trust to accumulate the same and to use the accumulations for the benefit of the business or for certain purported charitable purposes as set out in clause Z and also in clause AA.
Clause CC of the will provided that in the event of the death of any one or more of the legatees named in clause Y who left a surviving widow the net profits to which the legatee would have been entitled should be paid to his widow for her life. Two of the legatees named in clause Y (representing a total of 10% of the share of net profits) predeceased the Testator, leaving widows, and those widows took the relevant shares of net profits for their lives. Clause FF (which I will set out later) provided that, after the death of any such widows, the share of net profits received by them should be held upon the trusts for Charities.
The purported gifts to charities in clauses Z, AA and FF were held invalid[6] and the trust for accumulation (beyond a period of 21 years) was later held invalid under the Thelusson Act.[7] It was earlier held, and later confirmed,[8] that the said failed gifts of net profits under clauses Z and FF passed to the Hobart property beneficiaries under clause T.
[6]See Barry v Adams (1907) VII SR (NSW) 804; Attorney-General (NSW) v Adams (1908) 7 CLR 100.
[7]See Blair v Curran (1939) 62 CLR 464.
[8]See Blair v Curran (1939) 62 CLR 464.
As a result of the foregoing, the net profits of the Sweeps business have over the years been divided between those deriving their interests solely from the legatees named in clause Y (70%), the employees under the clause Y discretionary trust (10%), and those deriving their interest from the persons named in clause T (20%).[9] The preliminary question is concerned with whether 95%[10] of the proposed shares in Tattersalls Ltd to be distributed under the restructure proposal should be divided among the beneficiaries represented by the fourth defendant – those deriving their interests through clause Y only (according to the proportions contained in clause Y) – or should be divided among the beneficiaries represented by the first defendant – those persons currently receiving their shares of the net profits either under clause T and/or clause Y in the same proportions as they are currently receiving those net profits. The reasons why the question arises in this way turns upon further provisions in the will, especially clauses DD and NN.
[9]There was an overlapping of beneficiaries as between clauses T and Y and certain subsequent agreements between some of them, or persons deriving interests from them, have made changes, the details of which are unnecessary to set out.
[10]The question covers 95% of the proposed shares in Tattersalls Ltd because the remaining 5% of the shares have been dealt with by the compromise covering the employees.
Clause DD provides:
“DD IN THE EVENT of my Trustees being unable to continue or deciding to discontinue the carrying on of my said business THEN I AUTHORISE EMPOWER AND DIRECT my Trustees to wind up the said business and to realise my Sweep Consultation Business AND I DIRECT my Trustees to stand possessed of the net proceeds of such winding up and realisation … UPON TRUST to divide the same between and amongst the before named Legatees of the net profits of the said business in the same proportions as they are hereinbefore directed to divide between them the said net profits.”
If clause DD is directly applicable or otherwise relevant to the distribution of the shares under the restructure proposal, then the reference to the “named Legatees” will relate to the beneficiaries deriving their interest only under clause Y.
The interpretation of clause DD is affected by clause EE which provided:
“EE BUT I DECLARE that nothing hereinbefore contained shall authorise or empower my Trustees to sell my said business or to permit any other person or persons or body corporate (except as hereinafter especially provided) to use or employ my name or the style or name under which I have carried on the said business in connection therewith or with any business of a like kind or nature the bequest to my Trustees of the said business with the power to carry the same on in my name being in the nature of a solemn trust imposed by me on them on the account of the confidence I have in their carrying the said business on in the same way that I have carried it on.”
Clause FF provided:
“FF AND I DECLARE that the shares of any of the before named Legatees of my said business either in the net profits thereof or in the net proceeds of such winding up and realisation as aforesaid and in all monies which may have accumulated as aforesaid which shall fall in or lapse owing to the death of such Legatees in my lifetime or owing to the death of his Widow should he leave one as aforesaid … shall be held by my Trustees UPON AND SUBJECT to the trusts directions and provisions hereinbefore contained in favour of Charities.”
Clause JJ authorised and empowered the Trustees with the full powers of owners in carrying on any of the businesses mentioned in the will to do so “during such period as they shall think fit”.
As I have said, the Sweeps business has been for some years conducted through the medium of a corporation or corporations. The estate holds the shares in the corporation or corporations and also holds the relevant licenses. The basis for this mode of conducting the Sweeps business has been clause NN and it is this clause which also may arguably be relied upon to advance the restructure proposal insofar as it involves the transfer of the business to Tattersalls Ltd and the issue of shares in Tattersalls Ltd to the Trustees. Clause NN of the will provided:
“NN AND I AUTHORISE AND EMPOWER my Trustees with the full absolute and uncontrolled powers and discretions of owners at any time or times to convert or join in converting any one or more of the businesses which I may be carrying on or engaged in at my decease into a Company or separate Companies limited by shares in such manner as may be thought fit AND to promote or assist in promoting a Company or Companies for the purpose of taking over any one or more of the said businesses at the expense of that portion of my Estate which may be in the particular State or part of the world in which such business or businesses is or are being carried on for the time being AND I DECLARE that my Trustees may sell or transfer any one or more of the said businesses and the property assets and capital respectively embarked therein and the goodwill thereof or any part or parts thereof respectively to such Company or Companies or to any Company or Companies having for its or their objects or one of its or their objects the purchase of a business or businesses of a like nature in consideration wholly or in part of ordinary shares therein wholly or partially paid up or wholly or in part of debentures debenture stock or bonds or preference shares of such Company or Companies AND as to the balance in cash payable immediately or by any instalments with or without security and my Trustees or any of them may act as Directors Manager or Secretary of or hold any other office in relation to such Company or Companies without being accountable for any remuneration received by them or him as such and may enter into any such other arrangements as to any such Company or Companies as aforesaid or as to the sale or transfer of the said business or businesses and the assets thereof respectively to the Company or Companies so formed or otherwise whether before or after the incorporation of the said Company or Companies as my Trustees in their absolute and uncontrolled discretion shall think fit AND so that all contracts or arrangements which may be made or entered into by my Trustees for any of the purposes aforesaid shall be valid and effectual notwithstanding that any of my Trustees may be Promoters of the Company or Companies or intended Company or Companies or may be interested or concerned therein or intended to be as Shareholders Directors Managers Secretaries or in any other character or capacity AND I FURTHER DECLARE that the sale or transfer of any one or more of the said businesses and the assets thereof respectively to the said Company or Companies may if deemed necessary or expedient be effectuated by my Executors in that character in which case they shall have all such and the like powers and authorities in relation thereto are as hereinbefore given to my Trustees AND I FURTHER DECLARE that all shares bonds debentures debenture stock and moneys which may be received as the consideration for the sale and transfer of any one or more of the said businesses and the assets thereof respectively or any part thereof to such Company or Companies as aforesaid shall be vested in and held by my Trustees UPON AND SUBJECT to the trusts directions and provisions hereinbefore declared and contained of and concerning the business or businesses and assets thereof so as aforesaid to be sold and transferred to any such Company or Companies as aforesaid or the proceeds of sale and disposition of any such business or businesses and the assets thereof respectively.”
It can be seen that clause NN of the will gave the Trustees the widest possible power to sell or transfer any of the businesses referred to in the will including the Sweeps business. The power under clause NN in relation to the Sweeps business is unconstrained by the earlier limitation in clause EE. The Trustees were thus empowered to sell or transfer the Sweeps business to a company or companies and to take shares in (or other securities from) the company or companies involved. The Trustees were empowered to effect the sale or transfer “in consideration wholly or in part of ordinary shares … wholly or in part of debentures … or preference shares … AND as to the balance in cash …” The effect of this language appears to be that the Trustees were empowered to dispose of their entire ownership and control of the Sweeps business as the receipt, for example, of debentures and cash would not leave them with any proprietary interest or control. However, clearly the issue of shares as contemplated in the restructure proposal is authorised by clause NN.
The important matter to be noted about clause NN is that all of the consideration received by the Trustees as a result of any sale or transfer thereunder is to be vested in the Trustees:
“UPON AND SUBJECT to the trusts directions and provisions hereinbefore declared and contained of and concerning the business or businesses and assets thereof so as aforesaid to be sold and transferred to any such Company or Companies as aforesaid or the proceeds of sale and disposition of any such business or businesses and the assets thereof respectively.”
Submissions on behalf of first defendant
It was submitted by Mr Merralls on behalf of the first defendant that the answer to the preliminary question depended upon the proper characterisation of the restructure proposal. If the restructure proposal involved a continuation of the Sweeps business in another legal form, the shares should be distributed in accordance with “income entitlements” (i.e. under both clauses T and Y). If the restructure proposal was to be characterised as a winding up and realisation of the business in the event of the Trustees being unable to continue or deciding to discontinue it, then the distribution of the shares should be in accordance with “corpus entitlements” (i.e. as per clause DD). Mr Merralls submitted that the restructure proposal was more properly characterised as a continuation of the business, because Tattersalls Ltd would carry on essentially the same business as the Trustees formerly carried on.
It was therefore submitted by Mr Merralls that the Trustees had power to give effect to the restructure proposal, at least up to the stage of taking shares in Tattersalls Ltd, pursuant to clause NN but not pursuant to clause DD. Mr Merralls submitted that in circumstances where the Trustees were unable to continue or decided to discontinue the carrying on of the Sweeps business they were authorised under clause DD only to wind up the Sweeps business but not to sell or transfer it. Mr Merralls submitted that the word “realise” in clause DD meant the sale and conversion into money of the assets of the Sweeps business but not the sale of the Sweeps business as a going concern. This interpretation, Mr Merralls submitted, was supported and fortified by clause EE which expressly provided that nothing “hereinbefore” contained empowered the Trustees to sell the Sweeps business or to permit any other person or body corporate to use or employ the name or the style or the name under which the Testator had carried on the Sweeps business. That prohibition was qualified by the words “except as in hereinafter especially provided” which was a reference to clause NN. Hence clause NN was the only source of power for the sale or transfer by the Trustees of the Sweeps business as a going concern, as contemplated by the restructure proposal.
Mr Merralls submitted that the aspect of the restructure proposal that might support its characterisation as a winding up and realisation of the business was the fact that the trust would ultimately be wound up – however that should not be equated with the winding up of the Sweeps business with which clause DD was concerned. The winding up of the trust would follow naturally on the disposal of all trust assets and did not rely on express power in the will.
The next step in Mr Merralls argument was the submission that, under clause NN, the proceeds of any sale or transfer of the Sweeps business had to be held on the express trusts “hereinbefore declared and contained of and concerning the business … so as aforesaid to be sold and transferred …” As a consequence the shares, being the consideration received for the transfer to Tattersalls Ltd, would be held by the Trustees on the same trusts as they previously held the Sweeps business and its assets, namely the trusts as to the net profits under clauses T and Y. In relation to the trusts lastly referred to under clause NN by the words “the Trusts … hereinbefore declared and contained of and concerning … the proceeds of sale and disposition of any such business”, Mr Merralls (in written submissions) submitted that those words “appear to confer a discretion on the trustees whether to hold the proceeds of a corporatisation pursuant to the clause either on the income or corpus trusts”.
Mr Merralls noted that clause NN did not confer on the Trustees a power to distribute the shares in specie and that, although such a power might be thought to be conferred by clause DD, clause DD was predicated on a winding up and realisation of the business and it was difficult, if not impossible, so to describe the restructure proposal (particularly given the prohibition on sale in clause EE).
Mr Merralls said that, because it was thought that clause DD did not apply, it would be submitted in due course that the Court should exercise its power pursuant to s.63 of the Trustee Act 1958 (Vic) to confer on the Trustees a power to distribute the shares in specie. However Mr Merralls submitted that there was anther basis for a conclusion not only that the Trustees had the power to distribute the shares but also that they were bound to distribute them to the persons entitled to the net profits in the same proportions. He referred to the rule of construction, considered by the High Court in Congregational Union of New South Wales v Thistlethwayte[11], that an unlimited absolute gift of income is a gift of the capital from which the income is derived. Mr Merralls submitted that, because all interests in the net profits of the Sweeps business were presently vested and absolute interests, the same persons so entitled to the net profits were entitled to the capital or corpus from which the income was derived and in the same proportions. Mr Merralls accepted that this rule of construction applied subject to any contrary intention contained in the will but submitted that no such contrary intention was evinced by the will. As I understood Mr Merralls’ argument, as it developed, the conclusion which he urged ultimately depended upon this submission and not upon finding any express trust in relation to corpus in the will, because, so Mr Merralls contended, there was no express trust to be found in the will in relation to the corpus of the Sweeps business other than in clause DD (which, he said, was inapplicable).
[11](1952) 87 CLR 375, 438.
It was therefore submitted on behalf of the first defendant that the 95% of the shares in Tattersalls Ltd should be distributed to the beneficiaries (other than the employees) in accordance with “income proportions” under clauses Y and T of the will.
Submissions on behalf of fourth defendant
Mr Archibald commenced his submissions by analysing the structure of the will. He stressed that the Testator had first dealt with his non-Tasmanian estate and made separate and distinct provisions as to the income and corpus thereof. The Testator had then dealt with his Tasmanian estate and again made separate and distinct provisions as to the income and corpus thereof. Finally, the Testator had dealt with the Sweeps business and again made separate and distinct provisions as to the income (clauses Y, Z, CC and FF) and as to the corpus (clause DD). Clause NN was an additional provision granting power to the Trustees in respect of any of the businesses referred to in the will whether located within or outside Tasmania.
Mr Archibald submitted that clause DD had a wider operation than that contended for by Mr Merralls. Mr Archibald argued that the power of the Trustees to wind up the Sweeps business was a distinct power from that granted to the Trustees to “realise” the Sweeps business. The power to realise the Sweeps business necessarily included the power to realise the goodwill of the Sweeps business, as defined by the will, and accordingly encompassed the power to sell the Sweeps business as a going concern. There was, it seemed to me, considerable strength in that argument, if clause DD be regarded in isolation. The problem is created by clause EE. In relation thereto, Mr Archibald submitted that clause EE was not an absolute embargo upon sale of the Sweeps business – if it was it would negate clause DD because it was the essence of realisation that there be a “commercial turning to account” or sale. Clause EE had to be interpreted to harmonise with clause DD and not to negate it. The prohibition in clause EE should be understood as a prohibition upon sale other than a sale entailed upon winding up or realisation of the business, that is, a sale that was not attendant upon and consequent upon a decision by the Trustees to themselves discontinue the carrying on of the business.
Mr Archibald further submitted that the restructure proposal plainly involved a decision by the Trustees to discontinue the carrying on of the Sweeps business (i.e. the cessation of the conduct of the business by the estate) and that, accordingly, clause DD was applicable. The Trustees were empowered to realise the Sweeps business (including the goodwill) and that clause EE, for the reasons above mentioned, did not prevent them from doing so. Accordingly, the shares should be divided in the way required by clause DD (between the named Legatees under clause Y).
Mr Archibald submitted in the alternative that, if clause DD was inapplicable and clause NN was engaged by the restructure proposal, the same result was reached by a slightly different route. Mr Archibald submitted that clause NN preserved the same regime as had been established by the previous provisions of the will as to income and corpus entitlements. As a result, under clause NN, the income from the shares in Tattersalls Ltd (prior to any distribution of the shares) would pass to those entitled to the net profits of the Sweeps business (under clauses T and Y) but the corpus, upon a distribution of the shares, would pass to those entitled to the corpus under the only trusts in that regard (in clause DD). The reference in clause NN to the trusts of and concerning “the proceeds of sale and disposition of any such business or businesses and the assets thereof” was, in the case of the Sweeps business, a reference back to or an incorporation of the trust for division of the net proceeds contained in clause DD. Mr Archibald added that the submissions on behalf of the first defendant did not allow for the operation of the concluding words of clause NN as to the proceeds of sale and treated them as surplusage.[12]
[12]i.e. in the case of the Sweeps business – the words would still have operated in relation to the sale and disposition of other businesses under the will.
As regards the submission based upon the rule of construction referred to in Congregational Union v Thistlethwayte, Mr Archibald submitted that the rule was inapplicable or that the will disclosed a contrary intention in that the trusts of the net profits of the Sweeps business were indefinite in duration but not “perpetual” (i.e. not absolute) because clause DD contemplated their termination.
Submissions on behalf of the plaintiffs
Mr O’Bryan made most helpful submissions, both orally and in writing, on behalf of the Trustees in order to assist the Court, while adopting a neutral position. I have taken those submissions into account and material in them is, to the extent necessary, incorporated in these reasons. By failing to set out those submissions, I intend no disrespect to the plaintiffs and those representing them.
Characterisation of the restructure proposal
In my opinion the characterisation of the restructure proposal urged on behalf of the fourth defendant is to be preferred. The restructure proposal viewed as a whole involves not merely the corporatisation of the Sweeps business but also the distribution by the estate of the shares in Tattersalls Ltd. Underlying that is the fundamental decision by the Trustees that they no longer wish the estate to conduct, control or own the Sweeps business. All of the parties placed considerable emphasis upon the characterisation of the restructure proposal and suggested that this was the key to the answer to the preliminary question. I am not sure that that is so. I think that the question rather is, given that the Trustees have made that fundamental decision, what power or powers do they possess under the will to give effect to it.
Interpretation of the will
The paramount rule is to ascertain from the will itself the intention of the Testator and it is therefore necessary in every case to construe the whole will to see what the Testator meant.[13] In the end, as counsel for the plaintiffs submitted,[14] it must be recognised that a question as to the proper construction of a will, like any other instrument, is one about which reasonable minds might differ so that it will often be “a matter of impression” which informs the Court’s judgment.
[13]Butler v Trustees Executors and Agency Co Ltd (1906) 3 CLR 435, 439.
[14]Citing Williamson v Carter (1935) 54 CLR 23, 31; Hvalfangerselskapet Polaris A/S v Unilever Ltd & ors (1933) 46 2 LLR 29, 34 per Lord Atkin; Mercantile Mutual Insurance (Aust) Ltd v Rowprint Services (Victoria) Pty Ltd [1998] VSCA 147 at [31] per Callaway JA; Caledonia North Sea Ltd v London Bridge Engineering Ltd and ors [2000] SLT 1123, 1150.
In my opinion the submissions advanced by Mr Archibald on behalf of the fourth defendant in relation to the proper interpretation of clauses DD and EE of the will are correct. I consider that the word “realise” in clause DD encompasses the sale of the Sweeps business as a going concern.[15] Further, it is necessary to give clause EE a limited interpretation in order to avoid the substantial negation of the Testator’s intention expressed in clause DD. I think that clause EE should be construed as a prohibition applicable only to circumstances other than those in which the Trustees are unable or unwilling to continue the conduct of the Sweeps business. Given the further wide powers granted to the Trustees under clause NN which are generally available, it does not seem to me that the Testator could have intended clause EE to have any wider significance or operation.
[15]To conclude otherwise might be to consign a valuable asset – the goodwill – to a “black hole” (as Mr Archibald put it).
I am therefore of the view that the Trustees, having decided to discontinue conduct control and ownership of the Sweeps business, are empowered by clause DD to give effect to the restructure proposal. The consequence of that interpretation is that the shares in Tattersalls Ltd should be divided between those deriving their interest from the named Legatees under clause Y of the will, as provided by clause DD.
Minds may reasonably differ in relation to the proper interpretation of clause EE, which is also open to the interpretation that it prevents the sale of the Sweeps business as a going concern under clause DD. If (contrary to my above conclusions) that is the correct interpretation, I consider that the answer to the preliminary question would be no different for the reasons which follow.
It was common ground that, whatever the position under clauses DD and EE, the Trustees had power to advance the restructure proposal (or at least everything but the distribution of the shares) pursuant to clause NN. I interpolate that it seems to me that even if the Trustees have power to carry the whole of the restructure proposal into effect under clause DD, they may still opt to proceed under clause NN – that would leave only the question of their power in that event to distribute the shares.
If the Trustees must proceed under clause NN, and assuming that they have under the will, or obtain by Court order, the power to distribute the shares, to whom should they be distributed?
I am unable to accept Mr Merralls’ submission that the Trustees would be bound to distribute the shares to the persons currently entitled to the net profits, based upon the application of the rule of construction that an unlimited absolute gift of income is a gift of the capital from which the income is derived. I doubt that the will can be said to grant an unlimited absolute right to the income of that portion of the estate constituted by the Sweeps business, having regard to the existence of clause DD. In any event, I think that the will, by providing for the continuing conduct of the Sweeps business by the Trustees (and the payment of a share of the profits to employees) displays an intention that the gift of net profits is not to carry a gift of the capital.[16] That contrary intention is further evidenced by the Testator’s separate and independent provisions for income and for capital, both generally and in respect of the Sweeps business in particular. The said rule of construction is therefore inapplicable. The result of such a conclusion, according to Mr Merralls’ submission, would be that there is no express trust in relation to the proceeds of any sale or transfer of the Sweeps business under clause NN; but that submission ignores the closing provision of clause NN referring to the trusts of and concerning “the proceeds of sale and disposition” of the relevant business.
[16]Cf Congregational Union of New South Wales v Thistlethwayte (1952) 87 CLR 375, 438-439.
In my view the proper interpretation of clause NN is that advanced by Mr Archibald, namely that the consideration received for the sale or transfer of the Sweeps business is to be held on the trusts “hereinbefore declared”, namely: as to the income therefrom, mutatis mutandis, on the trusts as to net profits contained both in clause T (via clauses Z, CC and FF) and in clause Y, and as to the capital or corpus thereof, again mutatis mutandis, on the trust for division of the proceeds of sale contained in clause DD. In other words, so far as the Sweeps business is concerned, clause NN incorporates, mutatis mutandis, the express trusts as to net profits and corpus respectively created elsewhere in the will in relation to that business.
In substance I have accepted the principal submissions advanced on behalf of the fourth defendant.
The preliminary question should be answered so as to reflect the foregoing reasons. I invite the parties to submit minutes of orders
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