In the matter of Gainer Associates Pty Limited

Case •

[2024] NSWSC 1138

•

06 September 2024

No judgment structure available for this case.

Supreme Court


New South Wales

  • Amendment notes
Medium Neutral Citation: In the matter of Gainer Associates Pty Limited [2024] NSWSC 1138
Hearing dates: 22 August 2024
Date of orders: 6 September 2024
Decision date: 06 September 2024
Jurisdiction:Equity - Expedition List
Before: Rees J
Decision:

Judicial advice given.

Catchwords:

JUDICIAL ADVICE – s 63 Trustee Act 1925 (NSW) – principles at [72]-[78] – importance of trustees seeking advice – controversy or breach of trust does not preclude advice being given – trustee in breach of rules for self-managed superannuation fund (SMSF) – rules require deceased member’s legal personal representative to be appointed as trustee or director of corporate trustee – deceased’s legal personal representative is NSW Trustee and Guardian (NSWTG) – NSWTG appointed accountant as director of corporate trustee instead – as a consequence, SMSF becomes non-compliant with Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) – trustee and NSWTG disclose non-compliance to Commissioner of Taxation (ATO) and obtain indemnity – whether advice should be given – the fact that the trustee is in breach is a reason to seek advice – in interests of trust estate to provide direction so that trust property may be administered.

DEATH BENEFITS – whether trustee justified in proposed distribution of death benefit from SMSF – exercise of a trustee’s discretion, principles at [92]-[96].

DEFENDING PROCEEDINGS – whether trustee justified in defending proceedings for its removal as trustee – justified where trustee’s actions sought to be impugned.

REMUNERATION – director appointed by NSWTG cannot be remunerated without making SMSF non-compliant – s 17A(2)(d), SIS Act – whether director can be paid by the deceased member’s estate instead – meaning of “any person” – broad language – includes payment by estate – given disclosure to ATO of proposed payment of director and indemnity given, justified in paying director from the fund to the extent that his fees do not come within exemption in s 17B(2) – Re Application of Ellasil [2023] VSC 69 considered.

Legislation Cited:

Corporations Act 2001 (Cth), ss 201F(2), 249B(1)

Income Tax Assessment Act 1997 (Cth), ss 295-325, 302-10, 302-60, 302-195

Income Tax Rates Act 1986 (Cth), s 26

NSW Trustee and Guardian Act 2009 (NSW), ss 5, 13(1), 201B

Superannuation Industry (Supervision) Regulations 1994 (Cth), reg 6.21

Superannuation Industry Supervision Act 1993 (Cth), ss 17A, 17B, 40, 41, 42, 42A

Trustee Act 1925 (NSW), ss 59(4), 63, 85(2)

Cases Cited:

AMP Capital Investors Ltd as Responsible Entity the KSC Trust [2010] NSWSC 1259

Application of Macedonian Orthodox Community Church St Petka Inc [2023] NSWSC 918

Crnjanin v Ioos [2010] NSWSC 750

Finch v Telstra Super Pty Ltd (2010) 242 CLR 254; [2010] HCA 36

Ievers v Superannuation Complaints Tribunal [2016] FCA 936

New South Wales Institution for the Deaf, Dumb & the Blind (NSW) v Shelly (1917) 23 CLR 351

Karger v Paul [1984] VR 161

Ludwig v Jeffrey (No 2) [2020] NSWSC 1677

Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42

Maciejewski v Telstra Super Pty Ltd (1998) 44 NSWLR 601

Maciejewski v Telstra Super Pty Ltd(No 2) [1999] NSWSC 341

Marley v Mutual Security Merchant Bank & Trust Co Ltd [1991] 3 All ER 198

Owies v JJE Nominees Pty Ltd [2022] VSCA 142

Partridge v Equity Trustees Executors and Agency Co Ltd (1947) 75 CLR 149

Re Perpetual Investment Management Ltd (as Responsible Entity for 10 Schemes listed in the Summons) [2014] NSWSC 784

Re Application by Perpetual Trust Services Ltd (as responsible entity of Momentum AllWeather (A$) Absolute Return Fund) [2012] NSWSC 758

Re Perrot Mill Pty Ltd(No 2) [2013] VSC 428

Re Rosewood Research Pty Ltd [2014] NSWSC 449

Re Stone; Read v Dubua (1936) 36 SR (NSW) 508

Re Application of Uncle's Joint Pty Ltd [2014] NSWSC 321

Re Application by NGS Super Pty Ltd (as trustee of NGS Super) [2021] NSWSC 1694

Wan v BT Funds Management Ltd [2022] FCA 302

Wareham v Marsella (2020) 61 VR 262

Category:Principal judgment
Parties: Gainer Associates Pty Limited (Plaintiff)
New South Wales Trustee and Guardian (Beneficiary)
Steven Bone (Beneficiary)
Representation:

Counsel:
R Bianchi (Plaintiff)
C Winnett (New South Wales Trustee and Guardian)
DL Williams SC / A d’Arville (Steven Bone)

Solicitors:
Cooper Grace Ward Lawyers (Plaintiff)
Norton Rose Fulbright (New South Wales Trustee and Guardian
Buchanan Rees Dispute Lawyers (Steven Bone)
File Number(s): 2024/204742

JUDGMENT

  1. HER HONOUR: This is an application for judicial advice under s 63 of the Trustee Act 1925 (NSW) in respect of the proposed distribution of a death benefit. Gainer Associates Pty Limited is the trustee of the Gainer Associates Superannuation Fund (the Fund), which was established by Gail Thelen and husband Werner Thelen as a self-managed superannuation fund (SMSF). The Fund has assets of some $7 million.

  2. Mr Thelen passed away. After his death, Ms Thelen formed a relationship with US attorney, Steven Bone. Ms Thelen got cancer. She made a will, leaving Mr Bone her Lexus car, art collection and a legacy of $1 million, together with a life estate in her Clontarf home. Ms Thelen made a number of other gifts in her will to her brother, nieces, friends and charities. Ms Thelen also made a Binding Death Nomination, directing that her interest in the Fund be paid to her Estate. The nomination was witnessed by her solicitor, but is not binding as it should have been witnessed by two people.

  3. Gainer proposes to distribute one-third of the Fund to Mr Bone and the balance to the Estate. Mr Bone wants the whole of the death benefit to be paid to him. Mr Bone has also brought family provision proceedings. Ms Thelen’s brother has challenged her capacity to make her last will at all. Mr Bone has separately commenced proceedings to remove Gainer as trustee of the Fund.

  4. The probate and family provision proceedings are listed for hearing on 9 September 2024. In light of this, the application for judicial advice has been expedited. I have been provided with a Statement of Facts and a confidential memorandum of counsel’s opinion. In addition, the trustee relied on the evidence of director, Timothy Heesh, and a large number of documents. There was no cross-examination.

  5. I have also had the benefit of detailed written and oral submissions for the trustee, New South Wales Trustee and Guardian (NSWTG) and Mr Bone. Put shortly, NSWTG broadly agreed with the advice sought by the trustee, with some qualifications, whilst Mr Bone opposed advice being given at all.

FACTS

  1. Gail Thelen and husband Werner Thelen incorporated Gainer Associates Pty Limited. Presumably, the name of the company was a combination of their first names. Both were directors and shareholders of the company. The couple established the Gainer Associates Superannuation Fund (the Fund). Gainer was appointed as the trustee. The couple were the only members of the Fund. The couple replaced the rules of the Fund in 2008 with “The Simpler Super Rules”. Relevantly, r 2.5(b) of the Rules provides:

2.5   Any Trustee is to be removed as Trustee under one or more of the following conditions:

…

b)   where the Trustee is of the opinion that the continued appointment of the Trustee will result in the Fund becoming a non-complying SMSF;

  1. Further, r 2.9(a) provides:

2.9   Subject to the Superannuation Laws and the Fund retaining its Complying SMSF status, when a Member dies:

(a)   The deceased Member’s Legal Personal Representative, subject to their consent, is to be appointed as a Replacement Trustee of the Fund or director of the Corporate Trustee if permitted in accordance with the constitution of the Corporate Trustee;

  1. In September 2014, Mr Thelen died leaving his wife as the sole member of the Fund. The couple did not have children.

  2. Mr Bone is an attorney from Indiana in the United States. He specialises in estates, trusts and family wealth planning, including drafting trust instruments and wills. As part of his business, Mr Bone travelled on cruise ships conducting courses on wealth and inheritance planning. In November 2014, Mrs Thelen met Mr Bone on a cruise. They began to spend time together. When the cruise ended in February 2015, they returned to their respective countries but continued to spend time with each other in the years which followed.

  3. On 13 December 2019, Ms Thelen made a will in which she described Mr Bone as her partner. Ms Thelen left a large number of gifts to friends and family; she gave $1 million to Mr Bone and her art collection. This is one of the wills the subject of the probate proceedings.

  4. Ms Thelen got cancer. On 20 April 2021, Ms Thelen made her last will. Ms Thelen’s brother, Paul Petith, contests Ms Thelen’s capacity to make this will. Relevantly, Ms Thelen appointed her solicitor, John Lakos, to be her sole executor and trustee but, in the event that he died before proving the will, appointed the NSWTG as sole executor and trustee. (Each of Ms Thelen’s previous wills dating back to 2014 appointed the same executors.) Ms Thelen left Mr Bone a legacy of $1 million together with her Lexus car, furniture and household items and artworks, together with a life estate in her Clontarf home.

  5. Mr Thelen also completed a binding death benefit nomination. Ms Thelen nominated her legal personal representative as the person entitled to the payment of her accrued entitlements in the Fund. Ms Thelen’s signature was witnessed by Mr Lakos. Ms Thelen died a week later, aged 65.

  6. In June 2021, Mr Lakos published a notice of intention to apply for a grant of probate in respect of Ms Thelen’s will made on 20 April 2021. In July 2021, Mr Lakos was appointed as the director and secretary of Gainer. However, Mr Lakos died on 23 December 2021, before obtaining a grant of probate. The same day, Ms Thelen’s brother commenced probate proceedings against NSWTG and Mr Bone, challenging the validity of Ms Thelen’s last will.

NSWTG appointed interim administrator

  1. On 8 March 2022, Hallen J made orders granting interim administration of Ms Thelen’s estate to NSWTG, limited to inter alia:

(a)   collecting, taking possession of, preserving and maintaining the assets of the estate …;

…

(e)   appointing an agent (including a solicitor, accountant or real estate agent) to do any business that the Administrator is unable to do, or that it is unreasonable to expect the Administrator to do, in person;

(f)   becoming the registered shareholder, as administrator of the estate, of the deceased’s shares in Gainer Associates Pty Limited … (“the Company”);

(g)   appointing a director or directors to that Company;

(h)   doing all other things as are incidental to the powers granted.

  1. In April 2022, Mr Bone’s solicitors wrote to NSWTG, asking for the death benefit derived from Ms Thelen’s entitlements in the Fund to be paid to him. Mr Bone also commenced family provision proceedings.

Appointing a director to Gainer

  1. NSWTG was recorded as the sole shareholder of Gainer in its capacity as interim administrator of Ms Thelen’s estate.

  2. On 31 May 2022, NSWTG, as interim administrator of Ms Thelen’s estate, wrote to Mr Heesh, asking whether he would consent to act as a director of Gainer to assist in the administration of Ms Thelen’s estate. NSWTG advised that, where Ms Thelen was the sole director and shareholder of the company, it was necessary for a new director to be appointed to bring the company’s financial and taxation records up to date and attend to various actions on behalf of the company until the assets could be realised and ultimately distributed to NSWTG as the legal personal representative, subject to court orders and trust law. NSWTG provided a proposed director’s deed of indemnity, by which Mr Heesh would be indemnified by Gainer in respect of any liabilities that could arise as a result of his appointment by reason of Ms Thelen’s activities before his appointment.

  3. Mr Heesh is an experienced chartered accountant and registered liquidator. As a liquidator, he then charged $660 an hour including GST. The work he usually carried out in that role encompassed all the usual tasks required of an officeholder of a company. Mr Heesh was also regularly appointed to directorships or trusteeships in protected financial management situations, including deceased estates. For such appointments, Mr Heesh charged a reduced rate of $440 an hour including GST. Mr Heesh said he is aware of his obligations to act impartially in the interests of members or beneficiaries. I accept that.

  4. On 10 June 2022, Mr Heesh consented to act as a director and secretary of Gainer Associates. On 14 June 2022, by resolution under s 249B(1) of the Corporations Act 2001 (Cth), NSWTG as administrator of the Estate appointed Mr Heesh as director and secretary of Gainer. The director’s deed of indemnity was executed. Mr Heesh accepted the appointment on the basis that, as a registered liquidator, he was able to effectively carry out all the work that a director would complete for Gainer and, further, he would be paid for his time at the hourly rate of $440 including GST. I accept that too.

  5. As NSWTG later informed the Commissioner of Taxation, while NSWTG was now Ms Thelen’s legal personal representative, it could not be appointed as a director of Gainer as NSWTG is a corporation and only an individual can be a director: s 5, NSW Trustee and Guardian Act 2009 (NSW); s 201B, Corporations Act. NSWTG approached Mr Heesh to be appointed as a director of Gainer instead.

  6. It will be recalled that, under r 2.9(a) of the Rules, when a Member dies, their legal personal representative, subject to their consent, is to be appointed as replacement trustee of the Fund or director of the corporate trustee. Self-evidently, NSWTG was not prepared to consent to be appointed as a replacement trustee of the Fund. (NSWTG may refuse to act in a trust capacity: s 13(1) NSW Trustee and Guardian Act. ) Rather, NSWTG proceeded to appoint a director to Gainer, in accordance with the powers granted by Hallen J on 8 March 2022. This created a problem, to which I will shortly return.

  7. On 12 August 2022, Mr Bone’s solicitors wrote to Mr Heesh, pressing Mr Bone’s claim to the death benefit. Mr Heesh’s timesheet records that on 7 September 2022 he reviewed an email from the Fund’s accountant in respect of the trust deed, consulted his colleague and decided to seek independent legal advice. He appears to have emailed NSWTG suggesting this course. On 13 September 2022, NSWTG agreed to seek independent legal advice. Mr Heesh considered potential lawyers to give advice. Further work was undertaken to identify an appropriate firm.

  8. On 9 September 2022, the brother’s solicitor also wrote to Mr Heesh, seeking an undertaking not to make any distributions from the Fund pending the outcome of the probate proceedings. Mr Heesh did not give the undertaking requested by the brother but, on 23 September 2022, advised the parties that he would seek legal advice.

Non-complying SMSF

  1. On 11 October 2022, Gainer retained solicitors to advise on the validity of Ms Thelen’s binding death benefit nomination and payment of the death benefit. According to Mr Heesh’s timesheet, legal advice was received on 4 November 2022. Further consultation took place with the solicitor.

  2. Gainer’s solicitors identified that s 17A(3) of the Superannuation Industry Supervision Act 1993 (Cth) (SIS Act) required a deceased member’s legal personal representative to be appointed as director of a self-managed superannuation fund. Section 17A(3) provides:

17A   Definition of self managed superannuation fund

…

Certain other persons may be trustees

(3)   A superannuation fund does not fail to satisfy the conditions specified in subsection (1) or (2) by reason only that:

(a)   a member of the fund has died and the legal personal representative of the member is a trustee of the fund or a director of a body corporate that is the trustee of the fund, in place of the member, during the period:

(i)   beginning when the member of the fund died; and

(ii)   ending when death benefits commence to be payable in respect of the member of the fund

  1. As Mr Heesh was not the legal personal representative of Ms Thelen’s estate, his appointment as director raised compliance issues for the Fund. (More specifically, where a SMSF is in breach of the SIS Act, the Commissioner of Taxation can issue a notice to the Fund that it is a non-complying superannuation fund: ss 40, 41, 42 and 42A, SIS Act. In that event, the SMSF will lose its concessional tax treatment and pay tax at top-marginal rates: s 26, Income Tax Rates Act 1986 (Cth); s 295-325 of the Income Tax Assessment Act 1997 (Cth).) Gainer’s solicitors advised that these issues needed to be addressed and rectified before exercising a discretion to pay the death benefit. That was obviously so.

  2. A further problem presented itself: Mr Heesh could not be remunerated for his efforts as a director. More specifically, under s 17A(2) of the SIS Act, a superannuation fund with only one member is a SMSF entitled to concessional income tax treatment if, and only if, it satisfies the criteria in s 17A(2)(a)-(d). Relevantly, s 17A(2)(d) requires:

if the trustee of the fund is a body corporate – no director of the body corporate receives any remuneration from the fund or from any person (including the body corporate) for any duties or services performed by the director in relation to the fund.

  1. Section 17B(2) of the SIS Act contains an exception to s 17A(2)(d), relevantly in the following terms:

17B   Definition of self managed superannuation fund–remuneration of trustees etc.

…

(2)   Paragraph … (2)(d) do[es] not apply to remuneration for any duties or services performed by a director of a body corporate that is a trustee of a fund if:

(a)   the director performs the duties or services other than:

(i)   in the capacity of director; and

(ii)   in connection with the body corporate’s capacity of trustee; and

(b)   the director is appropriately qualified, and holds all necessary licences, to perform the duties or services; and

(c)   the director performs the duties or services in the ordinary course of a business, carried on by the director, of performing similar duties or services for the public; and

(d)   the remuneration is no more favourable to the director than that which it is reasonable to expect would apply if the director were dealing with the relevant other party at arm’s length in the same circumstances.

  1. The requirements of the SIS Act are reflected in the Rules of the Fund. Rule 14.2 provides:

The Trustee must not to [sic] be paid or otherwise receive any remuneration for acting or carrying out its responsibilities as Trustee of the Fund unless otherwise permitted under the Superannuation Laws and/or any determinations by the Regulator.

  1. NSWTG had not raised these issues with Mr Heesh before his appointment as a director of Gainer. On 13 January 2023, Gainer’s solicitor wrote to NSWTG requesting a meeting to discuss the compliance issue posed by the appointment of Mr Heesh as director. There was said to be no scope in the SIS Act for the legal personal representative of a member of a self-managed superannuation fund to appoint a third party as agent in their place. In addition, Mr Heesh wished to be remunerated at his professional rates for the time spent in relation to the Fund. Mr Heesh could be remunerated for the services provided to the Fund other than in his capacity as trustee, but not for time spent performing duties or services in relation to the Fund.

  2. According to Mr Heesh’s timesheet, on 9 February 2023, he discussed the implications of a non-compliant fund, as advised by the solicitors, with NSWTG. He sought further legal advice. On 14 February 2023, Mr Heesh instructed Gainer’s solicitors to seek counsel’s opinion. On 20 February 2023, Mr Heesh discussed the matter with NSWTG, which was supportive of obtaining further guidance from counsel. Further work was done identifying appropriate counsel and preparing instructions and a brief. Ultimately, it appears that advice was obtained from Norton Rose Fulbright. I will return to this subject again shortly.

Applications for death benefit

  1. In February 2023, Mr Bone retained new solicitors, who pressed for payment of the death benefit. A follow-up letter was sent later that month, advising that if they did not hear from Gainer within seven days, urgent interlocutory relief would be sought “to prevent apprehended and further breaches of trust by your client and Mr Heesh”. As I understand it, the suggested breach of trust related to delay.

  2. On 6 March 2023, Gainer’s solicitor wrote to Mr Bone’s solicitor and NSWTG, calling for information in support of their position as a potential recipient of the death benefit. The application should include the applicant’s financial position as well as the financial position of their spouse, if any, including details of superannuation interests and any discretionary trusts. Details were sought of: the extent to which the applicant was assisted by Ms Thelen; any special needs and associated costs, health and personal circumstances; the applicant’s relationship with Ms Thelen; any personal or financial contributions made to Ms Thelen for her benefit; and any other factors or information considered relevant to the application or the trustee’s decision. Gainer’s solicitor also requested contact details for Mr Bone’s daughter, so that she could be invited to submit an application as well. Gainer’s invitation appeared to resolve Mr Bone’s concerns.

  3. On 14 April 2023, NSWTG and Mr Bone submitted applications for the death benefit. The brother’s solicitor wrote to Gainer’s solicitor, pressing for the superannuation funds to be paid to NSWTG on trust pending the outcome of the probate proceedings.

  4. In its application, NSWTG provided a table setting out the provisions made by Ms Thelen in her wills made from 2014 to 2021, said to show that Ms Thelen had clear and relatively consistent testamentary intention to have the vast bulk of her assets passed to a testamentary trust with income beneficiaries and then capital beneficiaries on vesting of the trust. The financial position of the various income beneficiaries of the testamentary trust, and their relationship with Ms Thelen, was set out, including in respect of her brother, nieces and various charities favoured by Ms Thelen. It was submitted that the death benefit should be paid to NSWTG as legal personal representative of the estate.

  5. In his application, Mr Bone’s solicitor submitted that their client was the sole dependant of Ms Thelen and the only person to whom the death benefit should be paid. Except for stating that Mr Bone was 72 years old and in a de facto relationship with Ms Thelen at her death, the application did not address Gainer’s request for information in its letter of 6 March 2023. No supporting documentation was supplied.

  6. On 24 April 2023, Mr Bone’s solicitors provided Gainer with his affidavit in the probate proceedings, which described his relationship with Ms Thelen and the estate-planning assistance which he had given to Ms Thelen. The exhibit to the affidavit was not provided. Mr Bone also provided contact details for his daughter.

  7. On 15 May 2023, Gainer wrote to NSWTG and Mr Bone, requesting further information in support of their applications. In Mr Bone’s case, a copy of the exhibit to his affidavit was sought, together with particulars about his financial and personal circumstances and health. A response was sought by 10 July 2023. A letter was also sent to Mr Bone’s daughter, inviting her to apply for the death benefit. Mr Bone’s daughter replied that she would not be requesting a share of the death benefit.

  8. On 6 July 2023, Mr Bone sought an extension of time in which to provide the information sought by Gainer. Gainer agreed. On 17 July 2023, Mr Bone sought a further extension. On 19 July 2023, Mr Bone provided Gainer with an opinion of his counsel (not in evidence) as to whether Gainer would be justified in paying the debt benefit to Mr Bone. Mr Bone’s solicitor offered to confer with Gainer. On 20 July 2023, Gainer’s solicitor asked Mr Bone’s solicitor whether Mr Bone intended to provide any further material on support of his application, but there was no answer.

  9. On 9 August 2023, Mr Bone’s solicitor enquired of Gainer’s solicitor as to when it was expected that a decision would be made in relation to the death benefit and whether there remained an opportunity to confer. On 10 August 2023, Gainer’s solicitor called Mr Bone’s solicitor to note that the material provided by Mr Bone did not address the request for information and to ask whether Mr Bone intended to provide further material. By 18 August 2023, the solicitors had spoken. Mr Bone’s solicitor asked that this conversation be on a without prejudice basis. Mr Bone’s solicitor provided Gainer’s solicitor with his affidavit in the family provision proceedings, said to address his financial position and financial and medical needs, in lieu of extracting the particulars separately.

  10. On 18 September 2023, Mr Bone’s solicitor followed up Gainer, asking when the trustee expected to determine the death benefit distribution. On 5 October 2023, Mr Bone’s solicitors followed up Gainer for an expected time for the trustee’s decision.

Addressing non-compliance

  1. As mentioned, based on advice from its solicitor, Gainer sought to address the SMSF compliance issues and avoid adverse taxation consequences, prior to exercising a discretion to the pay the death benefit. According to Mr Heesh’s timesheet, work began on a submission to the Australian Taxation Office (ATO) on 30 June 2023.

  2. On 20 October 2023, NSWTG and Gainer sent a joint letter to the Commissioner of Taxation, seeking an exercise of the Commissioner’s discretion under s 42A of the SIS Act and confirmation that the Commissioner would not issue a notice of non-compliance in respect of the Fund. The letter noted that NSWTG had resolved to appoint Mr Heesh under s 201F(2) of the Corporations Act but, to date, Mr Heesh had not been paid any remuneration for acting as director of Gainer. NSWTG explained why it had appointed Mr Heesh. However, as Mr Heesh was not Ms Thelen’s legal personal representative, nor a member of the fund, his appointment did not satisfy the conditions in s 17A(2) or the requirements of s 17A(3) of the SIS Act. The Fund was in technical breach of the legislation and did not comply as a SMSF under s 42A.

  3. A further problem was that Mr Heesh could not be paid as a director of a single member SMSF: s 17A(2)(c) of the SIS Act. There was a limited exception in s 17B, where the director provided services other than in their capacity as a director. Mr Heesh was a registered liquidator and regularly appointed to administer companies and trusts in liquidation, undertaking work as a director. Whilst Mr Heesh was usually paid $660 an hour, he had proposed to NSWTG to be paid at $440 an hour. NSWTG suggested that it would not be possible to appoint a person qualified to act as a director without that person expecting to be paid. The Commissioner was asked to exercise its discretion not to issue a notice of non-compliance to avoid adverse tax treatment of the Fund. In that event, Gainer undertook to finalise and lodge any outstanding tax returns and a final return for the Fund and to pay the death benefit and wind up the Fund.

  4. On 30 October 2023, Mr Bone’s solicitor sent a letter before action to Gainer. The trustee was said to continue to breach superannuation legislation, in particular, reg 6.21 of the Superannuation Industry (Supervision) Regulations 1994 (Cth) (SIS Regulations), which provides that a member’s benefits are to be cashed as soon as practicable after the member dies. Copies of various trust documents and financial information were sought, failing which proceedings would be commenced seeking production of the information and the removal of the trustee.

  5. On 3 November 2023, Gainer’s solicitor replied, agreeing to provide financial statements and confirming that Gainer had taken steps to have the Commissioner of Taxation exercise their discretion for the Fund to remain compliant despite the Fund not satisfying the trustee/member rules under s 17A of the SIS Act. These steps were said to have been taken for the benefit of eligible beneficiaries. Whilst the application had been lodged, Gainer was yet to receive a response. On 9 November 2023, Gainer’s solicitor advised that the trustee intended to make a decision as soon as possible in respect of the death benefit, once the Commissioner of Taxation had confirmed its position regarding the fund’s complying status.

  6. On 17 November 2023, Mr Bone’s solicitors wrote to Gainer at length, expressing concerns about the operation of the Fund. On 29 November 2023, Gainer’s solicitors responded in detail to Mr Bone’s concerns. The letter was provided to give comfort to Mr Bone about the steps taken by Gainer to protect the interest of beneficiaries, on the basis that the letter would be maintained in strict confidence and the advice and discussions referred to in the letter remain privileged.

  7. As luck would have it, on 29 November 2023, the ATO also issued a letter of indemnity to NSWTG and any party lawfully authorised by NSWTG to administer the Fund, agreeing not to pursue NSWTG for any continuing breaches of s 17A of the SIS Act or SIS Regulations and to refrain from issuing a notice of non-compliance. The letter of indemnity was operational until the earlier of the funds winding up or 29 November 2024. If NSWTG required further time to finalise the operations of the Fund, it was asked to advise before 29 November 2024 so that an extension could be considered. The letter contains some minor technical inaccuracies in describing the control and operation of the Fund.

  8. According to Mr Heesh’s timesheet, having received the letter of indemnity from the ATO, Mr Heesh considered the death benefit claim and “arrive[d] at a preliminary conclusion subject to legal advice pulling together all the evidence and legal advices.” Mr Heesh reviewed all wills as provided, Mr Bone’s claim, general law decisions as to the trustee’s responsibilities in adjudicating claims and legal advice. Some 10.5 hours was spent on the task that day. Further time was spent discussing the matter with Gainer’s solicitors on 14 September 2023 and considering the submissions of NSWTG and Mr Bone.

  9. On 20 December 2023, Gainer’s solicitors informed Mr Bone of the advice from the Commissioner of Taxation. The trustee proposed to inform the parties of its decision in respect of the death benefit by mid-February 2024. On 20 December 2023, Gainer’s solicitor also wrote to Norton Rose Fulbright, noting that the letter of indemnity conveyed a misunderstanding of the respective roles of NSWTG and Gainer, “we do take this opportunity to confirm Gainer and its director’s independence from NSWTG.” Gainer’s solicitors have since written to the ATO, seeking to clarify the terms of the letter of indemnity, where the letter referred throughout to the actions of NSWTG as controlling the Fund, “This does not accurately reflect the circumstances. Gainer, as trustee, is responsible for the administration and control of the Fund.” A revised letter of indemnity was sought. No response was to hand by the hearing.

  10. According to Mr Heesh’s timesheet, on 15 January 2024, he reviewed relevant material to inform himself as to how to pay death benefits. On 16 January 2024, he considered the “very substantial documentation” provided by potential beneficiaries and prepared a decision-tree spreadsheet. On 17 January 2024, he reviewed various wills and codicils. On 18 January 2024, Mr Heesh reviewed further documents relevant to the death benefit applications and sought tax advice, considering issues of tax in relation to Mr Bone. Mr Heesh also considered advice provided by Gainer’s solicitors regarding his responsibilities in exercising his discretion as trustee. He asked Gainer’s solicitors to seek further information from Mr Bone.

  11. On 18 January 2024, Gainer’s solicitor emailed Mr Bone’s solicitor, again requesting the exhibits to Mr Bone’s affidavit in the probate proceedings. Gainer followed up this request on 2 and 5 February 2024, requesting that the exhibits be provided by 9 February 2024 if Mr Bone wanted them to be considered in Gainer’s exercise of discretion.

  12. On 22 January 2024, Mr Heesh spent six hours reviewing issues in respect of the death benefit and drafted a lengthy email to Gainer’s solicitor in respect of his decision-making. On 23 January 2024, Mr Heesh reviewed Mr Bone’s application and legal advice received from Gainer’s solicitors in relation to the death benefit. He re-visited a draft decision email, gave further consideration to his decision and spoke to Gainer’s solicitors regarding the exercise of his discretion. On 31 January 2024, Mr Heesh considered further legal advice received.

  13. On 2 February 2024, Mr Heesh had a conference with Gainer’s solicitor, seeking assistance to work through the discretion of a trustee in respect of a death benefit payment. On 6 February 2024, Mr Heesh worked through the value of death benefits after tax and considered the tax consequences of a death benefit payment. He spoke to Gainer’s solicitor to discuss Mr Bone’s status as a de facto and his tax position. Mr Heesh spoke to Gainer’s solicitors again on 8 February 2024 as to his discretion in respect of the death benefit. On 12 February 2024, the trustee formulated its proposed decision as to how the death benefit should be paid, and prepared an email to Gainer’s solicitor with that decision. On 13 February 2024, Mr Heesh undertook further research in respect of the tax position and sought further information from the Fund’s accountant.

Removal proceedings

  1. On 13 February 2024, Mr Bone commenced proceedings seeking to remove Gainer as trustee of the Fund, to be replaced with NSWTG (the removal proceedings). Orders were also sought prohibiting Gainer from being indemnified from the assets of the trust for its fees and charges and also prohibiting the remuneration of Mr Heesh.

  2. On 17 February 2024, Mr Bone made an affidavit in the removal proceedings, pointing to r 2.9(a) as requiring NSWTG to have been appointed as the replacement trustee at the outset. Mr Bone understood that Gainer was not qualified to be a trustee under the deed. Mr Bone suggested that NSWTG had not discharged its duties under the deed, but had “remained on the sidelines” and laid claim to the death benefit on behalf of the estate in circumstances where it would personally benefit financially if Gainer distributed the death benefit to the estate. Mr Bone exhibited correspondence with Gainer’s solicitor, including the letter from Gainer’s solicitors of 29 November 2023 which had been provided on conditions of confidentiality and privilege.

  3. On 19 February 2024, Gainer’s solicitors wrote to the solicitors for Mr Bone and NSWTG advising that, in light of the removal proceedings, the timeframes for the trustee’s decision in respect of death benefits would be delayed pending the receipt of further legal advice. Mr Bone finally provided the exhibits to his affidavit in the probate proceedings.

Proposed decision

  1. On 26 February 2024, Gainer’s solicitor wrote to Mr Bone and NSWTG, advising that the trustee had determined that both were eligible recipients of the death benefit. The trustee proposed to pay Ms Thelen’s death benefit one-third to Mr Bone and two-thirds to NSWTG. Gainer estimated that Mr Bone would receive $2,329,093 while NSWTG would receive $4,658.185. The applicants were asked to notify any objection to the proposed decision within 28 days.

  2. On 28 February 2024, NSWTG’s solicitors requested details of how the trustee had reached their proposed decision, before they responded. On 7 March 2024, Gainer’s solicitor replied that the trustee was not required, and did not intend, to provide reasons for its proposed decision. Nor had the trustee then made a decision but rather had set out how it proposed to exercise its discretion. Details were given of the process undertaken by the trustee in calling for applications and copies of relevant correspondence were provided.

  3. Directions were made in the removal proceedings for Mr Bone to serve any proposed amended summons by 1 March 2024. A draft amended summons was circulated on 10 March 2024. Mr Bone now proposed to seek orders removing Gainer as trustee and appointing an independent trustee instead. On 12 March 2024, Gainer’s solicitor enquired who Mr Bone proposed to be appointed as independent trustee. There was no response.

  4. On 14 March 2024, Gainer’s solicitor wrote to the parties in the removal proceedings. Where the assertions made against Gainer were said to be inadequately particularised, it was suggested that the matter proceed by way of pleadings. A timetable was proposed. The parties were asked to indicate whether they intended to object to the trustee’s proposed decision in respect of the death benefit, as this may affect the direction of the removal proceedings. NSWTG replied that it was a matter for the trustee to form its decision concerning the distribution of the death benefit. Mr Bone did not respond.

  5. On 20 March 2024, directions were made in the removal proceedings, standing over the proceedings, apparently to allow the trustee to provide its final decision on the death benefit. On 22 March 2024, the brother’s solicitor wrote to NSWTG, noting their objection to Gainer’s proposed decision in respect of the death benefit, pressing NSWTG to seek to have the death benefit paid to the estate. On 25 March 2024, NSWTG passed this letter to Gainer.

  6. On 26 March 2024, Mr Bone advised that he objected to the trustee’s proposed death benefit decision. NSWTG confirmed that it was a matter for the trustee. On 5 April 2024, Mr Bone’s solicitors pressed for the trustee’s final determination of the death benefit. On 8 April 2024, the trustee’s solicitor advised the parties that, in light of the objection, the trustee would seek judicial advice that it was justified in making the proposed decision before the trustee proceeded to pay the death benefit.

  7. On 6 May 2024, directions were made in the removal proceedings for the matter to proceed by way of pleadings, with Mr Bone to serve a statement of claim by 29 May 2024. This pleading has yet to be filed. No reason has been provided for the delay. The trustee understands that Mr Bone’s concerns are four-fold: delay in the death benefit payment; a perception that there is a conflict of interest between Gainer and NSWTG on the basis that NSWTG is a shareholder of Gainer and seeking payment of the death benefit for the estate; breaches of trust; and a perception that the trustee does not intend to pay the death benefit to him.

These proceedings

  1. On 31 May 2024, the trustee commenced these proceedings. In August 2024, NSWTG endorsed the application for judicial advice, “Given the cloud of litigation under which [NSWTG] and Gainer remain, such matters may only practically occur now with the approval of the Court.” For his part, Mr Bone sought a document setting out Gainer’s reasons for its proposed decision, said to be incumbent in circumstances where Gainer now sought judicial advice in respect to that proposed decision. A copy of counsel’s opinion in support of the application was also sought. The trustee declined to provide reasons for its proposed decision but agreed to provide counsel’s opinion. The matter was heard on 22 August 2024.

SHOULD ADVICE BE GIVEN?

  1. Mr Bone submitted that, when NSWTG became Ms Thelen’s Legal Personal Representative, r 2.9(a) provided that, subject to its consent, NSWTG “is to be appointed” as trustee of the Fund. Neither NSWTG nor Gainer took steps to ensure that they complied with cl 2.9(a); Gainer remained trustee. After Gainer became aware that its position as trustee without Ms Thelen’s legal personal representative as director meant that the Fund was not complying with the SIS Act, r 2.5(b) required that the trustee “is to be removed”. Gainer took no steps to remove itself, in breach of its obligation under r 2.5(b). The Court should not countenance giving advice to a trustee whose continued appointment is in breach of the Fund rules, let alone give advice that a contentious decision as to payment of the death benefit by an invalidly continuing trustee is justified.

  1. Mr Bone submitted that the letter of indemnity obtained from the ATO cannot excuse a breach of trust. NSWTG and Gainer have not sought to address the ongoing non-compliance by appointing NSWTG as trustee. Gainer and NSWTG acted in concert in respect of matters of real importance to the Fund, without involving Mr Bone. This was said to be a further indication of the position of conflict in which Mr Heesh finds himself. This position of conflict was said to be a reason that the Court should not provide the advice sought.

  2. Mr Bone submitted that this issue was not adequately exposed for the Court’s consideration, as it should be, where the trustee was obliged to provide “complete information”: Crnjanin v Ioos [2010] NSWSC 750 at [28] (Lindgren AJ); Re Perrot Mill Pty Ltd(No 2) [2013] VSC 428 at [8] (Croft J); Marley v Mutual Security Merchant Bank & Trust Co Ltd [1991] 3 All ER 198 at 201 (Lord Oliver). I do not agree; the issue was perfectly clear from the material.

  3. The trustee submitted that the non-compliance of the SMSF had been resolved for the purpose of paying the death benefit and winding up the Fund. Mr Bone had not particularised why non-compliance precluded a trustee from exercising its discretion about the payment of the death benefit. Mr Bone had not sought injunctive relief in the removal proceedings in relation to the death benefit payment and had failed to progress those proceedings. It was the opinion of counsel for the trustee that the 'threshold issue' should not be seen as a barrier to the relief sought by Gainer, where Gainer remained obliged to pay the death benefit as soon as practicable in accordance with the SIS Regulations.

  4. NSWTG submitted that the application for judicial advice was not an application for the removal of Gainer as trustee of the Fund, nor removal of NSWTG as administrator of Ms Thelen’s estate. It was not appropriate to treat these proceedings as a “stalking horse” for the removal proceedings, nor was it appropriate to put the conduct of Gainer or NSWTG on trial. Mr Bone’s allegations were made at a level of generality, which he had failed to flesh out in the removal proceedings despite orders to plead his claim. NSWTG was entitled to refuse to be appointed as trustee: s 13(1), NSW Trustee and Guardian Act. NSWTG was not in the business of administering SMSFs and did not have sufficient resources to do so. The mere fact that Gainer remained trustee and that NSWTG had appointed Mr Heesh as a director of Gainer was no basis for contending that any of these people lacked independence. Rather, NSWTG had attempted to ensure a sufficient level of independence in the administration of the Fund to avoid the appearance of conflict that may arise if NSWTG made the death benefit decision whilst also engaged in attempting to bring in the assets of the estate, including the death benefit. Whilst Mr Bone called for the appointment of an independent trustee, it was unclear who would be prepared to take on that role in the circumstances. The path forward proposed by Mr Bone was not practical.

  5. NSWTG submitted that it was in the interests of the estate and the beneficiaries of the Fund to pay the death benefit and wind up the Fund quickly. The better course was to keep things as they were, squarely relying on the letter of indemnity in respect of Mr Heesh’s continuing status as a director of the trustee, and allowing him to get everything done by November 2024. Gainer could not do this absent judicial advice, given the cloud of litigation. They should be allowed to do their job and Mr Heesh should be paid for doing that job. The Court should give advice that allowed the current trustee to perform its role.

Principles

  1. As a trustee, Gainer may seek advice or direction under s 63 of the Trustee Act 1925 (NSW), which provides:

63   Advice

(1)   A trustee may apply to the Court for an opinion advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument.

(2)   If the trustee acts in accordance with the opinion advice or direction, the trustee shall be deemed, so far as regards the trustee’s own responsibility, to have discharged the trustee’s duty as trustee in the subject matter of the application, provided that the trustee has not been guilty of any fraud or wilful concealment or misrepresentation in obtaining the opinion advice or direction.

  1. The judicial advice procedure is intended to be summary in character and is in the nature of private advice rather than adversarial proceedings: Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42 at [61]-[66]. There are three matters to consider: whether the Court has jurisdiction; whether the Court should exercise its discretion to provide advice; and the approach which the Court should take to giving advice.

  2. As to the first matter, the jurisdiction to provide advice was stated by Gummow A-CJ, Kirby, Hayne and Heydon JJ in Macedonian at [58]:

“Only one jurisdictional bar to s 63 relief exists: the applicant must point to the existence of a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument.”

  1. Turning to the second matter, once the jurisdictional requirement is satisfied, the Court has a discretion whether to provide advice, such discretion “confined only by the subject matter, scope and purpose of the legislation”, where the interests of the trust estate is of “paramount importance”: Re Rosewood Research Pty Ltd [2014] NSWSC 449 at [30] (Darke J). A Court is not bound to provide judicial advice merely because a trustee has a right to apply for it, ultimately, “the Court … must be guided by what it perceives to be in the best interests of the trust estate”: Re Application of Doolan [2023] NSWSC 320 at [292].

  2. The courts have emphasised the importance of trustees approaching the Court for advice: Partridge v Equity Trustees Executors and Agency Co Ltd (1947) 75 CLR 149 at 165. More recently in Ludwig v Jeffrey (No 2) [2020] NSWSC 1677, Slattery J noted that obtaining judicial advice may prevent trust funds being depleted in litigation and criticised a trustee for failing to avail himself of that mechanism. At [90]:

“This contested litigation has been a regrettable waste of the parties’ resources … in litigation against a trustee, judicial advice is an important protection not just for the trustee but for the preservation of the trust estate. Judicial advice will often reduce the risk of contested proceedings that might consume the trust estate. Judicial advice is a simple accessible summary procedure. The fact that the trustee did not take that simple course, in the Court’s view is one reason that this litigation was commenced and has become expensive.”

  1. Allegations of breach against a trustee do not preclude the giving of advice, nor the fact that a breach of trust has already occurred: Application of Macedonian Orthodox Community Church St Petka Inc [2023] NSWSC 918 at [84]ff (Meek J). While the Court would properly decline to give judicial advice if the dispute were more apt to resolution by a contested suit constituted by the disputing parties and resolved by a judge acting on evidence, the discretion of the Court is not yoked to a principle that, where there is a contest or where there are adversaries, no advice should be given: Macedonian at [60].

  2. The fact that the trustee may seek judicial advice in times of trouble or controversy is confirmed by s 85(2) of the Trustee Act 1925, under which the Court may excuse a breach of trust where it appears that the trustee has acted honestly and reasonably and ought fairly to be excused from the breach or for omitting to obtain the direction of the Court in the matter in which the trustee committed the breach. Whilst the Court can excuse a breach of trust after the fact, including for failure to obtain judicial advice, it is obviously preferable that the trustee approach the Court beforehand and thereby avoid committing a breach of trust at all.

  3. Turning to the third matter, the giving of advice, the function of the Court on such an application is to determine what should be done in the best interests of the trust: Macedonian Orthodox at [104]-[107]. In providing judicial advice, “it is not the Court’s function to take over the exercise of the Trustee’s discretion, assess the commercial wisdom of the Trustee’s decision, or tell the Trustee what to do. An order giving judicial advice is permissive … in the form that the trustee “is justified’ in doing something on the basis of a specified state of affairs or assumption”: Re Application by NGS Super Pty Ltd (as trustee of NGS Super) [2021] NSWSC 1694 at [60] (Henry J). It will usually be inappropriate for the Court to give advice about a matter that is substantially commercial in nature, where the Court is ill equipped to form any view on that matter: Re Application by Perpetual Trust Services Ltd (as responsible entity of Momentum AllWeather (A$) Absolute Return Fund) [2012] NSWSC 758 at [48]-[51] (Stevenson J). The question is whether the Court is satisfied that the trustee’s proposed exercise of power is proper and lawful and whether the exercise of power will not be improper in the sense that it is not exercised in good faith, with real and genuine consideration or in accordance with the purpose for which it was conferred, or it is exercised for an ulterior purpose”: NGS Super at [61].

Consideration

  1. As to jurisdiction, the trustee has pointed to a question regarding the management or administration of the Fund, specifically, the distribution of the assets of the Fund. The Court has jurisdiction to give judicial advice.

  2. As to whether the Court should exercise its discretion to give the advice sought the question is where the interests of the trust estate lie. The interests of the trust are not to be conflated with the interests of the applicants for the death benefit payment. Where both members of the Fund have passed away, it is in the interests of the trust for the trustee to complete the administration of the trust in a timely manner. Whilst the trustee has formed a view as to how it ought to proceed in attending to that task, the trustee is cautious to proceed where it is perfectly clear that distributing the death benefit in the manner proposed may expose it to further litigation by Mr Bone, NSWTG or Ms Thelen’s brother. As Kiefel J observed in Macedonian Orthodox, “The principal purpose of the section … is the protection of the interests of the trust. Another purpose is the protection of a trustee who is acting in that regard and upon advice. Securing the latter purpose may ensure the attainment of the principal purpose, by removing the concern of a trustee about exposure beyond their usual indemnity”: at [196]. This is one such case.

  3. According to r 2.9(a), Ms Thelen’s legal personal representative, NSWTG, must either be appointed as trustee of the Fund or a director of Gainer in order for the Fund to maintain compliance with the criteria for an SMSF under the SIS Act and thus its concessional tax treatment. Apparently, NSWTG was and is not amenable to becoming the replacement trustee. NSWTG’s appointment of Mr Heesh as director of Gainer has had the result that the Fund is non-compliant with the criteria for an SMSF and exposed to the risk of losing its concessional tax treatment. It follows that, as the continuing appointment of Gainer as trustee has the consequence that the Fund will continue to be a non-complying SMSF, Gainer should be removed as trustee: r 2.5(b).

  4. As such, the trustee has sought the direction of the Court as to how to proceed, where the trustee is in breach of the rules of the Fund. The fact that the trustee is presently in breach of the rules is a reason to seek judicial advice, rather than to proceed in the absence of such advice or not to proceed at all. I consider that it is in the best interests of the trust estate for the Court to provide advice or direction so that trust property may be managed and administered in a timely manner.

  5. The problem is clear. The solution is not. A trustee cannot simply leave its role absent a replacement trustee. Nor can the Court simply appoint a new trustee, as this will not solve the problem. Unless the replacement trustee is NSWTG, then the Fund will continue to be non-compliant.

  6. The trustee appears to have done its best to resolve a practical problem not of its own making. The trustee disclosed its non-compliance to the ATO and obtained a concession. According to the ATO’s letter of indemnity, the Commissioner has taken a pragmatic approach in the interests of the trustee completing its function and winding up the Fund as soon as possible. As a result of the trustee’s efforts, the breach of trust is unlikely to expose the beneficiaries of the Fund to the depletion of assets which may otherwise result from the loss of concessional tax treatment. By this application for judicial advice, the Court is asked to, effectively, endorse the trustee’s endeavours to resolve its breach of the trust rules. I consider that it is appropriate for the Court to give advice or direction, noting that there is no other obvious solution to this problem. Mr Bone’s suggestion was no better than what the trustee proposes. I reject Mr Bone’s submission that the Court should give no advice at all.

PAYMENT OF THE DEATH BENEFIT

  1. Mr Bone submitted, first, that the Court should decline to provide the advice sought where the trustee had not given reasons for its proposed decision in respect of the death benefit. Mr Bone accepted that a trustee exercising a discretion is not required to give reasons: Mandie v Memart Nominees Pty Ltd [2014] VSC 290; 42 VR 325. But it was said to be impossible for the Court to consider providing that approval in circumstances where Gainer had not identified the reasons for its decision: Maciejewski v Telstra Super Pty Ltd [1999] NSWSC 341; 44 NSWLR 601 at 604 (Young J). The Court should not advise Gainer to proceed in the way that it proposes without understanding why the decision to proceed in this way was made. It is also unclear whether Gainer had assumed that Ms Thelen had capacity to make the nomination or not and how, if at all, that affected Gainer’s decision.

  2. Second, Mr Bone submitted that the Court should decline to provide the advice sought where the trustee lacked independence. Where Mr Heesh was appointed by NSWTG, he had an obvious tendency to favour the person who appointed him in any decision he makes. Mr Heesh was exercising the discretion in a manner that benefitted the estate, which was represented by his appointor, NSWTG. The Court should not approve an exercise of the trustee’s discretion in circumstances where the trustee was not entitled to continue in that role and would likely be replaced in the removal proceedings. The decision should be made by an independent person.

  3. A further indication of a lack of independence was said to be that the trustee had not considered the taxation consequences of its proposed distribution. Mr  Bone submitted that he was a ‘death benefits dependant’, as that term is defined in s 302-195 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997)), by reason of subs (a), (c) or (d) of that section. This meant, by reason of s 302-60 of the ITAA 1997, that if any part of the superannuation death benefit was paid to him, neither Gainer nor Mr Bone would be required to pay income tax on that amount. If any part of the superannuation death benefit was paid to NSWTG as executor, s 302-10 of the ITAA 1997 applied. NSWTG would be required to pay income tax “to the extent” that the amount received was expected to benefit the beneficiaries other than Mr Bone. Mr Bone estimated that some $500,000 in tax would need to be paid by NSWTG. Mr Bone submitted that the Court could not be satisfied that the trustee had given real and genuine consideration to the issues before it in a manner free of conflict of interest. The Court should not provide the trustee with the protection it seeks from the judicial advice application in respect of its proposed distribution.

  4. Third, Mr Bone submitted, effectively, that a proper exercise of the trustee’s discretion would be to pay the death benefit to him alone. The decision to pay 100% of the death benefit to a de facto and sole dependent was described in Ievers v Superannuation Complaints Tribunal [2016] FCA 936 as "a legitimate and sensible exercise of a discretion. It is difficult to see that any other decision could or should have been taken": at [71] (McKerracher J).

  5. NSWTG made no submissions on this issue.

Consideration

  1. There was no dispute that the rules of the Fund permitted the trustee to pay the death benefit to Mr Bone or the estate, or that Ms Thelen’s Binding Death Benefits Nomination could be taken into account, albeit that the nomination was ineffective. Nor was there any dispute as to the principles governing the trustee’s exercise of its discretion.

  2. The determination of the payment of the death benefit is within the discretion of the trustee. The exercise of the discretion must be made in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred: Karger v Paul [1984] VR 161 at 163-164; Telstra Super Pty Ltd v Flegeltaub [2000] VSCA 180; 2 VR 276 at [27].

  3. It is not the Court's role to assess the fairness or reasonableness of the trustee's decision. However, in some cases the trustee's discretion is so extreme and without any justification that it is described as 'grotesquely unreasonable', in which case the decision itself may form part of the evidence to prove the discretion was not properly exercised: Wareham v Marsella (2020) 61 VR 262; [2020] VSCA 92 at [95]; Owies v JJE Nominees Pty Ltd [2022] VSCA 142 at [126], [129].

  4. Neither the legislation nor the case law imposes an obligation to consider a dependent in priority to the estate. Whether a trustee should give preference to a dependent of the deceased, as compared to the estate of the deceased, is a matter that depends on the particular circumstances which confront the trustee, including the terms of the trust deed: Wan v BT Funds Management Ltd [2022] FCA 302 at [110].

  5. Gainer was not required to provide reasons for its decision: Karger v Paul [1984] VR 161; Maciejewski v Telstra Super Pty Ltd [1999] NSWSC 341 at [13] (Windeyer J). Nor does non-disclosure of the trustee’s reasons mean that the exercise of its discretion cannot be reviewed. As explained in Karger v Paul at 164:

“… the validity of the trustees’ reasons will be examined and reviewed if the trustees choose to state their reasons for the exercise of their discretion.

… [otherwise] … it is open to the Court to examine the evidence to decide whether there has been a failure by the trustees to exercise the discretion in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred. As part of the process of, and solely for the purpose of, ascertaining whether there has been any such failure, it is relevant to look at evidence of the inquiries which were made by the trustees, the information they had and the reasons for, and manner of, their exercising their discretion… In short, the Court examines whether the discretion was exercised, not how the discretion was exercised.”

  1. The extent of a trustee's duty to properly inform itself of the facts in order to give real and genuine consideration to the exercise of discretion depends on the particular circumstances, including the nature of the trust: Owies v JJE Nominees Pty Ltd [2022] VSCA 142 at [93]. The duty of trustees to properly inform themselves is more intense in superannuation funds, compared to, for example, discretionary trusts with a broad class of beneficiaries: Finch v Telstra Super Pty Ltd [2010] HCA 36, (2010) 242 CLR 254 at [66]. In Maciejewski v Telstra Super Pty Ltd (1998) 44 NSWLR 601, Young J noted that at 605:

“Very often if a trustee and its officers have acted fairly and conscientiously they will have ensured that sufficient material is before them, so that they can make a decision… If the plaintiff has not supplied sufficient material then, if that is necessary to make a proper decision, it has to be obtained somehow or other. One cannot merely dismiss the plaintiff's claim out of hand.”

  1. Mr Bone’s submission that the trustee’s position was “analogous” to Maciejewski v Telstra Super Pty Ltd (1998) 44 NSWLR 601 was a little harsh, including relying on Young J’s statement that “courts are not fooled by this sort of tactic”. His Honour there observed that the case was poorly presented: “I have seldom seen a case so badly presented by the lawyers for the [trustee] … the slackness had extended to such an extent that not even the original exhibits were available to the court”: at 602. The only evidence of the trustee’s decision was a “one-liner in an extract from a minute” and, of the 200-pages that were before the trustee for consideration, there was “not the slightest bit of evidence as to which, if any, of those pieces of paper were actually considered”: at 602. Young J observed, “Although the Court will not interfere with the proper discretion of trustees the Court will also not allow people … using their power under a trust deed to deny the beneficiaries rights by incompetence or inaction”.That is not analogous to this case.

  2. There is evidence of the steps that Gainer took to properly exercise its discretion, including obtaining legal advice to understand and comply with its obligations and the terms of the trust Deed in exercising its discretion, contacting eligible recipients and seeking full information about their circumstances for consideration in exercising its discretion. There is nothing to suggest that the trustee has not acted in accordance with its obligations. There does not appear to be any foundation for an assertion that there was an improper exercise of discretion or that the trustee's discretion has miscarried in some way. Mr Heesh’s timesheets indicate that he turned his mind to this decision repeatedly and, indeed, appears to have agonised in coming to the proposed decision. The trustee has evidently given “real and genuine consideration” to the decision.

  3. Mr Bone's allegation that Mr Heesh and Gainer lacked independence in the decision-making process is a serious allegation put at a level of generality and unsupported by the affidavit or documentary evidence on this application. Gainer did not have an obligation to notify Mr Bone, nor work with Mr Bone, to write to the Commissioner of Taxation. Writing jointly with NSWTG does not demonstrate collusion or lack of independence in making the proposed decision as to payment of the death benefit. Although Mr Heesh informed NSWTG of the non-compliance issue and worked with NSWTG to resolve that non-compliance, there is no suggestion in the contemporaneous material that Mr Heesh has done anything other than turn his mind to the decision in respect of the death benefit conscientiously. The only advice Mr Heesh has taken on this issue – repeatedly – is from Gainer’s solicitor, not NSWTG. Mr Heesh appears, from his timesheets, to have attended to this task diligently.

  4. As I understand it, Mr Bone’s third submissions is, essentially, that if the whole of the death benefit is paid to him, then no tax will be paid. That may well be right. But that is not, of itself, a good reason for the trustee not to divide the death benefit between Mr Bone and the estate, even if it means that some tax will need to be paid. I reject Mr Bone’s submission that the trustee has not given real and genuine consideration to its decision in this regard, where it is apparent from Mr Heesh’s timesheets that he has turned his mind to the tax implications of the proposed decision, including the implications for Mr Bone. The trustee would be justified in exercising its power contained with the Rules to pay the death benefit as proposed as to 1/3 to Mr Bone and 2/3 to the estate of Ms Thelen.

DEFENDING THE REMOVAL PROCEEDINGS

  1. The trustee seeks advice as to whether it would be justified in defending the removal proceedings and filing a cross-claim if necessary. The trustee submitted that the removal proceedings had not progressed despite numerous appearances before the Court. There had been repeated adjournments at the request of Mr Bone and repeated non-compliance with Court orders by him. The summons, and draft amended summons, did not particularise the allegations against Gainer; the case against it is not known, despite repeated requests for particulars or for the matter to proceed by way of pleadings. It was not until being served with the submissions filed on behalf of Mr Bone in these proceedings that his allegations against Gainer were somewhat articulated. Mr Bone's overarching concern appeared to be that Gainer was not intending to pay the death benefit to him in its entirety. The commencement of the removal proceedings was premature, given the process Gainer had notified it intended to undertake regarding payment of the death benefit. The case also appeared to be without a proper basis.

  2. Mr Bone submitted that it was not appropriate to give advice that the trustee should defend the removal proceedings, as the interests of the trust as a whole are not significantly affected by the identity of the trustee: Re Application of Uncle's Joint Pty Ltd [2014] NSWSC 321 at [30] (Brereton J). There are other available contradictors on such an application. The Fund should not be exposed to the costs of the trustee seeking to stay in office.

  3. Further, Mr Bone submitted that, once these proceedings are resolved, there are two possibilities. If Gainer is successful, it is likely to make the proposed distribution. Subject to any appeal, there may then be little point in seeking to remove Gainer as trustee of the Fund. If Gainer is not successful, Gainer will be required to reconsider its position as trustee and in respect of the distribution of the death benefit. NSWTG will be required to consider whether it should take Gainer’s place as trustee of the Fund. If neither party changes their approach, it will likely be necessary for Mr Bone to take further steps in the removal proceedings.

  4. Mr Bone submitted that it was not possible to predict either of these things, where the removal proceedings were at an early stage. The statement of claim had not been prepared. It was not possible for the Court to give any robust consideration to the merits or otherwise of Gainer’s conduct of those proceedings. It would be premature for the Court to advise Gainer to defend the removal proceedings. Rather, no judicial advice should be provided now. Instead, after these proceedings are resolved, the parties will be able to consider whether and how the removal proceedings are to continue, based on Gainer and NSWTG’s proposed course. Gainer can then revisit whether any judicial advice is required. There is also no basis upon which the Court could assess any proposed cross-claim by Gainer. Should the Court wish to provide Gainer with judicial advice in respect of the removal proceedings, that advice should be limited to whether to prepare and file a defence in those proceedings. To go further than that, at this stage, would be an exercise in speculation. A staged approach is consistent with authority: AMP Capital Investors Ltd as Responsible Entity for KSC Trust [2010] NSWSC 1259; Perpetual Investment Management Ltd as Responsible Entity for 10 Schemes listed in the Summons [2014] NSWSC 784.

  5. NSWTG made no submissions on this issue.

  6. I agree with Mr Bone that the result of this judicial advice application will have implications for whether the removal proceedings should be continued or change direction. I also agree with the trustee that the way forward as suggested by Mr Bone may lead to further costs being incurred in both proceedings, with Gainer having uncertainty as to how its costs will be paid, and a further judicial advice application needing to be brought.

  7. Whilst I accept that a trustee may be agnostic to the identity of the trustee for a Fund, the position here is different where Mr Bone seeks to impugn the trustee’s conduct. A trustee may be less agnostic to the relief sought by Mr Bone in such circumstances, as Brereton J acknowledged in the very passage relied on by Mr Bone in Re Application of Uncle's Joint Pty Ltd at [30].

  8. I am also concerned that Mr Bone has commenced but failed to prosecute the removal proceedings and nonetheless repeated his serious allegations concerning the trustee and NSWTG in these proceedings. I do not think the trustee should be left in an uncertain position as to what it ought do in relation to the removal proceedings, should Mr Bone decide to comply with the orders of the Court and file a pleading. Counsel's opinion was that the Court should advise that Gainer is justified in defending those proceedings, including taking such steps as may be necessary, including the filing of a cross-claim, if necessary, and that its costs incurred in doing so be paid from the Fund. There was no indication of what that cross-claim might be. Whilst I am concerned to expose the Fund to depletion by the costs of an application for further judicial advice, I think it would be prudent to seek such advice before embarking on a cross-claim. I so advise.

VARYING THE RULES OF THE FUND

  1. Rule 24.1 allows the Rules to be varied with any such variation, change, deletion, addition or amendment to the Rules to strictly adhere to the Superannuation Laws and the Fund retaining its Complying SMSF status. The trustee asked whether it would be justified in exercising its power in r 24 to delete r 14.2 and r 16.7.

  2. Rule 14.2 provides:

The Trustee must not to be paid or otherwise receive any remuneration for acting or carrying out its responsibilities as Trustee of the Fund unless otherwise permitted under the Superannuation Laws and/or any determination by the Regulator.

  1. As to r 14.2, under s 17A(2)(d) of the SIS Act, for a fund to meet the conditions of a self-managed superannuation fund, ‘… no director of the body corporate receives any remuneration from the fund or from any person (including the body corporate) for any duties or services performed by the director in relation to the fund.’ Section 17B of the SIS Act contains an exception to para 2(d), where a director holds professional qualifications and is undertaking work for the Fund in their professional capacity. Counsel for the trustee considered that, having regard to the usual scope of work Mr Heesh would carry out in his role as a liquidator, accountant and director and the letter from the Commissioner, it is likely that Mr Heesh can be paid remuneration for all his time because this is either permitted by the exception in s 17B of the SIS Act or permitted by the Commissioner in its Letter of Indemnity dated 29 November 2023. It was proposed that, for certainty, r 14.2 should be deleted so that it removes the prohibition in the Rules.

  2. Counsel for the trustee was of the opinion that, where the Fund has no surviving members and the Letter of Indemnity imposes an obligation and a time limit on the winding up of the fund, the risk of permanent breach of the superannuation laws is very low. On balance, in light of the Letter of Indemnity, the Court should advise Gainer that it is justified in making the amendment as proposed to delete r 14.2.

  3. Rule 16.7 further provides:

Subject to the Superannuation Laws and despite Rule 16.4, at any Trustee Meeting dealing with a deceased Member's Death Benefits or a Member's Incapacity Superannuation Benefits only the Member's Legal Personal Representatives or Member whilst alive and legally capable and competent may vote on any resolution dealing with the deceased or incapacitated Member's Superannuation Interest or Superannuation Benefits.

  1. As to r 16.7, Ms Thelen’s legal personal representative is not a trustee or a director of the corporate trustee. Counsel for the trustee was of the opinion r 16.7 was not appropriate or necessary in the circumstances and should be deleted to allow the decision as to payment of the death benefit to be finalised.

  2. NSWTG does not agree with the former amendment but agrees with the latter. NSWTG submitted that deleting r 14.2 would cause the Fund to be non-compliant with the criteria for a SMSF under s 17A(2) of the SIS Act, create a risk that the Fund will lose its concessional tax treatment and place Gainer in breach of cl 14.1 of the Fund Rules. There was also some risk that such non-compliance could jeopardise Gainer’s ability to pay the death benefit, as the powers in cll 22.2(3) and 22.6 of the Rules to pay Superannuation Benefits when a member of the Fund dies are qualified by the words “Subject to the Superannuation Laws and the Fund retaining its Complying SMSF status …”.

  3. NSWTG submitted that this position was not altered by the fact that NSWTG had received a letter of indemnity from the ATO in relation to a separate breach of s 17A of the SIS Act, which will remain operative until 29 November 2024. That letter gives a commitment not to pursue NSWTG (or “any party that is lawfully authorised by [NSWTG] to administer the fund”) for any “continuing” breaches of s 17A – which clearly refers back to the particular breaches of s 17A that NSWTG and Gainer jointly notified to the ATO in their letter of 20 October 2023. While the matter of Mr Heesh’s remuneration was raised in that letter, the advice sought by the trustee went beyond what was notified to the ATO. The non-compliance notified to the ATO did not include any proposal to amend the Rules to place the Fund in permanent breach of s 17A of the SIS Act. Even if the ATO’s indemnity letter could be construed as a (short term) commitment to refrain from issuing a notice of non-compliance to the Fund in circumstances where Gainer took steps to facilitate the payment of remuneration to itself and/or Mr Heesh, the Court should not approve a proposal by a trustee to create serious compliance risks for the Fund in the form of inconsistencies between the Rules and the SIS Act, and within the Rules themselves.

  4. Mr Bone submitted that the Court should not provide the advice sought to allow Mr Heesh to be remunerated. The SIS Act prohibits the remuneration of directors of SMSF trustees: SIS Act, s 17A(2)(d). Gainer’s proposed amendment of the Rules of the Fund did not address non-compliance with the SIS Act. NSWTG should accept its role as trustee of the Fund and then seeks to agree with Mr Bone (as the only other interested party) on an appropriate independent decision maker. That party could then make a decision about the distribution. The parties could then agree an appropriate amendment of the Rules and jointly approach the ATO in respect of SIS Act non-compliance if necessary. Mr Bone submitted that the reasons for deleting r 16.7 were not clear. Nor was it clear how the Trustee proposed that the Rule would work in circumstances where there was, currently, one corporate trustee.

Consideration

  1. Whilst the course proposed by the trustee is pragmatic, I consider that the concerns expressed by NSWTG and Mr Bone in respect of the deletion of r 14.2 are well-founded. I do not think that the Court should advise a trustee to embark on a course which will give rise to a new non-compliance with the SMSF rules. The trustee would be justified in deleting r 16.7 to permit it to make a decision to distribute the death benefit without further delay. I so advise.

REMUNERATION AND COSTS AND EXPENSES INCURRED

  1. Gainer seeks an order from the Court that it would be justified in paying Mr Heesh's fees for all work completed in relation to the administration of the Fund, and for paying all costs and expenses incurred by it on behalf of, or in connection with the Fund from the Fund.

  2. On 10 July 2024, Mr Heesh produced his timesheet for tasks attended to from 1 June 2022 on. His fees are $87,800 plus GST. Mr Heesh had then spent 219.5 hours dealing with the administration of the Fund. He sought remuneration of $96,580 for work completed to date, plus remuneration for anticipated work required to defend the removal proceedings, liaise with Gainer’s solicitors to resolve to pay the death benefit in accordance with the trustee’s proposed decision if the Court advised that Gainer was justified in making that decision, or to take any additional steps that may be required to exercise the trustee’s discretion. In addition, it would be necessary to liquidate the Fund’s assets and pay any liabilities, including tax liabilities, to enable the death benefit payment to be paid and then wind up the trust.

  3. Counsel for the trustee was of the opinion that s 17A(2)(c) of the SIS Act provides that the director cannot receive remuneration (subject to the exception in s 17B) from the Fund or any person. It was arguable that the work Mr Heesh has carried out falls within the exception allowed by s 17B(2) of the SIS Act, and can be remunerated from the Fund. In light of the scope of work that Mr Heesh would usually carry out in the ordinary course of his business, the Letter of Indemnity and the proposed variation to the rules, it was opined that there were no grounds for prohibiting Mr Heesh from being remunerated for the work he has done in his appointed role. It was further opined that the Court should advise that Gainer is justified in paying Mr Heesh's fees for work completed by Mr Heesh in relation to the administration of the Fund from the assets of the Fund and in paying all costs and expenses incurred by Gainer on behalf of or in connection with the Fund from the assets in the Fund such as accountant's fees, legal fees, and valuation fees.

  4. Whilst NSWTG did not cavil with Mr Heesh’s fees, it submitted that not all of those fees could be paid out of the Fund. Insofar as Mr Heesh has performed work for the Fund in his capacity as an appointed director of Gainer, he cannot be paid from the assets of the Fund: cl 14.2, Rules; s 17A(2)(d), SIS Act. However, he can be paid for this work, done at NSWTG’s request, from the assets of the “Estate trust” created by either the 2021 Will or the 2019 Will and comprising the property of the Estate that NSWTG is charged with administering. NSWTG has a duty to get in the property of the Estate, which includes such part of the Fund to which the Estate is entitled. Ensuring the proper administration of the Fund – by appointing a director to its corporate trustee who can manage the Fund’s business – is conduct that ultimately effectuates and enables the proper administration of the Estate, and the expenses associated with that are thus incidental to the proper performance of NSWTG’s duties as interim administrator: New South Wales Institution for the Deaf, Dumb & the Blind (NSW) v Shelly (1917) 23 CLR 351 at 355, Re Stone; Read v Dubua (1936) 36 SR (NSW) 508 at 524; s 59(4) of the Trustee Act; cl 6 of the 2021 Will and the 2019 Will.

  5. NSWTG submitted that, insofar as Mr Heesh has performed duties or services for the Fund other than in his capacity as director of Gainer, and has done so in the ordinary course of the business for which he is qualified, and has charged arms-length remuneration for that, he can be paid that remuneration from the property of the Fund: cll 14.2 and 15.2(a), (o) and (p), Rules; s 17B(2), SIS Act. Such an approach was taken in Re Application of Ellasil [2023] VSC 69 at [136], [149]-[151] (McMillan J). NSWTG submitted that it would be necessary to allocate each line item of Mr Heesh’s charges (as reflected in his time log) to either work as a director or otherwise, to ensure that the remuneration is paid from the correct trust. Mr Heesh was best placed to complete that exercise. NSWTG prepared a suggested allocation of Mr Heesh’s time entries based on his narrations, being $31,900 as a director and $64,680 for professional service.

  1. Mr Bone submitted that NSWTG had not paid Mr Heesh for his work, including because it was aware that a director of a SMSF cannot be remunerated for their work. This was said to be a matter that was at NSWTG’s and Mr Heesh’s risk. That the ATO will not issue a notice of non-compliance is not a reason for the Court to authorise Mr Heesh’s remuneration. The Court should not visit the costs of the fundamentally flawed process followed by NSWTG and Mr Heesh on the Fund. The burden of Mr Heesh’s fees should be borne by NSWTG or Mr Heesh. Nor should it be accepted that Mr Heesh’s work fell under s 17B(2) as services other than in his capacity as director of Gainer. The tasks described in his timesheet were those of a director.

Consideration

  1. The relevant provisions are reproduced at [27]-[29]. I have declined to advise that the trustee would be justified in deleting r 14.2. Nor is it proposed to pay Gainer or provide it with any remuneration for carrying its responsibilities as trustee. Rather it is proposed to pay a disbursement of the company, being fees charged by Mr Heesh. The problem is not r 14.2, but the criteria for concessional income tax treatment in s 17A(2)(d) of the SIS Act; as a director of Gainer, Mr Heesh may not receive any remuneration from the Fund or “any person” for services performed in relation to the Fund. The language is “broad”: Ellasil at [136]. I consider that the reference to “any person” encompasses NSWTG. As such, I agree with the trustee’s counsel that NSWTG’s proposal – that the Estate pay Mr Heesh for his work as a director – does not resolve the compliance risk.

  2. Further, the delineation required by her Honour in Ellasil was because the director in question was a solicitor. Her Honour was of the view that the fees charged by the solicitor for work done falling within the exception should not be charged at the same rate for his work as a director. Her Honour was also concerned that some of the legal work was undertaken for the trustee of the SMSF while other legal work was done by the solicitor in his capacity as the executor of the estate of the deceased member of the fund. The delineation was not required in order to ascertain which work fell within the exception and which did not.

  3. Returning to Gainer, as McMillan J observed in Ellasil, the explanatory memorandum in respect of this criteria states that the purpose of the restriction on remuneration is to “ensure that true remuneration is not used by trustees to obtain access to their superannuation benefits before they are eligible”: at [136]. The payment of Mr Heesh for his professional services is not the mischief to which the statute is directed.

  4. The exception in s 17B(2) of the SIS Act does apply, at least to some of Mr Heesh’s work. He has undertaken tasks in connection with Gainer’s role of trustee. He is appropriately qualified and has performed those services in the ordinary course of his business. He is charging a reduced fee to NSWTG. Having reviewed Mr Heesh’s timesheets, the bulk of his work appears to fall within the exception. This is confirmed by NSWTG’s analysis, which puts roughly two-thirds of Mr Heesh’s fees into that category. There remains, however, a portion of Mr Heesh’s fees for work in his capacity as a director of Gainer which cannot be paid, either by the Fund or, I think, by the Estate without making the Fund non-compliant.

  5. The letter sent by NSWTG and Gainer to the ATO made plain that one of the problems resulting from NSWTG’s appointment of Mr Heesh was that he could not be remunerated without breaching the SIS Act, save where he provided services other than in his capacity as a director. NSWTG submitted to the ATO that it would not be possible to appoint a person qualified to act as a director without that person expecting to be paid. The Commissioner was asked to exercise its discretion not to issue a notice of non-compliance, in which event, the trustee proposed to finalise the outstanding matters for the Fund and wind it up. The letter of indemnity issued by the ATO agreed to refrain from issuing a notice of non-compliance.

  6. That is, NSWTG and Gainer have made plain that it is proposed to pay Mr Heesh and the ATO has made plain that it will take no action in this regard. It is in the interests of the Fund that Mr Heesh should complete his duties, for which he is entitled to expect payment. I do not think there is anything to be gained by Mr Heesh delineating the work undertaken in the manner indicated by NSWTG, as the terms of the statute are sufficiently broad that payment for his work as a director of Gainer from the Estate will also make the Fund non-compliant. The trustee has, however, taken reasonable steps to ensure that the non-compliance will not result in the loss of concessional tax treatment. Having done so, I consider that the trustee would be justified in paying Mr Heesh from the Fund. I so advise.

  7. I note that the trustee has also incurred other expenses in the course of its work, including a recent valuation obtained in respect of the commercial property owned by the Fund. These costs and expenses should also be paid from the Fund.

RIGHT TO AN INDEMNITY

  1. Finally, the trustee seeks advice as to whether it would be justified in realising its right to an indemnity out of the assets of the Fund. Rule 15.4 provides:

Subject to the Superannuation Laws and the Fund retaining its Complying SMSF status the Trustee is to be indemnified from the Assets of the Fund for any loss, damages or award against the Trustee arising from their role as Trustee of the Fund.

  1. Gainer was made aware of the risk that, because the appointment of Mr Heesh meant the Fund ceased to fulfil the conditions of a SMSF, the Commissioner could issue the Fund with a notice of non-compliance. The consequences could be that the Fund ceased to receive concessional tax treatment. Gainer has not been issued a notice of non-compliance. While the Letter of Indemnity misdescribes of the roles of NSWTG and Gainer in operating the Fund, the Commissioner accepted the position taken by NSWTG and Gainer. Counsel for the trustee was of the opinion that, noting the steps taken by Gainer to regularise the position, the Court should advise that Gainer is justified in realising its indemnity from the assets of the Fund.

  2. Mr Bone submitted that advice should not be given in the abstract. The trustee, whether Gainer or another entity, had a right of indemnity from the Fund. Should the trustee seek approval of particular costs by way of judicial advice, it should approach the Court with evidence in respect of those costs. It cannot do so in a blanket matter.

  3. It follows from the advice already given that I consider that the trustee is entitled to be indemnified from the assets of the Fund. As s 63(2) of the Trustee Act makes plain, this advice is given on the basis of the facts disclosed on this application, including the non-compliance of the Fund as a consequence of the appointment of Mr Heesh as a director Gainer. If the trustee needs to be indemnified from the Fund in respect of an issue which was not disclosed, then a further application for judicial advice will need to be brought.

ORDERS

  1. The trustee seeks an order that its costs of these proceedings be paid from the Fund on an indemnity basis. NSWTG also sought an order that its costs of appearing in these proceedings be paid on an indemnity basis out of the Fund or, alternatively, out of the Estate under s 59(4) of the Trustee Act. Mr Bone submitted that his costs should be paid from the Fund, while the other parties’ costs should not.

  2. I agree that the trustee should have its costs paid from the Fund. It is more appropriate that NSWTG have its costs of these proceedings paid out of the Estate. I am not satisfied that Mr Bone should have his costs, where the issues raised by him were not accepted. For these reasons I make the following orders:

  1. Order pursuant to s 63 of the Trustee Act 1925 (NSW) that the plaintiff in its capacity as trustee of the Gainer Associates Superannuation Fund (the Fund) would be justified in:

  1. exercising its power contained in r 22.1 of the rules of the Fund (Rules) as set out in the Deed of Variation dated 31 January 2008 (Deed) to pay or apply the death benefit payable in relation to Gail Thelen (Member):

  1. one-third to Steven Bone; and

  2. two-thirds to NSW Trustee and Guardian as administrator of the deceased Member’s estate.

  1. exercising its power contained in r 24.1 of the Rules to vary the rules of the Fund to delete r 16.7 of the rules of the Fund;

  2. paying fees issued by TPH Advisory for all work completed by Timothy Heesh in relation to the administration of the Fund;

  3. paying all costs and expenses incurred by the plaintiff on behalf of or in connection with the Fund from the assets of the Fund;

  4. realising its right to an indemnity out of the assets of the Fund;

  5. in relation to proceedings 2024/56345 (removal proceedings):

  1. defending the claims in prayers 1 to 9 of the removal proceedings; and

  2. paying its reasonable costs incurred in defending those claims out of the assets of the Fund.

  1. Grant liberty to apply to seek further advice as to whether the plaintiff would be justified in filing a cross-claim in the removal proceedings and paying its reasonable costs incurred in prosecuting that cross-claim out of the assets of the Fund.

  2. Order that the plaintiff’s costs of and incidental to these proceedings be paid from the assets of the Fund on an indemnity basis.

  3. Order that NSW Trustee and Guardian's costs of these proceedings be paid from the Estate of the late Gail Thelen on an indemnity basis.

  4. Parties to notify any errors or omissions within 7 days.

**********

Amendments

13 September 2024 - Coversheet: amendment to Representations

13 September 2024 - Headnote: Typographical amendment


[21]: under r.29(a) of the "Fund"

Decision last updated: 13 September 2024

Most Recent Citation
Cases Cited

23

Statutory Material Cited

7

Application by Ellasil Pty Ltd [2023] VSC 69
AMP Captital Investors Ltd as Responsible Entity for the KSC Trust [2010] NSWSC 1259
Application of Macedonian Orthodox Community Church St Petka Inc [2023] NSWSC 918