Kennon & Ors v Spry & Ors; Spry v Kennon & Ors

[2008] HCATrans 319

[2008] HCATrans 319

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M25 of 2008

B e t w e e n -

EDWIN PHILIP KENNON AND IAN CHARLES FOWELL SPRY IN THEIR CAPACITY AS THE TRUSTEES OF THE CATHARINE SPRY TRUST, THE CAROLINE SPRY TRUST AND THE PENELOPE SPRY TRUST

First Appellants

ELIZABETH ANNE FOWELL SPRY AND IAN CHARLES FOWELL SPRY IN THEIR CAPACITY AS THE TRUSTEES OF THE ELIZABETH SPRY TRUST

Second Appellants

and

HELEN MARIE SPRY

First Respondent

IAN CHARLES FOWELL SPRY

Second Respondent

ELIZABETH ANNE FOWELL SPRY

Third Respondent

CATHARINE SARAH FOWELL SPRY

Fourth Respondent

CAROLINE JANE FOWELL SPRY

Fifth Respondent

PENELOPE SARAH FOWELL SPRY

Sixth Respondent

Office of the Registry
  Melbourne  No M26 of 2008

B e t w e e n -

IAN CHARLES FOWELL SPRY

Appellant

and

EDWIN PHILIP KENNON AND IAN CHARLES FOWELL SPRY (IN THEIR CAPACITIES AS TRUSTEES OF THE CATHARINE SPRY TRUST, THE CAROLINE SPRY TRUST AND THE PENELOPE SPRY TRUST)

First Respondent

ELIZABETH ANNE FOWELL SPRY AND IAN CHARLES FOWELL SPRY (IN THEIR CAPACITY OF TRUSTEES OF THE ELIZABETH SPRY TRUST)

Second Respondent

HELEN MARIE SPRY

Third Respondent

ELIZABETH ANNE FOWELL SPRY

Fourth Respondent

CATHARINE SARAH FOWELL SPRY

Fifth Respondent

CAROLINE JANE FOWELL SPRY

Sixth Respondent

PENELOPE SARAH FOWELL SPRY

Seventh Respondent

FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 2 SEPTEMBER 2008, AT 10.15 AM

Copyright in the High Court of Australia

__________________

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MR M.C. HINES, for the appellants in M25 of 2008 and for the first and second respondents in M26 of 2008.  (instructed by McCracken & McCracken)

MR A.J. MYERS, QC:   May it please the Court, I appear with MR S. SMITH on behalf of the second respondent in M25 of 2008 and on behalf of the appellant in M26 of 2008.  (instructed by Nedovic & Co)

MR J.T. GLEESON, SC:   May it please the Court, I appear with MR P. KULEVSKI for the first respondent in M26 of 2008 and the third respondent in M26 of 2008.  (instructed by Kennedy Wisewoulds)

MR I.J. HARDINGHAM, QC:   If the Court pleases, I appear with my learned friend, MR M.C. HINES, for the third to sixth respondents in M25 of 2008 and for the fourth to seventh respondents in M26 of 2008.  (instructed by Victor Ismailovic)

FRENCH CJ:   Thank you.  Mr Jackson.

MR JACKSON: Thank you, your Honours. Your Honours, in this matter, if I could go to some very basic matters initially and then go to the statutory provisions straight afterwards. Your Honours, Dr Spry and Mrs Spry divorced on 17 February 2003. On 19 April 2002 Mrs Spry had instituted the relevant proceedings in the Family Court. The proceedings in their amended form appear in volume 1 of the appeal books at page 4 and as your Honours will see from that, in the proceedings Mrs Spry sought orders that various instruments should be set aside pursuant to section 106B of the Family Law Act – and as I said a moment ago, I will come to that, your Honours – and also orders for property settlement under section 79 of the Family Law Act.  Your Honours, if I could go now to the statutory provisions and deal first of all with property settlement proceedings.

GUMMOW J:   Do we not have to look at the trust instruments at some stage?

MR JACKSON:   Your Honour, I am going to come to those very shortly I just wanted to go very briefly if I could to the statutory provisions.  Your Honours, the Family Law Act in section 4 contains a definition of “property settlement proceedings” and relevantly:

means proceedings with respect to:

(a)the property of the parties to a marriage or either of them –

and “property” is defined by the same provision as meaning:

in relation to the parties to a marriage or either of them, means property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion.

The powers of the Family Court in property settlement proceedings are found principally in section 79. Your Honours will see in section 79(1)(a) in particular that:

In property settlement proceedings, the court may make such order as it considers appropriate:

(a)in the case of proceedings with respect to the property of the parties to the marriage or either of them – altering the interests of the parties to the marriage in the property –

Then your Honours will see that section 79(4) says ‑ ‑ ‑

GUMMOW J:   Well it is “the court”, is it not?

MR JACKSON:   I am sorry, your Honour?

GUMMOW J:   It is not necessarily the Family Court.  It is the small “c” court?

MR JACKSON:   Yes, I am sorry, your Honour.  It is “the court” in the present case.  I am speaking really of the present case in the Family Court.  Your Honours will see that subsection (4) says that:

In considering what order (if any) should be made under this section in property settlement proceedings, the court shall take into account –

Then, your Honours, if one goes to subparagraph (e) it says:

the matters referred to in subsection 75(2) so far as they are relevant –

If one goes back then to section 75(2), section 75 is a provision dealing with the matters to be taken into account in dealing with spousal maintenance questions, but your Honours will see that section 79(4)(e) has picked up one of those provisions, and that is section 75(2) and that which appears most relevant, your Honours, is 75(2)(b), the income, property and financial resources of each of the parties et cetera.

Now, your Honours, could I pause at that point and could I come back, your Honours, to the various documents and instruments that, as your Honour Justice Gummow mentioned, are those in issue in the present proceedings?  Now, your Honours, one starts off with the document which is the ICF Spry Trust which your Honours will find in volume 1 at page 59.  Now, your Honours, that is the document in its original form.  I will come to its terms in a moment, your Honours.  It had been created orally originally some 40 years ago on 21 June 1968.  Your Honours will see a reference to that fact in, for example, volume 2 of the appeal book, page 474 about line 1. 

GUMMOW J:   There is also a statutory declaration, is there not, at page 67 which gives some history?

MR JACKSON:   Yes, your Honour.  Yes, there is.  Now, your Honours, the actual instrument was made on 15 October 1981, and your Honours, as can be seen from the instrument, if I could go to page 59, the original settlor was Dr Spry.  By clause 2 the settlor was given a power to vary the terms of the trust, but there was a qualification to that, namely, that the power could not be used to ‑ ‑ ‑

GUMMOW J:   Is this a deed?

MR JACKSON:   No, your Honour, no.

GUMMOW J:   Is it signed?

MR JACKSON:   Yes, it is.  You will see, your Honour, that is at page 60.

GUMMOW J:   Yes.

MR JACKSON:   The power could not be used to increase in any way Dr Spry’s rights, et cetera.  Your Honours will see that the beneficiaries were expressed to be – and this is paragraph 4 – his father’s issue and:

all persons married to such issue -

Clearly he was a beneficiary.  Equally clearly, Mrs Spry became a beneficiary on her marriage to Dr Spry.  If there were a premature termination, then clause 5 applied.  Your Honours will see that in clause 6 there was a power from time to time as the trustee saw fit:

to apply all or any part of the income and/or capital of the fund to or for all or any of the beneficiaries –

et cetera.  Your Honours will see also clause 6A:

No part of the income of the fund shall at any time to be paid to or applied for the settlor in repayment of any debt owed to him by the trustees; nor shall any such income be accumulated for the settlor. 

Now, your Honours, may I pause there?

FRENCH CJ:   I am sorry, Mr Jackson.  This document was created in 1968 but it was not signed at that time.  This was simply evidencing a trust by parole.

MR JACKSON:   Your Honour, the trust had been originally created orally and this document came into evidence as terms later. 

FRENCH CJ:   It actually came into existence in 1981, did it?

MR JACKSON:   Yes.  I am sorry, it was written in 1961 and signed later, your Honour.

FRENCH CJ:   Yes, I thought that.

MR JACKSON:   I am sorry, your Honour.  Your Honours, could I mention one other feature about it?  You will see clause 9 and your Honours will see that clause 9 gave the trustee wide powers of investment or dealing with the fund, but at the same time it recognised that he did so as trustee.  Your Honours will see the last two lines.  Now, your Honours, importantly and very significantly for present purposes, the trust was varied in 1983 on 4 March ‑ ‑ ‑

HAYNE J:   Before you come to the variation, under the trusts evidenced by this instrument it would have been open to apply the whole of the trust fund to any wife of any of the identified issue.

MR JACKSON:   Yes, anyone within the scope of beneficiaries.  Your Honours, could I then go to the document which is the variation of that, which your Honours will see at page 64, the 1983 variation.  If I could go in relation to the recitals part of that first, your Honours will see - I am sorry, could I pause to say this.  It was done, your Honours, so that the trust property would not be aggregated for land tax purposes with other property that Dr Spry might own.  

You will see the desire to avoid that land tax is referred to with some enthusiasm in a sense by my learned friend’s submissions on behalf of Mrs Spry at paragraphs 10 and 46, but, your Honours, in a sense as if it might support the case for Mrs Spry.  But, your Honours, in a sense it goes the other way because the more one emphasises the desire to separate the property, the subject of the ICF Spry Trust from that of Dr Spry, the less likely ‑ to the extent to which it matters ‑ it is that the ICF Spry Trust assets would be regarded as his “property”, if I can use that term.

Your Honours will see in the recitals to the document that it is indicated that the deed is to perform two functions.  If one goes about a third of the way down the page, it is said:

AND WHEREAS the settlor has from time to time lent money to the trustee of the said trust (hereinafter referred to as “the trustee”) to enable the trustee to acquire investments AND WHEREAS the settlor desires inter alia to benefit the beneficiaries of the trust by releasing all amounts owing to him in respect of moneys lent by him to the trustee and by releasing all –

amounts, et cetera.  Your Honours will see the second object stated:

by releasing all of his beneficial interests under the trust –

Now, it goes on to say in clause 1, first of all, that:

1.        The settlor hereby releases all his rights to be repaid moneys which have from time to time been lent by him –

et cetera.  Then about in the fifth line it sets out an acknowledgement that:

no amount is or remains owing to him . . . and that he has no rights to or interest in the trust fund or the income thereof.

That is the first thing, your Honours.  Can I just pause to say, your Honours, that this was of course 20 years before the divorce occurred.

FRENCH CJ:   There is no suggestion there was any difficulty in the marriage at that time?

MR JACKSON:   No.  Your Honours will see in the last part of paragraph 1, as I said a moment ago, he declares, in effect, he agrees and acknowledges that he has no rights to an interest in the trust fund or the income of it.  Your Honours will see then in clause 2 that the same intention is made manifest, or is emphasised, in a provision that says:

The settlor hereby releases and abandons all and any beneficial interest or rights held by him or which may hereafter be held by him under the trust instrument or under the said trust or in the trust fund or income thereof –

which is a fairly comprehensive statement.  He goes on to say then –

and confirms that by reason hereof he ceases to be a beneficiary of the trust or a person to whom or for whose benefit all or any part of the trust fund and income thereof may be applied.

Now, your Honours, that is a statement in the very broadest terms of his abandoning, releasing, whatever term one likes, his ability to be an object of bounty under the trust.

GUMMOW J:   But Mrs Spry would still have been a beneficiary.

MR JACKSON:   Yes.  Yes, your Honour.  Your Honours, if one goes then to clause 3 of the same document, your Honours will see in the second half of it that it is said – and this is the last five lines:

any variation of the trusts of the said instrument shall be invalid to the extent to which it purports to confer directly or indirectly any right or benefit upon the settlor.

Now, if I could go back, your Honours, to page 59, your Honours will have seen the power to vary in clause 2 and, in our submission, the last part of clause 3 at page 65, if that had not already been effected by clause 2 is, in our submission, a variation of the terms of the ICF Trust.

HAYNE J:   Sorry, what was the qualification you just put?  If what?

MR JACKSON:   Your Honour, I said if that had not already been effected by the terms of clause 2 of the ‑ ‑ ‑

HAYNE J:   What do you say is the effect of clause 2 on the power of variation?

MR JACKSON:   Well, your Honour, the effect of – I would say two things about it, your Honour.  The first is, and I am not seeking to avoid answering your Honour’s question which I will do in the second part, is that it is clear that clause 3 does effect such a variation, but the second part as to clause 2 were it appearing by itself, your Honours, we would submit it would have the effect of saying that the trust was varied because Dr Spry could no longer be an object of the exercise of power ‑ ‑ ‑

HAYNE J:   But you do not say, do you, that clause 2 gave up the power of variation?

MR JACKSON:   No, we do not say gave up the power of variation – I am sorry, your Honour, perhaps I am at cross‑purposes.  What we would say, however, is that it is clear that clause 3 does have that effect.

FRENCH CJ:   Are you saying anything more than that clause 2 was irrevocable?

MR JACKSON:   No, not really, your Honour.  I was not intending to convey that clause 2, absent clause 3, was itself a variation of the variation clause.  Perhaps I was careless in the language I was using, but clause 3 clearly, in our submission, does have that.  It says:

any variation of the trusts of the said instrument shall be invalid to the extent to which it purports to confer directly or indirectly any right or benefit upon the settlor.

Could we just say, your Honours, that it does appear specifically to reduce the ambit of the power to vary otherwise contained in clause 2.  Your Honours, what we would also say is that variation of the terms of the ICF Spry Trust would operate prospectively.  Once the terms are varied, the terms as so varied are those which are to apply.  The past is the past.  The terms as varied are the future.  Your Honours, if I could just go to the remaining parts of the document of March, your Honours will see that for clause 4:

at the time of the execution hereof no loans to the trustee by Helen Marie Spry or any other person are outstanding.

Then, your Honours, clause 6:

In all other respects the trusts of the said instrument are confirmed.

Your Honours will see the parties who executed the document are Dr Spry as settlor, Mrs Spry and Dr Spry as trustee.  Your Honours, pausing at that point one might have thought, with respect, that the property of the ICF Spry Trust, though held by Dr Spry on those trusts, was not his property.  No doubt he had powers in relation to it.  No doubt in one sense he had the ability to deal with the property but one thing he could not do was to make it his own. 

Your Honours, if I could move on to the other instruments that were involved and then come back to the matters which we would seek to argue about it.  The first was a document, which is at page 70, which is described as the “Instrument of Variation”.  It is dated 7 December 1998 and your Honours will see that perhaps in clause 2:

The power of variation set out in clause 2 of the trust instrument is hereby varied so that (a) it may be exercised by the settlor either in writing during his lifetime or by his will, and (b) any exercise of that power of variation may be either revocable or irrevocable –

Then your Honours will see in paragraph 4:

Clauses 6 and 7 . . . are herby varied so that no power or discretion to pay or apply the capital of the fund or any part thereof shall be exercised in favour of the settlor or Helen Marie Spry or in favour of any trust in which either of them has any interest, right or possibility, and the settlor and the said Helen Marie Spry are hereby excluded absolutely and irrevocably from all and any interests –

et cetera, and your Honours will see last four lines of the clause.  Your Honours, one goes then to what occurred in ‑ ‑ ‑

HEYDON J:   It should be “or on the settlor or on the said ‑ ‑ ‑

MR JACKSON:   I am sorry, your Honour?

HEYDON J:   The second last line, “in the capital of the fund on the settlor or on”.

MR JACKSON:   Yes, I am sorry, your Honour.  One then sees, your Honours, a document which is at page 76 of volume 1.  It is headed “The ICF Spry Trust”.  Your Honours will see that by that document Dr Spry, as the trustee – if one looks at paragraph 3 essentially – applies the trust fund income, capital of the trust fund, to their four daughters, to put it shortly, in equal shares and does so on the basis of the trust set up in respect of each of the four daughters and those trust deeds are in similar form, and that for the eldest daughter your Honours will see at page 73.  Could I mention particularly clause 9 on page 74 in which Dr Spry was:

excluded absolutely from any interest or benefit in or from the Fund.

Your Honours, we will need to come to the documents a little more, but may I go back to the order of the Family Court which is in issue.  Your Honours will see that in volume 2 at page 576.  Your Honours, that is the order of the Full Court.  It simply said, relevantly, that the appeal and cross‑appeal be dismissed which thereby of course had the result that the orders of the primary judge were not disturbed and those orders can be seen at page 445 in volume 2.  There are two orders, your Honours, of particular importance.  They are orders 3 and 4.  May I just mention these things, your Honours.

GUMMOW J:   Page?

MR JACKSON:   I am sorry, page 445, volume 2.  Your Honours will see that there is a reference in paragraph 2, and perhaps I should go to that first, saying:

That pursuant to the provisions of section 106B of the Act –

I do not think I took your Honours to that before –

the ICF Spry Trust Instrument of Variation dated 7 December 1998 be set aside. 

Now, section 106, if I could take your Honours to that for just a moment,106B  ‑ ‑ ‑

GUMMOW J:   Do we have the right reprint?  We have No 7.  It has been amended, has it not, 106B? 

MR JACKSON:   Yes, it has.  Your Honour, this should be correct.  As I would understand it, it is.  Now, your Honours will see that subsection 106B(1) says that:

In proceedings under this Act, the court may set aside or restrain the making of an instrument or disposition by or on behalf of, or by direction or in the interest of, a party, which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.

Your Honours will also see subsection (3) which says that there has to be regard to the interests of other persons. Your Honours, it was pursuant to section 106B ‑ ‑ ‑

HAYNE J:   Was 106B(3) engaged in any respect in this matter, “a bona fide purchaser”?

MR JACKSON:   No, your Honour.

HEYDON J:   What about “other person interested”?

MR JACKSON:   Well, “other person interested”, your Honour, that is, I think, how the trustees as such came to be in the proceedings and the daughters as such came to be in the proceedings, because they were held to be other persons interested.  Now, if one goes to order 2, the 1998 instrument was set aside.  Then in order 3:

That pursuant to the provisions of Section 106B of the Act the instrument –

to which I took your Honours earlier‑

entitled “The ICF Spry Trust” dated 18 January 2002 and the dispositions made pursuant thereto –

was also set aside.  Your Honours, I think I mentioned before that the document had the title up the top “ICF Spry Trust” but it does not create the trust ‑ ‑ ‑

FRENCH CJ:   It is just a disposition.

MR JACKSON:   It is a reference to it.  Now, that sets out the dispositions which are set aside.  Your Honours, if one goes then to the order, which is order 4, you will see that it provided that Dr Spry pay Mrs Spry the sum of $2.18 million, which is set out there.  Now, your Honours, that order, the order for the payment, derives from the considerations by the primary judge that I take your Honours to now, but essentially the starting point is a consideration that the net assets were to be divided on a particular proportionate basis.  You will see that in volume 2 at page 440, paragraph 264:

The net assets of the parties should be divided 52%/48% in the husband’s favour.

But, your Honours, as paragraph 264 itself indicates, that leaves a question, “What were the assets to be so disposed of, or so dealt with?”  Your Honours will notice in particular the second and third sentences of paragraph 264, namely that the disposition of 18 January 2002 needed to be set aside, and secondly, that unless they were, Mrs Spry would not get her entitlement as so found. 

You will see on page 420, paragraphs 197 and 198 that the judge proceeds to set out a schedule of assets.  There were some areas of disagreement but they related to relatively small matters.  If one goes to paragraph 198, the last five or six lines on page 420, your Honours will see that there are set out Mrs Spry’s assets arriving at the subtotal at about line 8 on page 421, subtotal of $2.53 million.

HAYNE J:   This is based on the schedule provided by your client?

MR JACKSON:   Yes it is, but your Honours will see in paragraph 199 the areas of disagreement the judge sets out.  He had referred to that, paragraph 198, your Honour, and then those were in the end resolved arriving at a particular figure.  Could I just say then, one sees going down page 421, a figure about halfway down the page, line 18, a subtotal of $1.79 million in respect of Dr Spry’s net assets, and that gives then, on the line immediately below, by adding the two figures together, the total of $4.32 million for the two of them.  Then one has, what I might call, perhaps, the add‑ons to that and they are first the Westpac shares at $308,000 referred to about line 23 and then the amounts of the children’s trusts in the next four lines, which themselves add to a total of $4.76 million about line 29.

Your Honours, then there is a reference on the top of page 422 to some shares and some area of disagreement, but in the end, the figure that was arrived at was the figure your Honours will see at paragraph 266 on page 440 where the judge then refers to the total of $9.8 million and applying the 52/48 per cent proportion to that, that gives the figures which he has then set out in 266 of $5.1 and $4.7 million.

Your Honours, you will see then that one asks, in effect, where is the money coming from to satisfy the calculations because, as the judge had noted at paragraph 267 on page 440 Mrs Spry’s net assets were $2.53, Dr Spry $1.79 and one then sees in paragraph 268 the jump, in a sense, that Dr Spry will have to pay Mrs Spry the sum of $2.18 million in round dollars.  The reason why that is so, why he has to pay that is apparent from the remainder of the paragraph 268.  Where it will come from is up to him and the judge goes on to say that:

but I have found that the assets of the ICF Spry Trust can be treated as his property once the relevant instruments and dispositions are set aside, and thus that is a source of funds for the husband.

One sees then, your Honours, the comments that the judge makes in the remainder of 268 and through paragraph 269.  Could I invite your Honours to note that the 1983 deed was not set aside by the primary judge so that deed remains in being, and it is the later documents that he set aside?

HAYNE J:   But the position once those two deeds were set aside of 1998 and 2002 immediately before divorce at least was that the whole of the trust could be appointed to Mrs Spry.

MR JACKSON:   Or to any of the beneficiaries, yes.

HAYNE J:   Or to any beneficiary, but one outcome was that the whole could be appointed to her?

MR JACKSON:   Yes, as a possible outcome, your Honour, we accept that.  At the time of the document – there may be some confusion about times, but what I was saying before was that she had been a beneficiary.  One had a situation, your Honours, where the judge set aside the 2002 ‑ ‑ ‑

HAYNE J:   Yes, but if you set aside the 1998 and the 2002 instrument, and if that is set aside, the terms of the trust that survive that setting aside immediately prior to divorce permitted the appointment of the whole to Mrs Spry, is that right?

MR JACKSON:   Yes.  Your Honour, that is what I was saying, after the divorce, different question.

HAYNE J:   Well, after the divorce one is into the realm of the Family Law Act.

MR JACKSON:   Well, your Honour, at the time the orders were made the position was that she was divorced, and the question which was being examined was what was the position in relation to a property settlement, the term defined as your Honours have seen, in relation to the property of the parties, and her interests in it by virtue of the divorce had gone because she was a person who no longer qualified as an object of the exercise of discretion under it.  Now, your Honours, that is not a point ever put in issue in the proceedings.

Your Honours, could I say that the problem which arises in relation to the judge’s rulings and the judge’s decision and the decision of the majority in the Full Court is that whatever rights Dr Spry had in relation to the ICF Spry Trust were not in terms of section 79(1), interest of a party to the marriage capable of alteration under that provision.

I took your Honours to the terms of the trust and the document of variation, and could I go, your Honours, to the bases on which the Family Court decided the issue?  There appear to be two bases on which the primary judge relied and two separate ones on which the majority in the Full Court relied.

So far as the primary judge was concerned, the primary judge appeared to have two views.  One was that Dr Spry could simply revoke the 1983 deed.  The other was that his powers as trustee gave him “sufficient control”, that the property of the trust should be treated as his.  Your Honours, in our submission, neither of those views should be accepted.  Could I deal with them in that order.  The primary judge’s discussion of the first basis, that is that he could just revoke the 1983 deed, can be seen in volume 2 at page 375.  It commences, your Honours, in the paragraph numbered 129.4.22 where the judge said that:

prior to the January 2002 instruments the husband could benefit from the assets of the Trust such that they could be treated as his property.  First though there would need to be help from this court in the form of the setting aside of the instrument of variation dated 7 December1998.  Prima facie that would reinstate him as a capital beneficiary –

With respect, your Honours, a little difficult to see how that would occur –

but subject to the terms of the original Trust and the terms of the instrument dated March 1983.

Now, his Honour went on to say in the third line on page 376:

However in my view there is nothing to prevent the husband from revoking the entire instrument of March 1983 or more particularly just clause 2.  Clause 2 is not a variation of the terms of the Trust, it is a release or a disclaimer by the husband.  Thus, in turn, to revoke clause 2 would not be a variation of the terms of the Trust either, and as such it would not be rendered invalid by the latter part of clause 3.

Your Honours, his Honour goes through in paragraph 129.4.23 to say at about line 25 that:

the settlor’s power to vary is insulated from variation.  Accordingly, insofar as clause 3 of the 1983 instrument attempts to vary the power of variation it is invalid.

With respect, your Honours, it is very difficult to see why that power to vary cannot itself be varied by the terms of an exercise of a power of variation.  Your Honours, one goes on then to see at paragraph 129.4.24 he said if there was a variation by clause 2 of the 1983 instrument “it is an invalid exercise of the power of variation”.  In the result, your Honours, he goes on to hold that there could simply be a revocation of the 1983 deed. 

Your Honours, if I could go back to subparagraph 4.22 on page 375 for a moment, the third and following sentences of that paragraph, in our submission, begin to reveal the difficulty, from where, if one asks a rather basal question, does Dr Spry get the power to vary clause 2 or get the power to in effect revoke clause 2 and also, in effect, to revoke clause 3?  Your Honours, to ask a rather more basal question, why would not an amendment of the kind that the judge posited go outside the variation power, restricted as it is by clause 3 of the 1983 deed? 

Your Honours, we would submit that paragraph 4.23 and 4.24 should not be accepted and we would submit the first of the judge’s reasons, which does not itself appear to have been accepted by the Full Court, should not be accepted.  The second basis on which the judge appeared to – could I just note in passing, your Honours, that at paragraph 4.28 on page 378, about line 13, he observed that there was no question of a sham.  He was doing so in relation to the second question, picking up what had been said in the Court in Ascot Investments v Harper, recognised exceptions, but he said there was no question of a sham.

Now, your Honours, the second basis on which he decided was that the powers of Dr Spry as trustee meant that he had sufficient “control” to cause the trust property to be regarded as his own.  That can be seen commencing in paragraph 4.28 on page 378 and the passage goes through, in effect, to paragraph 4.38 on page 382.  Could I take your Honours to some of the reasons of his Honour.  Your Honours will see that at paragraph 30 on page 379, he said:

It is evident that if a party has the ability under the terms of the Trust Deed to cause to have distributed to themselves or to someone on their behalf all of its income and capital then the assets of the Trust will be treated as the property of that party.

GUMMOW J:   What is being said there?  Treated as the property for what purpose, under some statutory regime or general law, or what?

MR JACKSON:   I was going to say, your Honour, it appears to be a reference back to the preceding paragraph.  In the preceding paragraph he deals with some decisions in the Family Court in which it has been held that assets of a trust can be treated as property of one of the parties in circumstances where there is the ability of the trustee to cause the assets to be placed in situations where he personally has control over them.  You will see, your Honours, the reference to Ashton and Davidson and the summary of Ashton six lines from the bottom of page 378.

GUMMOW J:   Well, they are construing section 79 by the look of it.

MR JACKSON:   What his Honour draws from that, however, is what appears in the first sentence of paragraph 30.  This was a view that the view taken by the judge here goes beyond that which the Full Court said was correct in the particular case, because he said:

if a party has the ability . . . to cause to have distributed to themselves or to someone on their behalf -

et cetera.  If one looks at the situation after the execution of the 1983 deed, there was no ability, in our submission, for Dr Spry to cause to have distributed to himself or to anyone on his behalf all of the capital or income of the trust.

FRENCH CJ:   No control?

MR JACKSON:   No control, your Honour.  Your Honours will see that the judge takes, really, a very extended view of the matter.  If one goes to page 380 at the top of the page:

Even if clause 2 of the 1983 instrument remains in place the husband is still the person who solely determines –

who will benefit, to put it shortly.  It said that gives him total control.  You will see at paragraph 4.31 he said he has had the benefit of the trust assets and, of course, in one sense that is right; both parties to the marriage resided in the property.  Hardly surprisingly, the assets of a trust in which the children were potential beneficiaries were used to pay expenses of the children.  Then, your Honours, the judge goes on to say – and this is a very wide statement of position – in paragraph 4.32, the second line:

It would enable him to distribute capital and income to a beneficiary over whom he in turn could exercise control, for example one of the children.

Your Honours, if I could just say two things.  First of all, the test that he is applying is one which, as you will see from paragraph 4.30, speaks of the terms of the trust deed.  The second thing about it, your Honours, was an absence of evidence that there was any such control being exercised by him.

HAYNE J:   Does it matter that he had power to appoint to the other party to the marriage?

MR JACKSON:   In our submission, not, your Honour.

HAYNE J:   That is to say, you get to the point where the property the subject of the trust, though it could be appointed wholly to one of the parties to the marriage, is not to be taken account of at all in considering the property settlement between the parties to the marriage, is that right?

MR JACKSON:   No, your Honour, I would not go as far as that.

HAYNE J:   What is the intermediate step or point?

MR JACKSON:   The intermediate step, your Honour, is this, that at the time when the issue was one being discussed and the court’s powers were being exercised, Mrs Spry was no longer a person who satisfied that criterion.  If it had been the case that she remained, that would be a factor.  The extent to which it might be taken into account would be a different question.

HAYNE J:   Thus the powers depend upon the order in which the property proceedings are determined and the divorce proceedings are determined.  Is that the consequence?

MR JACKSON:   In the event, yes, your Honour.

HAYNE J:   That the property of the parties to the marriage is to be determined at the time of the order for settlement, not at the time of institution of the matrimonial cause for divorce.  Is that right?

MR JACKSON:   Well, that is our submission, your Honour, yes.

HAYNE J:   What is it in the Act that leads to that conclusion?

MR JACKSON: Well, these were, your Honours, proceedings which were instituted and varied, as your Honours have – there have been some variations of them, of course, but what one sees is that the power under section 79, your Honours will see, such order “as it considers appropriate” altering the interest of the parties to the marriage in the property.

GUMMOW J:   You say that means parties to the former marriage?

MR JACKSON:   Yes.  Well, your Honour, yes, I do.  Yes, of course, yes.  I do, your Honour, yes.  But could I just say ‑ ‑ ‑

GUMMOW J:   I mean, the basis of all this, either it is a matrimonial cause or it is a law with respect to marriage, or both.

MR JACKSON:   The term “parties” is, I think, no longer defined.  But, your Honours, if one is speaking in constitutional terms I suppose the power is one dealing with the consequences of a marriage, a consequence of dissolution of marriage, and one could get that under either of the constitutional provisions dealing with it in section 51.

Your Honours, could I just say that so far as the setting aside transactions is concerned – I am sorry, I will start again.  What your Honour Justice Hayne was asking me was something that arises in a sense because of rather peculiar facts, arises because of rather peculiar facts in the sense that the interest that Mrs Spry may have had was an interest which would derive from the terms of a trust.  It is a trust that is based in – where she was a beneficiary because of the terms.

HAYNE J:   Or she had a right of due consideration; that is all she had.

MR JACKSON:   Yes, of course, your Honour, as they all did.

HAYNE J:   Yes.

MR JACKSON:   Yes.  Now, there are two questions.  Whether that was an interest that might be taken into account, we would not dispute that.  The fact that if she were still a person in that category, then that would be a matter to be taken into account.  What result would follow from it would be a different question.  But having said that, the position simply was that she no longer satisfied that test so that it became an area where the – only where the persons who might be persons who are the subject of exercise of power were neither Mrs Spry nor Dr Spry.

HAYNE J:   Is there any assistance to be derived in understanding the expression, “property of the parties to the marriage or either of them”, as used in 79(1) from what is said in 79(4)(a) or (b)?  I have in mind especially the last three lines of (a) and (b).

MR JACKSON:   Well, your Honour will see that ‑ ‑ ‑

HAYNE J:   With its reference to:

that last-mentioned property –

on its face, part of the property of the parties to the marriage –

whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them -

How does one grapple with those words?

MR JACKSON:   Well, your Honour will see that in (4)(a) what is being spoken of is financial contributions being made directly or indirectly to the acquisition, to put it shortly, of the property of the parties to the marriage.  It goes on to say, whether that property is or is not part of the property of the parties, and in paragraph (b) the contribution again.  Your Honours, what is taken into account is the contribution to the acquisition of property.

HAYNE J:   I understand that, but it is what, if any, light it casts – I mean, it may cast no light.  I am not saying it does cast light.  But what I want to know is what you say, if anything, about the expression “has, since the making of the contribution”, et cetera, whether that does cast light.

MR JACKSON:   Your Honour, what I am seeking to say is this.  What the court is dealing with is what is the property of the parties.  The percentage or the order that might be made – and that is why the opening words of (4) –can take into account the extent to which one party compared to the other has been a participant in acquiring what assets there are.  So that might affect the 52/48 per cent, for example, in the particular case.  But when one comes to what is to be the subject of the order, the subject of the order, in our submission, is what is the property of the parties?  So, your Honour, I do not know that I can put it – that is the way in which one takes that into account.

GUMMOW J:   One of the things experience teaches about this Act is that there is a lot of devil in the definitions. Section 79(1) speaks of “property settlement proceedings”.

MR JACKSON:   Yes, that is the trick, your Honour.

GUMMOW J:   Then one goes to “property settlement proceedings”, which his defined in section 4.

MR JACKSON:   So as not to use the word “settlement”. 

GUMMOW J:   It means:

proceedings with respect to:

(a)the property of the parties to a marriage or either of them –

right?  Then the expression “proceedings between the parties to a marriage with respect to the property” becomes part of a definition of “matrimonial cause” in paragraph (ca).  Then the definition of “matrimonial cause” gets you into the jurisdiction section in 39 and thus into Family Court.  The definition in (ca) in “matrimonial cause” – I do not know it is a definition, description anyway:

proceedings between the parties to a marriage with respect to the property of the parties to the marriage or either of them, being proceedings . . . 

(ii)in relation to concurrent, pending or completed divorce or validity of marriage proceedings –

Now, that suggests that the order of events is not critical.  In other words, that the temporal sequence of divorce proceedings or matrimonial property proceedings is not, in the view of the structure of the Act anyway, critical.  So you would not ordinarily, I suspect, readily see a different consequence as to the operation of the Act depending upon this temporal sequence Justice Hayne is putting to you.

MR JACKSON:   Your Honour, can I just say this?  You will see the definition of “matrimonial cause” in the provisions to which your Honour has referred does say that it includes cases of these three kinds in temporal terms.  So that is speaking about the ambit of the jurisdiction that one then sees in other provisions of the Act.  But having said that, your Honours, it does not really cast much light on what one is dividing up, as it were, or the order one is making because your Honours will see the court is making an order which is altering interests.  Underlying that is there are interests which can be altered and altered at the time of the making of the order.

Your Honours, because there are provisions like section 106B, and if I could just go to that provision for a moment, you will see that it provides specifically that:

the court may set aside or restrain the making of an instrument or disposition . . . which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.

Your Honours can see that in section 106B(4AA):

An application may be made to the court for an order under this section by -

and there is a number of persons who are there referred to.  You will see that “disposition” is defined in subsection 5 and, your Honours, this is not a case, if I may say so with respect, of there being a disposition relevant for the purposes of the matter presently being argued.  What it simply is that there happened to be – I do not mean that in any facetious sense – but there happened to be a trust which had particular beneficiaries described in a particular way and the effect of the dissolution of marriage was that one of the beneficiaries, no longer potential beneficiaries, no longer qualified as such. 

Now, your Honours, that is the position as at the time of the making of the order.  It had the result that whatever right or ability she had to compel the execution of the trust so that she could be considered was something that came to an end by reason of the dissolution of marriage.  In those circumstances, your Honours, there simply is not a provision which effectuates such intention as there might be derived perhaps otherwise from the terms ‑ ‑ ‑

FRENCH CJ:   So the significance of the temporal sequence is just an accident of the particular instruments?

MR JACKSON:   Yes, your Honour.  That is so and your Honour ‑ ‑ ‑

HAYNE J:   Is there a Shin Kobe Maru point about reading down otherwise generally conferred powers of a court, or is there no Shin Kobe Maru point?

MR JACKSON: Well, there is not, in our submission, your Honour. The position, in our submission, is simply that there is no relevant temporal requirement. “Requirement” is not perhaps quite the right word – but that the temporal considerations are those obtaining at the time of the making of the order and that is why you have provisions like section 106B.

HAYNE J:   Making of the order, not even dated institution of the proceeding.

MR JACKSON:   That is so, your Honour, yes.

HAYNE J:   Was this property proceeding instituted before or after divorce?

MR JACKSON:   Initially before.  Could I say, your Honours, the decree absolute, I think, was 17 February 2003.  The proceeding in the Family Court was instituted on 19 April 2002.  The proceedings were significantly amended and the amended form is that in volume 1 at page 4 and that, I think, is 2005.

GUMMOW J:   We do not have the original, I do not think.

MR JACKSON:   No, your Honour.  You will see that the amended form, the top right‑hand corner of page 1 was filed on 11 April 2005 and as your Honours will see from the form of the amendment the – I was going to say the previous one appeared to be in relatively brief form, but I would qualify that by saying, your Honours, I gather this is the second amended application.

GUMMOW J:   The application for dissolution of the marriage, when was that made?  It is not in your chronology, that is why I am asking.

MR JACKSON:   I think it is referred to, your Honours, in Justice Finn’s short recitation of the matter.

HAYNE J:   Page 481, line 10 - is that the relevant date?

MR JACKSON:   Those are the dates of institution, your Honour, yes – of the proceedings, yes.

FRENCH CJ:   That is the property proceedings.

HAYNE J:   Is that property or ‑ ‑ ‑

MR JACKSON:   Property, your Honour.

HAYNE J:   I see.

MR JACKSON:   Your Honours will see about line 18 the decree for dissolution became absolute on 17 February.  Your Honours I am sorry, I just do not have the date of the institution of the proceedings for the divorce.

GUMMOW J:   Can that be found?

MR JACKSON:   Yes, it can, your Honour.  Can I give it to your Honours later.

KIEFEL J: Mr Jackson, could I take you back to section 106B. Do I take it, since this has not been raised by anyone, that 106B(1A)(d), where it refers to the making of an instrument “irrespective of intention, is likely to defeat any such order”, is not referable to the 1983 instrument?

MR JACKSON:   Your Honour will see the opening words of (1A) – if a party is “a bankrupt”.

KIEFEL J:   I am sorry, yes.

MR JACKSON:   And similarly with (1B).

KIEFEL J:   I see.  Yes, thank you.  Subsection (1) has a similar provision:  “irrespective of intention, is likely to defeat any such order”.

MR JACKSON:   That is so, yes, your Honour.

KIEFEL J:   What I am saying is it is considered not to be applicable to the 1983 instrument where he, on one view, disclaims as a beneficiary.

MR JACKSON:   But, your Honour, in 1983 they were living happily married.

KIEFEL J:   Yes, but this is irrespective of intention.

MR JACKSON: But there was no existing order and no then anticipated order, your Honour. Section 106B(1) is intended to prevent there being transactions which are to defeat orders of that kind, existing or anticipated ones. In 1983, whatever sadly happened later, there was no such situation.

KIEFEL J:   I realise there was no such intention, but if there is a transaction or an instrument made which later would inhibit the court exercising its jurisdiction to adjust property settlements to give effect to the contributions made to the parties, why could it not be applied to ‑ ‑ ‑

MR JACKSON:   Your Honour, if one looks at the words of the provision, it says that the court can set aside the making of an instrument which is likely to defeat any such order, but if I can ask hypothetically, why is it likely to defeat the making of the order?  The position is that it was simply a trust which had been established many, many years before and the trust was one that was varied.

KIEFEL J:   If it puts it out of his power to appoint to himself, the property to himself.

MR JACKSON:   But, your Honour, one looks to see what is the such order and the such order is an order, presumably, in relation to property which is not his and in which he can never have an interest.

FRENCH CJ:   Relevantly, for present purposes it is all to be found in the word “anticipated”, is it not, that you have some constellation of objective circumstances under which you can say it is an anticipated order?

MR JACKSON:   Thank you, your Honour.  Your Honour, the words “any such order” do refer back to existing or anticipated order and, your Honours, in 1983 there would be none and, in our submission, one would not interpret the provision as simply setting aside entirely valid transactions of great and relative antiquity in that sense for the benefit of ‑ ‑ ‑

KIEFEL J:   I take your point that intention does not take account of this, an order which is not anticipated, the lack of intention.

MR JACKSON:   Thank you, your Honours.  Your Honours, could I go then to the reasons of the Full Court.  Your Honours will see the reasons of - Justice Finn was in the minority, Chief Justice Bryant and Justice Warnick were the majority.  Could I go to the reasons of Chief Justice Bryant at page 454 in volume 2?

HEYDON J:   You told us there were two bases which were new, two by the trial judge and then two new ones in the Full Court?  Are we going to see the third one now?

MR JACKSON:   Yes, your Honour, yes, I am sorry.  The two new ones in the Full Court were Chief Justice Bryant and Justice Warnick.  I need to do it in this way though, your Honours.  Your Honours will see first of all at paragraph 7 on page 454 that Chief Justice Bryant agreed with Justice Finn’s reasons that control of the trust – that is the second reason of the primary judge was not sufficient, in the absence also of some “beneficial entitlement”.  You will see that in the first sentence of paragraph 7.  The part of Justice Finn’s reasons to which your Honour was referring there is at page 507 ‑ ‑ ‑

FRENCH CJ:   That is a post‑1983 situation?

MR JACKSON:   Yes.  At page 507, paragraphs 136 to 138.  Your Honours will see in paragraph 136 that she said there was “substance in the challenge” of the judge’s reasoning – substance in the challenge of the reason.  At paragraph 137 she said control was not sufficient and that the position was that:

in all of the earlier authorities on which his Honour relied . . . the spouse who had control of the trust also had some capacity to benefit (if only through a corporate entity) from the assets of the Trust.  In the present case, if the 1983 Deed remained in place . . . the husband had no beneficial right or interest.  He only had control, and I accept that no earlier authority in this court has gone so far as to hold that control alone without some lawful right to benefit from the assets of the trust, is sufficient to permit the assets of the trust to be treated as property of the party who has that control.

Then in paragraph 138, she said they should not depart from the approach she had referred to in the preceding paragraph.

GUMMOW J:   What do you say about paragraph 142?

MR JACKSON:   Paragraph 142, your Honour, was this and you will see that in paragraph 142 she said you could “treat the assets of the children’s trust as a financial resource”.  But if one goes through the remainder of the paragraph, what your Honours will see is that she is speaking of there being “some adjustment”, the quantum of it may be a different question.  Your Honours, a similar view ‑ ‑ ‑

FRENCH CJ:   It is not accessible property by virtue of its characterisation as a financial resource.  It is simply a matter to be taken into account for the purposes of section 75.

MR JACKSON:   That is so, your Honour.  Your Honour will see that Justice Warnick referred to this issue also ‑ ‑ ‑

GUMMOW J:   Justice Finn referred to it again at 148, I think.

MR JACKSON:   Yes, that is so.  Yes, your Honours will see she uses the expression, “some adjustment”.  Could I just say, your Honours, that if one goes to Justice Warnick’s reasons, your Honours will see at page 541, first in paragraph 257, that he said he had no difficulty with the primary judge’s statement that, if a party had the ability “to lawfully cause the distribution to themselves or to someone on their behalf”, then the assets could “be treated as the property of that party”.  “However”, and then he went on to deal with the same issue as Justice Finn had dealt with in paragraph 142.  He said:

While in my view it may well have been appropriate to conclude that the husband received some benefits from the Spry Trust and these may have relevantly been a resource, taken on their own, those incidental benefits, such as residence in a trust property and the application of trust income to family expenses, would in my view fall well short of establishing such a control over the Spry Trust that its assets should be treated in their entirety as a financial resource –

Your Honours, could I just say in relation to the point that your Honour Justice Gummow was raising, that if one goes to page 580, which is the notice of appeal, then your Honours would see that one of the orders that is sought in paragraph 10(e) is that the matter “be remitted to the Full Court of the Family Court” and then the Full Court would have to take into account whether there should be any alteration by virtue of those matters.

HAYNE J:   Is that the order you now propound?

MR JACKSON:   Yes, your Honour.

HAYNE J:   I thought at one point in the written submissions the order was rather larger in which you sought declarations that there was no financial resource.  Am I misremembering?  I have in mind page 10 of the ‑ ‑ ‑

MR JACKSON:   Yes, I see it, your Honour, yes.

HAYNE J:   That is in the trustee’s submissions.

MR JACKSON:   They are ours, your Honour, yes.  Your Honour, I should say the order we seek is the one in our written submissions.  I was not conscious of the difference that your Honour was referring to.

HAYNE J:   Well, there is a fair difference, Mr Jackson.  Which is it you propound?

MR JACKSON:   Your Honour, we propound the one which is contained in the written submission.  The one in the written submission is the one we propound.  What I would say about it, your Honours, in relation to paragraph 142 and paragraph 258 is that so far as the parties are concerned, it would be wrong to treat – and Justice Warnick is right in this regard – the fact that the parties, both Dr Spry and Mrs Spry resided in the premises that were the subject of the trust, and also the fact that some of the trust assets were expended on items in favour of the children as being something that should be regarded as now a financial resource of the parties.  Whether it might properly have been regarded as such in the past is, in our submission, a rather difficult question, but it should not be so regarded now.  I withdraw, if I may, the submission I made to the extent to which it was the contrary earlier.

So, your Honours, may I say in addition to that, to the extent to which there might be any adjustment, if it were to be treated as a financial resource, it would be one which would be a small adjustment because of the very nature of it.

Your Honours asked me about the date on which the application for divorce was filed.  You will see that in volume 1, page 109, the bottom of the page.  It is stated as being December 2002.  It is paragraph 116.  The actual date in December is not given. 

GUMMOW J:   So the decree was granted in the Magistrates Court and the property matters proceeded in the Family Court?

MR JACKSON:   Yes.  Your Honours, I mentioned earlier that in relation to paragraph 7 of Chief Justice Bryant’s reasons in the Full Court, she agreed with Justice Finn about the question of control absent being a beneficiary.  Justice Warnick appeared to take the same view in the paragraph to which I referred earlier, which is at page 541. 

FRENCH CJ:   It is 258.

MR JACKSON:   Yes, your Honour.  But both Chief Justice Bryant and Justice Warnick thought that the results flowing from those views could be circumvented and that was for two different reasons.  Chief Justice Bryant held that the 1983 deed could be cancelled by mutual agreement and that that was enough.  You will see that at page 458 in volume 2, paragraphs 27 to 29.  In paragraph 27 she disagreed with what Justice Warnick said, but:

Since 1983, remained open [at all times] to the husband and wife as parties to cancel it. 

Your Honours will see that goes through to paragraph 29.  Could we say in relation to that, your Honours, we would submit first of all that the view of Justice Finn, who took the opposite view, at page 504, paragraphs 128 and 129, should be preferred.  A significant matter against the conclusion of Chief Justice Bryant is that the ultimate question was, what was the property of the parties?  It is strange, in our submission, to regard property as including something which is not the property of a party but which would only become so if they agreed upon it. 

Your Honours, we would add also, what about the other beneficiaries?  How could Dr Spry consistently with his role as trustee agree to benefit himself?  Your Honours, the other trustee for whom I appear, Mr Kennon, might have something to say about it also, because there are other persons who are potential beneficiaries under the trust; to take but one example, the four daughters.  If one goes to Justice Warnick, his view, at page 533, which commences at paragraph 236 and it goes through to paragraph 248, was that Dr Spry could simply in effect reverse his election.  Your Honours, I think one really goes to paragraph 242 where he says:

In the instant case, we are not concerned with a variation but a release.  In my view, the revocation or cancellation of that release merely “…effectuates the purpose of the original trust…”.

If one goes then to paragraph 244, he said:

if the husband is able to revoke the 1983 Deed, then he will simply resume his position as one of the class of beneficiaries forming the substratum of the Spry Trust.  In my view, the position is no different from if the husband remarries, whether that be his former wife or someone else, that person will again fit within the original class of beneficiaries notwithstanding a numerical increase –

He said at paragraph 246:

This encourages the view that if, as I think it has, the substratum of the Trust remains unaltered, the cancellation of the Deed of Release sees the husband again in the position of a beneficiary.

Your Honours will see that goes through to paragraphs 247 and 248, in 248 saying:

no variation of the Trust was required.  He would not be so much reinstating himself as beneficiary, as declaring himself again available as an object of an exercise of discretion.  All the trustee had to do in the exercise of his discretion was again consider the husband among the beneficiaries.

Your Honours, could we just say that the fundamental problem faced in that regard was that the 1983 deed varied the trust so that he could not become a beneficiary.  We would say that it was just not correct that he could reverse his election in the way suggested by Justice Warnick.

Your Honours, in summary, we would say Justice Finn was right in the views which he expressed commencing at page 504 in paragraphs 126 through to 144.  May I deal, your Honours, with some particular matters.

HEYDON J:   Can I just ask you this, what is the difference between Justice Warnick’s view and Justice Strickland’s first basis?

MR JACKSON:   Your Honour, not much except in the language that is used.  So far as Justice Strickland is concerned, he said the parties can simply cancel the deed.  So far as Justice Warnick is concerned, he appeared to be saying that Dr Spry could reverse his election.  How you would go about reversing the election consistently with the terms of the deed is not perhaps entirely clear and it is confused a little, your Honour, by paragraph 242 at page 536 where he speaks of revocation or cancellation.  Your Honours, perhaps there is not a great deal in the difference, but it does seem that what was being said by Justice Strickland perhaps involved something rather more formal than what was involved by Justice Warnick.

Your Honours, I was going to take your Honours to Justice Finn at page 504.  It goes through from paragraph 126 to paragraph 144.  Could I just invite your Honours to note some matters.  I’ve already taken your Honours, I think, to paragraphs 128 and 129.  Your Honours, I do not think I really need to take your Honours through the detail of it.  Your Honours will see that we submit that what her Honour says there is the correct view.  Could I deal with some observations made by our learned friends in their written submissions? 

GUMMOW J:   Just before you do that, Mr Jackson and it is linked to what you had say, I think. Section 86(2) of the Matrimonial Causes Act 1959 said:

The court may, in proceedings under this Act, make such order as the court considers just and equitable with respect to the application for the benefit of all or any of the parties to, and the children of, the marriage of the whole or part of property dealt with by ante‑nuptial or post‑nuptial settlements on the parties to the marriage, or either of them.

Did that find its way into the 1975 Act in terms, or do we somehow read section 79 as an attempt to absorb it?

MR JACKSON:   Your Honour, I will have to check this, in the 1975 Act there was something which was broadly equivalent to the provision of the 1959 Act to which your Honour referred, but, your Honour, there is a provision that has been referred, section 85A.

GUMMOW J:   Yes, but that is later. 

FRENCH CJ:   When did that come in?

HAYNE J:   In 1983, I think. 

GUMMOW J:   It seemed to have come in in 1983 after a report of a joint select committee on the Family Law Act which reported in 1980.

MR JACKSON:   Yes, your Honour.  Your Honour, this, if I may say so, is a provision that has not been referred to in the proceedings and does not appear to have been relied on in the proceedings.  There would be a question whether this would be regarded as a post‑nuptial settlement in the circumstance, although I am conscious that the term “settlement” has been given a wide meaning in the area.

HAYNE J:   And “post‑nuptial” has been in the English cases considering the section from which this derives.

MR JACKSON:   Your Honour, the provision has been given a wider operation, but, your Honours, for it to be a provision which is to be exercised, it has to be invoked, in effect, and in the exercise of powers under it, one would need to give consideration to the particular submissions made ‑ ‑ ‑

GUMMOW J:  Yes, but my question really is 85A may have been put in later for more abundant caution. My question is looking at things in 1975 when you had section 79, did one then construe the Act as absorbing in some way into section 79 the previous 86(2) provisions? If one did, that may have some consequences for today’s operation of 79. That is what is agitating, I do not know what the answer is.

MR JACKSON:   Your Honour, may we check that and endeavour to give your Honours an answer to that.

GUMMOW J:   Yes.

MR JACKSON:   But, your Honours, one would have to, in dealing ‑ ‑ ‑

GUMMOW J:   If I can just interrupt again, I think that is the idea that is finding some expression in Mr Gleeson’s submissions where he refers back to the antecedents of 86(2) and then he endeavours to read them into 79.

MR JACKSON:  Well, your Honour, could I just say, one has to take into account the provision of section 85A, but for the provisions of section 85A to have an application, one has to look to see what is being sought to be done. If you have proceedings in which the proceedings are brought under section 79, relief is sought by reference to section 79, no reference being made to the powers under section 85A and no application being made in relation to section 85A, then the case would in the ordinary course of events proceed on the basis that that aspect of the case has not been dealt with in the courts below.

GUMMOW J:   What you have in your favour, I suppose, is this uncharacteristically narrow definition of “property” in section 4.

MR JACKSON:   Yes.  Your Honour, the property is the property of the parties to the marriage.

HAYNE J:   You said that the application was founded on specific sections.  Where do I find that, Mr Jackson?  I can see the references to 106B, but otherwise?

MR JACKSON:   Otherwise, your Honour, you will see that the – it is paragraph 10, I think, page 5. It says:

That pursuant to Part VIIIAA of the Family Law Act –

et cetera. It speaks generally. What I was seeking to say that was if one looks through the proceedings, you will not, I think, find any reference at all to section 85A. You will see reference to section 79. You will see references to some other provisions, but you will not, I think, your Honours, see a reference to section 85A. Your Honours, there is, of course, the question adverted to by Justice Gummow, the meaning of “property” in section 85A(1).

Your Honours, could I refer to our learned friend’s submissions for a moment.  We have dealt with these in our submissions in reply, as have the other counsel involved.  May I say, your Honours, if I could just go to paragraphs 31 through to 38 of those submissions, that deals with the, broadly speaking, nature of the entitlements of a person who is a potential beneficiary as one of class of potential beneficiaries under a discretionary trust.

Your Honours, accepting for the present the correctness of the views there set out as to the rights of a person in the class of potential beneficiaries under a discretionary trust, the position yet was that as from the 1983 deed, Dr Spry was not one of that class.  He was not and could not make himself a beneficiary.  His power of variation was limited and the conclusion which is set out in paragraph 38, in our submission, is not correct.

Your Honours, so far as paragraphs 39 to 42 are concerned, nor is paragraph 39, in our submission, correct.  The trustee of a discretionary trust may have in one sense an entitlement to the whole estate in possession, both legal and equitable, but, your Honours, there is not any basis, we would submit, for saying that the trustee may disregard the trusts upon which the trustee so holds the property.  In our submission, your Honours, the conclusion at paragraph 42 should not be adopted.  We referred to this in paragraph 2 of our submissions in reply.

Could we say, your Honours, if I could go to paragraph 44 of those submissions, they do commence with the making of what we would submit is a rather large assumption and the assumption appears in, in a sense, the second sentence, namely, that there is a need for the assets to which they refer to be split.  Now, of course, there is provision for making applications to the court, but what seems to underlie paragraph 44 is that the assets of the parties consist of all assets related to them, to put the term loosely, and that those then need to be split on divorce.  Some do, some do not. 

Your Honours, could I then go to paragraphs 51 to 60?  Your Honours, could I just say this, that in the attempt, in paragraphs 54 to 56, to draw an analogy with the position of a potential beneficiary under a will, in our submission, is not correct.  It is not correct because, amongst other things, the instrument has been varied so that Dr Spry could not be the subject of bounty under the trust and, in consequence, the range of potential subjects of the bounty has been diminished.  Your Honours, there are other matters we have dealt with in our submissions in reply and I may need to deal with them in reply in due course, but subject to that, those are our oral submissions.

FRENCH CJ:   Thank you, Mr Jackson.  Mr Myers?

MR MYERS:   Your Honours, on behalf of the appellant in No M26 we adopt the submissions of Mr Jackson and I do not wish to add anything.

GUMMOW J:   Just explain to me why there are two appeals.

MR MYERS:   I do not have the means to explain that to your Honour.  If I could, I certainly would.  There is no light that I can cast upon the subject, I am sorry.  If your Honours please.

FRENCH CJ:   Yes, Dr Hardingham.

MR HARDINGHAM: If the Court pleases. It will come as no surprise to the Court that the daughters, who we represent, agree with the arguments put on behalf of their trustees. We agree with the contention put by Mr Jackson that it was pointless for the Family Court to make orders under section 106B of the Act to set aside the transfer of assets out of the ICF Spry Trust into the four children’s trusts because back in the ICF Spry Trust the assets did not constitute property of either party to the marriage.

We agree with Mr Jackson’s observations in relation to the effect of the release.  The release in the 1983 deed clause 2 was effective and irrevocable and therefore the husband ceased to have any eligibility to receive benefit under the trust.  Similarly, we accept Mr Jackson’s assertion or submission that on the divorce of the husband and wife in February 2003 the wife ceased to be an object of the trust and therefore she was out of the picture as far as benefit under the trust was concerned.

A number of matters have been put below and by our learned friends for the wife in response to these contentions – first of all, that the subject matter of the ICF Spry Trust constitutes property for the purposes of section 4(1) and section 79 of the Family Law Act.  We say that that is clearly not right.  The property, or the assets, of the ICF Spry Trust in the hands of the husband was trust property, it was property which was subject to the rights of due administration of the objects of the trust and, as such, the Family Court had to take that property as it found it.  The husband could not simply use the property for the purposes of constituting or dealing with his own personal affairs.  The assets of the ICF Spry Trust were clearly subject to protectable equitable rights in third parties.  Those rights could not be sloughed off or ignored.  So we say that we agree with Mr Jackson that the assets of the ICF Spry Trust do not constitute property for the purposes of 4(1) and 79 in the hands of Dr Spry.

As far as release is concerned, we would make the observation that there is no inherent reason why an object of a discretionary trust should not be able to release his or her interest under the trust once and for all, for all time.

GUMMOW J:   Is there any treatment of that in any of the works on the subject?

MR HARDINGHAM:   Not that I know of, and I have looked.  Not that I know of, your Honour.  But it would seem feasible or acceptable, as a matter of principle, that where an object of a discretionary trust has a right to due administration of the trust, that right to due administration can be released or yielded up, thereby freeing the trustee or absolving the trustee, if I can use that word, from any further necessity to administer the trust duly in favour of or as far as the releasing object is concerned.

GUMMOW J:   It is not really the same thing as disclaiming a gift.

MR HARDINGHAM:   No, it is not, your Honour.

GUMMOW J:   It is purely equitable.

MR HARDINGHAM:   It is purely equitable.  The will cases, as exemplified by – the name just escapes me for the moment – but the will cases are few and far between.  They were criticised by Lord Justice Danckwerts in Re Paradise Motors and it is very hard to discern from the will cases any rationale, any explanation, as to why a benefit under a will should be capable, or a renunciation of a benefit under a will should be capable of being withdrawn but not otherwise.

As far as the present case is concerned, it may be argued that Dr Spry, being both the trustee of the trust and at the time or immediately before the 1983 an object of it, he could not be seen to owe himself a duty to due administration or could not be seen to be owed such a duty.  It may be said, well, in those circumstances Dr Spry did not have a right of due administration which he could relinquish or release, but we would say that that is to take too narrow a view of the situation. 

Even if it is correct to say that Dr Spry did not have a right of due administration as against himself, he had other rights.   He had a right to be to the status, object of the trust.  He had a right in his capacity as trustee to treat himself as an object of the trust.  Of course Dr Spry in his capacity as an object of the trust had a right to due administration against successor trustees, trustees other than Dr Spry.  Indeed, the rights that Dr Spry had, both as trustee to treat himself as an object and as an object to be treated as an object, could be asserted against the other objects who, as I think our learned friend, Mr Gleeson, in paragraph 39 of his submissions concedes, it could not take any effective any proceeding to restrain Dr Spry being treated as an object or treating himself as an object.  As far as cancellation of the release is concerned, we accept what Mr Jackson has put to the Court and we ‑ ‑ ‑

FRENCH CJ:   When you use that word “cancellation”, are you referring to a consensual cancellation and distinguishing that from revocation unilaterally?

MR HARDINGHAM:   Yes, I am, your Honour.  I am sorry, I should come back to revocation.  I did not deal with that fully.  We would say that there is absolutely no reason why, if a release is effected, it should be capable of revocation, and particularly if it is a release in a deed.  That is not to say that if the release is inherently revocable, embodying it in a deed is going to make it any the less inherently revocable, but if you have an irrevocable release and you incorporate it in a deed, that would seem to support the notion that the release is totally irrevocable. 

Coming on to the consensual cancellation of the deed and thereby effecting a discharge of the release, it is our submission that such a view is clearly incorrect that the cancellation of a deed is prospective only, it does not affect things that have been done under the deed in the past and the release was effected at the time the deed was executed.  There are other matters that are raised on the way through, but rather than taking up the Court’s time by ‑ ‑ ‑

HAYNE J:   Well, just before you sit down, Dr Hardingham, this may be a matter I should have raised with Mr Jackson, but you have adopted his submissions about the fact of divorce taking the property the subject of the trust out of the ambit of property of parties to the marriage, is that right?

MR HARDINGHAM:   I adopt his submission that the fact of divorce terminated the wife’s status as an object of the discretionary trust and ‑ ‑ ‑

HAYNE J: And that that right of due administration that she had before divorce terminated upon divorce and meant that she did not on that account have relevant property falling within section 79, is that right?

MR HARDINGHAM:   That is what we say, your Honour.

HAYNE J:   In considering that submission, what account, if any, is to be taken of sections 44, particularly 44(3) and (4), which in one form or another seems to have been in the Act since the 1975 Act which provide for time limits on the institution of property proceedings and, speaking in broad terms and therefore inaccurately, the time limit is 12 months after divorce save by leave?  What, if any, significance is to be attached to the provision of such a time bar, true it is removable by leave?  In particular, does it suggest that property proceedings of the kind with which we are concerned are properly seen as parasitic to divorce?  Does it suggest the property of the parties to the marriage relevantly should be determined immediately prior to divorce?

MR HARDINGHAM:   We would say no.  We would say that that is to read too much into those provisions which are obviously sensible in their operation in that they provide a time limit for bringing property proceedings for divorce.  But we would submit that they certainly do not change the generally applicable position that the court must take the parties’ property as it finds it and that the wife having been divorced from the husband, she simply ceased to be an object of the trust. 

HAYNE J: Is anything to be derived one way or the other from any contrast to be drawn between 78(1) and 79(1) of the Act? Section 78(1) speaks of “existing title or rights”, section 79(1) does not, I think. Or are those provisions simply unilluminating?

MR HARDINGHAM:   We would say they are unilluminating, your Honour.  We say that they do not deal with the issue that you are raising.

KIEFEL J:   Historically, of course, under the old English matrimonial causes legislation property was dealt with at the same time as a decree was pronounced.

MR HARDINGHAM:   Yes, your Honour.  Your Honours, we, of course ‑ ‑ ‑

GUMMOW J:   It was said that one of the defects of the 1975 Act was that that severance produced undesirable social consequences because people could divorce first and then fight over property later instead of having to do them both at the same time.  Anyhow, we are stuck with it.  The question is, what is the consequence of that severance, though, given the long history of treatment of matrimonial property?

MR HARDINGHAM:   Well, that is so, that is so, your Honour, but we would submit, and we are in agreement with Mr Jackson’s submissions on this, that there is nothing in the Act that alters the natural consequences of the divorce of the parties here in relation to the ICF Spry Trust.

GUMMOW J:   No, it is not in relation to – well, anyhow.  It is in relation to the operation of the Act upon it.

MR HARDINGHAM:   Yes.  Your Honours, we support the orders that are sought by the trustees, and we did not allude to this in our written submissions but we would seek costs of the appeal ‑ ‑ ‑

GUMMOW J:   From where?

MR HARDINGHAM:   From the second respondent – from the wife, costs from the wife of the appeal and of the proceedings below.  The children have been involved in the proceedings.  There are issues raised in the proceedings which affect the children, not just through the trusteeship, but affect the children directly.  For instance, the reinstatement by amendment of Mrs Spry as an object of the trust, the reinstatement by revocation or cancellation of Dr Spry as an object of the trust, and the children were entitled to be given an opportunity to be heard on these matters.

FRENCH CJ:   There is nothing you have said to us that comes specifically from a different position on the part of the children.

MR HARDINGHAM:   No, it does not.  I should say that there is an issue which is raised in the proceeding about shares that were transferred to the children by the husband and that were not transferred out of the ICF Spry Trust.  I think my learned friend, Mr Gleeson, raises that issue in his written submissions.

FRENCH CJ:   Well, is there anything in the court below that turns specifically on the position of the children so far as argument is concerned, in the Full Court, I mean?

MR HARDINGHAM:   I do not think so, your Honour.  The arguments put by the trustees and on behalf of the children were very closely related.

FRENCH CJ:   Yes.

HAYNE J:   You seek separate costs.  This is not a case, you say, in which one order for costs should be made, and you say it is not a case in which costs should come out of a fund but costs should be paid personally?

MR HARDINGHAM:   Well, we would say that costs should be paid personally, but certainly we seek ‑ ‑ ‑

HAYNE J:   And separate costs should be made for all the parties on our right side of the Bar table, is that right?

MR HARDINGHAM:   That is right, your Honour.

HAYNE J:   Do you point to any authority that governs it?

MR HARDINGHAM:   No, I cannot, your Honour.

HAYNE J:   Or bears upon it?  Do you point to any of the English authorities dealing with costs coming out of the funds in certain cases concerning settlements considered in divorce proceedings?

MR HARDINGHAM:   No, your Honour.  But, your Honour, of course, if the Court was not disposed to award costs on a personal basis, then we would seek costs out of the fund.  If the Court pleases.

FRENCH CJ:   Thank you, Dr Hardingham.  Mr Gleeson.

MR GLEESON: Thank you, your Honours. The submissions we wish to put orally I would seek to divide into four areas. The first concerns the scope of section 79 and related provisions of the Act and for that purpose I will assume that the husband excluded himself irrevocably as a beneficiary. The second topic will be that question of equity, whether the husband can “reinstate himself”. The third question is whether under clause 2 of the 1981 deed it is now open to the husband to vary the trust to re‑include either the wife or perhaps himself. The fourth question concerns orders which might follow from the appeal which will require me to say something about financial resources and the shares transferred to the children.

Your Honours, on the first question, the Act, our starting point is that the assets which we speak of as being in the trust prior to 2002 were property as known to law.  The assets were the Toorak home and subsequently its proceeds of sale, cash and investments.  That is found in the book at volume 2, page 420.  The Act assumes there is a concept of property known to law, picks it up in the definition in section 4, and then adds to it the concept that the parties to the marriage or either of them are entitled, in possession or reversion, to that property. 

Our starting point would be that the assets themselves, which is what we are debating, being cash, shares and investments, are property.  I would wish to refer your Honours to the decision of the Full Court In the marriage of Duff (1977) 3 Fam LR, 11,211, which is the earliest discussion by that court of the concept of property. The court relevantly held that property included all property, real and personal, including choses in action. That is at page 11,217, in the second last paragraph. I might add that the High Court in Ascot Investments itself confirmed that shares in a company are property for the purpose of the Act.

GUMMOW J:   It is hardly an earth shattering idea.

HAYNE J:   Yes, it is startling.

MR GLEESON:   It is hardly earth shattering, your Honour.  The reason I dwell on it is the next matter discussed by the Full Court – and this is at the foot of page 11,217 – is that property can be used either to denote the thing to which the person stands in a certain relation – this is the end of the page – and also the relation to which the person stands to the thing. 

GUMMOW J:   We have looked into this in a number of native title cases, have we not?

MR GLEESON:   Yes.

HAYNE J:   For example, Yanner v Eaton 201 CLR 351.

MR JACKSON:   Yes.  Where I am seeking to go is that the phrase entitled “whether in possession or reversion” as the court discusses on page 11,218 connotes the relationship which the party to the marriage holds to an asset which falls within the general law conception of property.  The words “whether in possession or reversion”, as the court says in the second paragraph on that page are:

an adverbial phrase which qualifies the word “entitled”.

Our second proposition is that, based on the terms of the 1981 instrument, Dr Spry held rights and powers as trustee and settlor which made him a person entitled in possession to all of the assets in the trust, subject of course to the equitable restrictions conferred in the instrument.

If your Honours could go to the 1981 instrument at page 59 to 60.  As settlor Dr Spry had a power in clause 1 to appoint or remove the trustee from time to time and under clause 2 a power to vary the deed or its terms, subject to a defined limitation.  Turning to his position as trustee he had the power under clause 6 to apply income or capital to any of the defined beneficiaries or to accumulate and he had a power ‑ ‑ ‑

HAYNE J:   What is the force of the word “absolute” in front of discretion?

MR GLEESON:   Not to be in any way controlled or reviewed by a court.  In particular, given that he is in the class of discretionary objects, at least at the outset, this power is approaching a general power.  It is as close as one could get within the field of special powers to a general power because he can apply anything and everything to himself.

HAYNE J:   There used to be an expression “hybrid power”, was there not?

MR JACKSON:   Yes.  My submission would be this is not strictly a hybrid power because ‑ ‑ ‑

HEYDON J:   That is a power to appoint to anyone in the world except yourself.

MR GLEESON:   Yes.  This is a power to appoint to himself.  If he chooses not to appoint to himself – and that is entirely in his discretion – he then has a further discretion which, if any, amongst the defined class he will appoint to.  If he does not appoint further provisions in the deed come into play.

So that power in clause 6, together with clause 9 – the power to invest or deal as if it were his absolute property, save that it is to be held beneficially – we submit that those two powers mean that Dr Spry was a person, indeed, the only person, who had a right to the present enjoyment of the assets of the trust.

GUMMOW J:   What do you mean by present enjoyment?

MR GLEESON:   For every day in the life of this trust, he was the person who, for the purpose of a common law court, or a court of equity, was entitled to the assets, and I am using there, your Honours, what Chief Justice Griffith said in Glenn v Federal Commissioner of Taxation (1915) 20 CLR 490.

FRENCH CJ:   You say that he could deal with it as though he were both legal and equitable owner.

MR GLEESON:   Yes, for the purpose of a court of equity, no other person is recognised as having any vested interest in any asset.

HEYDON J:   He had the legal title, but he could only deal with it beneficially if he actually made appointments to himself.  Until that time he was trustee for a class who might benefit according to his own future discretionary decisions.

MR GLEESON:   With respect, your Honour, the proposition I am putting is different.  It is that based upon Glenn – because no person in this deed had any vested interest at any time, either vested absolutely or vested subject to defeasance - within Glenn 20 CLR 490, what was said by Chief Justice Griffith at pages 496 to 497 is directly apposite. At 496 at about point 4, his Honour referred to “the term ‘estate in possession’” being used in real property law to denote the first of two or more successive estates. It is also used to denote an estate of which some person has a present right of enjoyment. There is then a discussion of Mr Fearne’s work:

an estate is vested when there is an immediate fixed right of present or future enjoyment, is vested in possession when there exists a right of present enjoyment -

Then on page 497, in the middle paragraph, his Honour says ‑ ‑ ‑

GUMMOW J:   What was the term of the trust, though?  It was an accumulation, was it not?

MR GLEESON:   It was a trust to accumulate and then to divide the residue amongst certain persons and the holding was that while the trust was in the accumulation stage, those other persons were not entitled to an estate in possession.  In the context of dealing with that ‑ ‑ ‑

GUMMOW J:   The question was whether land tax was payable.

MR GLEESON:   Certainly for that context, your Honour.  On page 497, if I could just draw attention to the second and third‑last paragraphs:

“estate in possession” is used . . . in the sense explained by Mr. Butler . . . the “owner” of the land is the person who is in the present enjoyment of the fruits which presumably afford the fund from which it is to be paid.

The respondent’s argument is based on the assumption that whenever the legal estate in land is vested in a trustee there must be some person other than the trustee entitled to it in equity for an estate of freehold in possession, so that the only question to be answered is who is the owner of that equitable estate.  In my opinion, there is a prior inquiry, namely, whether there is any such person.  If there is not, the trustee is entitled to the whole estate in possession, both legal and equitable.

That proposition, we submit, is applicable throughout the entire life of this trust.

FRENCH CJ:   In clause 9, what is the effect of the qualification following the words “save that” upon the terms “absolute property” and why are those words there if your proposition is correct in this case?

MR GLEESON:   Your Honours, I am not wishing to overstate the proposition.  I am seeking to submit that the trustee, Dr Spry, at all times is the only person entitled to possession of a trust assets, both for a court of common law and equity.  He holds them subject to the equitable restrictions which are indicated in the balance of the deed, and that I fully accept.  The way I seek to put it is consistent with what the Court held in Buckle’s Case 192 CLR 226. Could I go to Buckle next, please.  In paragraph 9 there was a statement:

emphasising the strong position occupied by the trustee and the instability of the interests and prospective interests of those taking under the Deed of Settlement. 

Paragraph 14 notes:

There was no immediate gift of corpus to vest in possession before the distribution date. 

In paragraph 20 on page 237, the Court records the terms of the unamended deed.  Relevantly the material in italics, the old clause 2.2.22, was then replaced under the supplemental deed by what appears in paragraph 22.  The critical paragraph upon which we rely is paragraph 37 which refers to the position under the unamended deed:

no interests in corpus had vested.  The Trust Fund was vested in the trustee, impressed with such trusts as were created by or pursuant to the Deed of Settlement.  There was no hiatus or gap as to any outstanding beneficial interest in the Trust Fund.  The assets comprising the Trust Fund were not impressed with trusts which gave rise to equitable interests therein which were so extensive as to leave the trustee with no more than the bare legal title.  The trustee might accurately be described as the owner of those asses, but as subjected to the equitable obligations imposed by the Deed of Settlement  The second and third respondents had no vested interests in corpus but they did enjoy rights to due administration –

That, we submit, is directly applicable to the position of the default beneficiaries under clause 7 of this instrument.  We have also given your Honours a reference to the decision of this Court in Queensland Trustees Ltd v Commissioner of Stamp Duties (1952) 88 CLR 55 where again there is discussion as to whether beneficiaries could be described as entitled in possession. The position before the settlor’s death under that instrument is dealt with at the bottom of page 62:

Before the death, none of the specified persons could be described as beneficially entitled to the income or any part of it, except as and when an exercise of the trustees’ discretionary power might give it to him or her.

The Court went on then to deal with the position upon death, which was little different.  At the final page of the judgment, page 66 at the bottom, the Court noted that:

the selected beneficiary becomes entitled in possession upon the trustees deciding to make the payment.

So our submission is that as and when Dr Spry chose to exercise his power under clause 6 the beneficiary in question would become entitled in possession to that amount of income or capital.

KIEFEL J:   Mr Gleeson, the majority in the Full Court, when their Honours held that control of the trust was not sufficient, did they go on to hold that what was required was a full beneficial interest?

MR GLEESON:   I believe what their Honours did was to say, consistent with the earlier authorities in the Court, you need (a) control plus (b) some ability for the trustee to quote benefit directly or indirectly.

KIEFEL J:   I see.

MR GLEESON:   What I am seeking to put is a more fundamental argument, if I can describe it that way, which is that that line of authorities in the Full Court may not have paid sufficient attention to the critical words in the Act which have a very ancient lineage, “entitled in possession or reversion”, and in the case where a party to the marriage is the trustee and has the entitlement in possession to all the assets of the trust, that that is sufficient to at least get you to the stage of it being property of parties to the marriage or either of them. 

What one then comes to is our third submission which is what is the scope of the orders which can be made under section 79. I there wish to deal with the question of history and how the earlier acts of ‑ ‑ ‑

GUMMOW J:   You take us to the definition of “property” and you say property in which a party is entitled in possession.  You say this trustee is entitled in possession?

MR GLEESON:   To each asset in the trust and what that does is get one to the point where ‑ ‑ ‑

GUMMOW J:   So that, for example, the trustee would be the appropriate plaintiff in any action for trespass or conversion?

MR GLEESON:   Yes, and what one can then ‑ ‑ ‑

GUMMOW J:   But what then happens to other persons who have other interests with respect to the property?

MR GLEESON:   Can I divide those persons into two categories.  The clearer case, which is the present case, is where no other person has a vested interest in the property.  The second case, a little harder, is where some other person has a vested interest.  The submission I want to make is that as a matter of power ‑ ‑ ‑

GUMMOW J:   What about your client’s right to due administration?

MR GLEESON:   That her right to due administration, which she had up until what we submit is an important date, is a right which as a matter of power the court ‑ ‑ ‑

GUMMOW J:   Essentially what I am asking you is, did she have any entitlement to property within the meaning of this definition?

MR GLEESON:   I want to put it on two levels.  On the primary fundamental submission I am putting ‑ ‑ ‑

GUMMOW J:   You are focusing on the husband.  One is also interested in the wife.

MR GLEESON:  Yes, I want to put it on two levels. On our primary submission, if one takes entitled in possession within its strictest and historical meaning, the only person is the husband. However, it brings the husband’s interest in that property before the court’s jurisdiction under section 79(1) once a property settlement proceeding has been instituted, which occurred on the 2002 date, and once it is before the court, the court’s power to alter interests in section 79(1)(a) is a power which enables orders which would relevantly address any person who has claims to the property.

That is the first way I wish to put it.  The second way is that it may be that the wife’s right to due administration of itself can be treated as a matter to which he is entitled in possession.  But can I deal with the first way and also seek to take up some questions raised by Justice Hayne.

GUMMOW J:   What I am trying to engage you with section 79(1)(a) says:

in the case of proceedings with respect to the property of the parties to the marriage –

Now, the property in one sense may be Blackacre, but there may be property rights in more than one party.  So 79(1)(a) can have a multiple operation, can it not?

MR GLEESON: Yes, your Honour. Could I seek to indicate some of those operations. We submit that the power under section 79(1)(a) in the present case would authorise at least the following orders. The first would be an order which altered or extinguished the powers which Dr Spry held under the trust instrument in respect of those assets including an order ‑ ‑ ‑

GUMMOW J:   Or your client’s position to demand due administration.

MR GLEESON:   Exactly, and in doing that, because of the width of the power, it becomes clear when we get to paragraph (d), that the orders can actually be made for the benefit of the parties or a child, it would be open to the court to alter or vary the powers which Dr Spry has under clause 6 so as to achieve a distribution to a child even if the child were not in a class of beneficiaries and likewise a distribution to the wife.

GUMMOW J:   That follows from (d)?

MR GLEESON:   That follows squarely from (d).

GUMMOW J:   Paragraph (d) of 79(1)?

MR GLEESON:   Yes.  So that the three types of orders at least that we submit are within these powers would be, firstly, orders altering or extinguishing the powers which Dr Spry holds under the instrument, particularly clause 6 and consistent with the long line of English cases and some Australian cases, the form of that order in traditional matrimonial causes as applied to the present case might be this.  An order that the power of Dr Spry to make distributions under clause 6 can operate in favour of Mrs Spry as if they remained married.  The “as if” order has a long lineage and we submit it is not outside this section, and that is our short answer for how, if there be an temporal difficulty created by the divorce, assuming it is property within the jurisdiction of the court, the court can overcome that difficulty that an order that the power under clause 6 operate as if the parties had remained married. 

GUMMOW J:   How does that get a root in the statute?

MR GLEESON:   That would be an order specifically under 79(1)(c) and an example of an order under (a), altering interests.

Your Honours, what I want to put about (c) and (d) in short is that they have absorbed the old Matrimonial Causes Act. The language is not identical and their scope in some sense is a little broader, but I wish to submit that section 79(1)(c) has, to put it loosely, absorbed the old section 86(2) of the 1959 Act and section 79(1)(d) has absorbed and expanded the old section 86(1). I will come to that in a moment.

KIEFEL J: Could I just take you back to section 79(1). I think you were saying that the term “property of the parties to the marriage” you would give a wider meaning. Do you say that it extends to property to which the parties have made contribution as predicted by or as is made subject to provisions such as subsection (4) in contradistinction to property itself, which I think you have identified as that upon which the orders may operate? That is to say, we are talking about two different things; property which may be made the subject and order of alteration by way of settlement in the way that the courts would formally have directed a party to the marriage to have dealt with their own property as distinct from property of the parties to the marriage being that to which they have contributed and has been accumulated and upon which the whole of section 79 operates. that is, both the notion of assessing what part they have played in its accumulation which gives rise to an order which alters the property which has to be property to which a party is entitled. That might not be entirely clear.

MR GLEESON:   I believe that is what we seek to put.

KIEFEL J:   That is what you are ‑ ‑ ‑

MR GLEESON: Yes, and the ultimate order will alter interests of the parties in that property, but section 79(4) is of assistance in indicating that in the essential exercise one is looking at inter alia, one must look at, is this property to which the parties have contributed, and in the present case we know on the facts that the only persons who have contributed to the acquisition, conservation or improvement of the assets in the trust are Dr Spry in a pecuniary sense and his wife through the support she has provided. The children have not contributed to the build up of any of those assets.

When I come to the fourth step in the argument, which is discretion, section 79(4) importantly requires that question to be taken into account and deals therefore with the case which might be thought to be a hard case, what if a party to the marriage is entitled in possession as trustee of a trust like the present but in fact it is not a family trust at all, it is a trust for a brother, then section 79(4) in the discretionary factors will make clear that one is not going to get an order over those assets.

KIEFEL J:   The older cases to which you were going to take us dealing with the notion of property to the marriage and settlements with respect to it, do they reflect the notion of the just and equitable division of property both in the notion of the property to which the parties have contributed as well as the property which will be divided amongst them to reflect that contribution?

MR GLEESON:   I believe they do.  Most of the ones we have found are in the area of ‑ ‑ ‑

GUMMOW J:   It might be worth over lunchtime having a look at Dewar v Dewar 106 CLR 170 at 174. It was a case on the former Queensland settlement statute. Chief Justice Dixon and Justice Kitto and Justice Menzies said:

it must be borne in mind that the essential purpose of s 9 is to enable the Court to inquire into post‑nuptial and ante‑nuptial dispositions of property in favour of one or other or both of the parties to the marriage which because of the dissolution of that marriage should be reconsidered and to empower the Court to make orders for what appears in the changed circumstances a just application of the property.

That seems to pick up the notion Justice Kiefel was putting to you.

MR GLEESON:   Yes, your Honour.  Could I also draw attention at page 174 at about point 5 where the Court said:

The surrounding circumstances show that the land was bought and the house built as a future or continued provision for them both and that joint ownership was adopted as the appropriate expression of that provision.

That is taken into account in characterising it as a settlement. Your Honours, we wish to submit that that power being dealt with there has been picked up in section 79(1)(c).

FRENCH CJ:   That might be a convenient moment, Mr Gleeson.  I notice I have number one of three orders that you were to discuss.  I will make sure you do not lose the other two.

MR GLEESON:   Thank you, your Honour.

FRENCH CJ:   All right.  Thank you.  Court will adjourn to 2.15.

AT 12.45 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.16 PM:

FRENCH CJ:   Yes, Mr Gleeson.

MR GLEESON: Your Honours, the two further suggested orders that could be made in respect to the assets are firstly an order under section 79(1)(d) that Dr Spry transfer the assets to either the wife or a child of the marriage whether or not they are named beneficiaries under the trust, and the third suggested order is that under that same provision he make a settlement of assets on trust for the wife or a child whether or not they are named beneficiaries of the trust. Those three types of orders are examples of the more general power to alter the interests of the parties in the property and we submit that alteration may include varying or extinguishing equitable obligations like the present in order to give effect to the new charter of property rights which is intended to allow the parties to move forward separate from each other as far as possible.

HAYNE J:   Of the power to order making a settlement under the 1959 Act, Justice Kitto said in Lansell 110 CLR 353 at 361 that:

The making of a settlement may be a way of carrying to completion, or nearer to completion, the task of dealing fully with the relationship which is the subject of the matrimonial cause. 

His Honour went on to deal with what consequences that had under the 1959 Act as well as certain questions of validity.

MR GLEESON:   Yes.  Our submission is that in a case like the present where over the course of a long marriage assets have been built up through the contributions of solely husband and wife, they rest in the name of the husband.  The wife had been an available discretionary object at least up until the date of the divorce proceedings.  Bringing that relationship to that just and fair conclusion would include the making of orders which see the assets divided between husband and wife.  Had there been a separate need of a child to receive either a transfer or a settlement of those assets, that could also have been dealt with under these powers. 

Your Honours, could I turn then to the relationship to the earlier Act.  Your Honours should have the Matrimonial Causes Act 1959 with the relevant powers being sections 86(1) and 86(2). What has occurred, we would submit, with the 1975 Act is that the touchstone for orders under section 86(1), namely, that there be:

property to which the parties are, or either of them is, entitled (whether in possession or reversion) –

has been picked up as the touchstone in section 79(1)(a) for what is the property which the court can reach. But then the nature of the court’s order has been framed in the most general of terms, namely, the alteration of interests, and the types of orders previously dealt with under sections 86(1) and (2) receive some parallel in the examples now contained in section 79(1)(c) and (d). So although the language is not ‑ ‑ ‑

HEYDON J:   Does the word “settlement” appear in section 79?

MR GLEESON: But the settlement in section 79(1)(c):

an order for a settlement of property in substitution for any interest in property ‑ 

we would submit that that picks up much or all of what was covered by section 86(2).

FRENCH CJ:   The word “settlement” brings in its own baggage, I suppose.

MR GLEESON:   Brings in its own baggage and its own amplitude, your Honour.

FRENCH CJ:   Yes, it is a bit like that term “settlement” in bankruptcy law which used to generate a vast ‑ ‑ ‑

MR GLEESON:   Yes.  But we would submit that whereas the previous term was orders for the application of the property dealt with under the settlement, an application was construed by the cases in the broadest of possible manners.  That breadth or amplitude is now found in the notion of an order for a settlement of the property, “in substitution for any interest in the property” indicating that it can operate to defeat or extinguish or vary an interest otherwise existing, and then “settlement” is picked up again under paragraph (d).

The difference we see between (c) and (d) is that (c) involves the court ordering the settlement, whereas (d) involves the court ordering one of the parties to make the settlement or the transfer, and that difference between the court in effect effecting the settlement and the court ordering the parties to do it, we submit that is mirrored in what was in sections 86(1) and (2).

FRENCH CJ:   What is the difference between a settlement and a transfer?  Does a settlement just indicate the finality of it in terms of the relationship between the parties?

MR GLEESON:   We would submit no, your Honour, but settlement does pick up the notions of a settlement in law which would involve a creation of successive or limited interests usually involving equity.  An example could be under 79(1)(c) that the assets in the trust are settled under the court order under new equitable obligations, perhaps for wife and children, life estates, remainders, and the like varying a previous settlement, indeed, in substitution for the previous interests.

Your Honours, in terms of the origin of section 86 we provided, for example, the Victorian Consolidated Act 1890 where one sees the predecessor provisions in sections 98 and 99. Section 98 is the forerunner to section 86(2) of the 1959 Act. Section 99 is narrower in terms in that it is limited to a wife who is entitled to property in possession or reversion and has been the subject of a finding of adultery.

Effectively what happened was that section 99 was expanded so that it moved beyond the case of the limited wife to be the parties to the marriage or either of them who were entitled in possession or reversion to property.  Nevertheless, that is the origin of the entitlement in possession or reversion.  These provisions appeared in the 1899 New South Wales Act.

GUMMOW J:   Section 56.

MR GLEESON:   Yes, and they had some earlier provisions in the Marriage Acts of those States which were consolidated into those Acts and they ultimately trace back to  ‑ ‑ ‑

GUMMOW J:   The Matrimonial Causes Act 1899 (NSW).

MR GLEESON:   Yes, and the ultimate sources of them are section 5 of the 1859 UK Act and section 45 of the 1857 UK Act.

HAYNE J:   I am sorry, what section of the 1857 Act?

MR GLEESON:   Section 45 of the 1857 Act, and they are essentially in the same terms as you see in the Victorian 1890 Act.  So that the concept of being entitled in possession or reversion traces back to the 1850s in the United Kingdom statutes and has been used consistently thereafter.  Your Honours, next could I make a submission about the temporal issue.  When the property settlement proceedings were commenced, the court was seized of jurisdiction under a matrimonial cause ‑ ‑ ‑

GUMMOW J:   Under section 39?

MR GLEESON:   Yes, and in terms of the definition of “matrimonial cause” it would be paragraph (ca)(i) and at least arguably (ii).  The divorce proceedings were at least on the cards from September 2001 when the separation occurred, that is found at page 349 of the book.  They were certainly instituted by December 2002, that is page 109 of the book.  The wife’s claim to property orders included by July 2002 orders affecting the assets in the trust.  Your Honours will see that from page 352 at line 20.  Either at the date of the filing of ‑ ‑ ‑

GUMMOW J:   You say:

The wife also sought specific declarations and orders pursuant to ss 78 and 79 –

Where do we see that?  Justice Hayne raised this with Mr Jackson, you will remember.  We saw 106B but did we ever see 78 and 79?

MR GLEESON:   Your Honours, we will see to obtain the original application referred to on the previous page and the amended application on that date to see the form they took.  But certainly by that date, July, we see from that paragraph the wife is seeking orders to set aside the transactions and to remove the husband as trustee to the children’s trusts so that, we would submit, the claim has extended to orders over the property being the assets in the trust by that time and by the end of the year the divorce proceedings are certainly instituted. 

At that point in time we would submit that the property to which the parties were entitled in possession included the assets in the trust by reference to the husband’s position, which I have sought to identify, and we would also rely upon the wife’s position as the discretionary object under the power. 

FRENCH CJ: I suppose a logical sequence of relief, I am not saying it is the necessary one, would be 106B orders, declarations of property interests that exist as a result and then variation of property interests under section 79, or settlement or whatever.

MR GLEESON: Yes, your Honour. One of the difficulties in a practical sense which the wife would have faced is, until the section 106B orders were obtained, there was nothing in the ‑ ‑ ‑

FRENCH CJ:   Nothing to declare.

MR GLEESON: There was nothing back in the ICF Spry Trust. It would be very difficult, although perhaps possible, to fashion some interlocutory set of orders which might have been obtained prior to the decree absolute being made. The court had power to make such orders. Your Honours will see under section 80(1)(h), the court had power to make “an order pending the disposal of proceedings”, power under (i) to “impose terms and conditions” and power under (k) to make other orders necessary to do justice. So that it is possible that the court could have dealt with the temporal problem perhaps by a fairly ambitious set of interlocutory orders, perhaps an interlocutory section 106B order bringing property back to the trust, an order for a distribution to the wife, an order that she hold the property pending the final outcome of the hearing.

All that was within the ambit of the court under section 80, although rather complex and elaborate.  Our short submission is that it was property and it was not deprived of its character as relevant property merely because of the order in which the two proceedings were instituted or concluded in separate courts.

HAYNE J:   Now, account must be taken, I would have thought, of the definition of “matrimonial cause”.  You said that paragraph (ca) of that definition was engaged in this matter, did you?

MR GLEESON:   Yes.

HAYNE J:   That the proceedings were between the parties to a marriage and that would include those who were parties to a marriage that had then been dissolved finally – see Mr Justice Kitto in Lansell 110 CLR, particularly at 362 – proceedings between those parties with respect to the property of the parties to the marriage, so proceedings with respect to the property of those parties or either of them, being proceedings “  arising out of the marital relationship”, as to which again see Mr Justice Kitto at 361 of 110 CLR:

The making of a settlement may be a way of carrying to completion, or nearer to completion, the task of dealing fully with the relationship –

having no doubt many aspects.  Status, property, custody, maintenance are at least some of the aspects of the relationship.  I doubt exhaustive –

which is the subject of the matrimonial cause.

I understand you to say that sheds some light on how one comes at the words in 79(1).

MR GLEESON:   Yes, your Honour.

GUMMOW J:  What do you say about 106B and to put it more precisely, how do you respond to Mr Jackson’s treatment of that section? Can you succeed, purely by relying on section 79, or do you have to succeed on holding what you had under the decision below as to 106B?

MR GLEESON:  I believe the latter, your Honour. Section 106B was essential to get something back into the ICF Spry Trust. We do say about section 106B that if we otherwise be correct in the main arguments the factual basis upon which the trial judge proceeded, which was undisturbed in the Full Court, provided a sound basis for the making of that order, namely at the date of the dispositions and the transactions - 1998 and 2002, leave aside 1983 – an order could reasonably have been anticipated because of the difficulties the marriage was in and so either in the objective sense or in the subjective sense of the transactions actually being made to defeat an order, and the trial judge went that far, the grounds were established for those orders under section 106B.

KIEFEL J:   His Honour expressly rejected the argument put forward by the husband that those dispositions – or the instruments entered into – were in pursuance of an agreement with the wife with respect to the children.

MR GLEESON:   Yes, and that was the essential factual debate that was resolved against the husband.  The Full Court did not interfere with those findings.

KIEFEL J:   Do you say that the appellant’s argument now relies upon that argument that was put to the trial judge and rejected?

MR GLEESON:  Yes, in part, because the appellant in part in the submissions says that you should review the transcript of cross‑examination of the wife and find that there was some form of agreement. All I need to say about that is if your Honours review those pages Mrs Spry did not agree to those propositions, she denied them and what she said was she had a very clear understanding that while ever she was alive she had an interest in the trust. That is inconsistent with the husband’s argument, which was that at any point that suited him he could move all of the assets onto the children. So we would say that the grounds for the section 106B orders were amply made out.

GUMMOW J:   What do you say about Justice Finn’s dissenting opinion on 106B?

MR GLEESON:   As we read that, your Honour, what Justice Finn was saying was not that the underlying factual ground was not made out, not that these were not defeating transactions, but that because of her Honour’s view that there had to be an available means for Dr Spry to resume his status as a beneficiary, and her Honour believed there was not one, then the order served no point.  If we are correct on either the present argument I am putting, which is that this was property within the court’s reach, or the second or third arguments I am coming to, then we would submit that Justice Finn was not otherwise against the 106B orders.

Your Honours, just to conclude these current matters, we indicated in our written submissions at paragraph 79 some of the English cases which have demonstrated the amplitude of the powers under the English provisions.  What I would wish to do is to add to that.  Your Honours now have a copy, one Australian authority to similar effect, it is the decision in Victoria in Langley v Langley (1892) 18 VLR 712. It is an authority which your Honours will see from page 715 following the English authority of Bosvile v Bosvile to which we have referred.  Like Bosvile, it stands for the proposition, we submit, that the court’s powers under the equivalent of section 5 of the early UK Act include a power to vary or extinguish powers of appointment.

The form of the order used is the “as if” type order that I sought to invoke this morning.  In that case the order was that the trust be varied to give the same right of appointment as if the respondent were now dead.  We would suggest in order that clause 6 could be varied to operate as if Mrs Spry had remained married or as if Dr Spry had not executed the 1983 deed.

There are two further English cases which I submit are of assistance to the Court.  The first which we refer to is reAllsopp’s Marriage Settlement [1958] 1 Ch 81. The significance of re Allsopp is that the order made operated to extinguish a contingent life estate of a party to the marriage, and further – this appears from page 85 at the bottom – operated:

completely to destroy and determine . . . the contingent discretionary trusts which –

were attached to –

that life estate.

So in bringing these marital relationships closer to a conclusion, it being considered proper that the husband’s reversionary life estate should be extinguished, the court’s order extended to determine a discretionary trust attached to it.  The parallel we seek is that if it is just and equitable here for the husband’s interest in all of the assets of the trust to be extinguished in whole or in part in favour of the wife and that carries with it a determination of discretionary trusts affecting that interest, that is within power.

Your Honours, the final case in this line is the decision in Blood v Blood [1902] P 78. The importance of that case is that the court again extinguished a contingent like interest of a party and, further, this can be seen from page 83 at about point 7, not only directed that the interests in the settled property be extinguished, but that the trustees of the settlement be ordered to reconvey to the petitioner absolutely the corpus for her absolute use and benefit.

GUMMOW J:   The order is set out at page 84.

MR GLEESON:   Yes, which reflects that, your Honour.  So it is not only an extinguishment of an interest, but an order for a reconveyance of the property to one of the parties to the marriage.

HAYNE J:   The order was varied in the Court of Appeal, see page 197, was it not, of the same volume of reports?

MR GLEESON:   I do not have that, your Honour.

HAYNE J:   The headnote, if one can ever trust the headnote:

The Court has jurisdiction, under s 5 of the Matrimonial Causes Act, 1859, to make, in favour of a petitioner, the wife, an order affecting settled property, even after a child of the dissolved marriage has attained a vested interest, by extinguishing all the rights, powers, and interests of the respondent, the husband, over the petitioner’s settled fund, including any beneficial derivative interest as next of kin of his deceased child . . . 

Decision of Gorell Barnes J, [1902] P 78, affirmed with a variation in the form of order.

GUMMOW J:   The variation is at 197 and it seems to have been:

without prejudice to the rights of any persons deriving title from the son, whether they be mortgagees or assignees or creditors –

et cetera. 

MR GLEESON:   Yes.

HAYNE J:   Presumably third parties not having been heard.

MR GLEESON: Your Honours, we fully accept that where a third party may claim an interest that is a matter which the court should take into account and section 79(10), which was added in 2005, makes that clear. But as a matter of power, there is no difficulty in an order being made which can operate to extinguish non‑vested or even vested interests. We rely upon the last two cases for both those categories.

Finally on this topic, in the decision of the House of Lords in Brooks v Brooks [1996] 1 AC 375 to which your Honour has referred, not only is an ample meaning given to what is a settlement which the court can reach, particularly page 391 letter G, but Blood v Blood itself is referred to with apparent approval at 392H and the width of the power of alteration of interests is there confirmed.

HAYNE J:   Mr Jackson says, as I understand him, this may be interesting, or it may not be, but none of this was in play in these proceedings.

MR GLEESON: Your Honours, the essential matter in play from the amended application in volume 1 of the appeal book at page 4, apart from the orders under section 106B, was that the claim under order 6:

That the husband pay or cause to be paid to the wife such sum as shall (when adjusted for the assets and resources to be retained by each of them) represent a division of all assets and resources held in their individual or joint names or in the ICF Spry Trust (also known as the Fowell Trust) or the Children’s Trusts

in certain proportions, so that the subject matter of the claimed orders there as being orders which would provide for a just distribution of all assets whether in their names, in the ICF Spry Trust or the children’s trust was put in issue, your Honour.  Over the page, order 11 sought any other orders “necessary to effect and implement a just and equitable settlement”.  I believe it is true on a review of the papers that no party expressly invoked section 85A in the proceedings. 

We would submit that it provides a second basis upon which to reach the just and equitable order that is claimed in paragraphs 6 and 11 and the issues which would be raised by that section involve the same analysis of the section 79(4) factors and a characterisation of this as a relevant settlement and would not otherwise raise different issues of fact and accordingly it is a matter which can properly be taken into account. Alternatively, as we have mentioned, your Honours, in our submissions at paragraph ‑ ‑ ‑

HAYNE J:   It would be notice of contention territory, would it not?

MR GLEESON:   Yes.

HAYNE J:   Where in your notice of contention do we find it?

MR GLEESON:   One will not find section 85A in the notice of contention.  What your Honours will find at pages 586 to 588 in paragraphs 1 and 2 of the grounds the argument I sought to put so far today which is independent of the husband’s beneficial interest and your Honours will find in paragraph 3 a contention that:

The Full Court ought to have found that the power of variation within Clause 2 of the 1981 Deed was broad enough to be exercised, lawfully, within its terms or pursuant to orders authorised by the Act (ss 79(1), 79A(1) or 80(1)), by the husband as settlor varying the terms of the Trust such that the beneficiaries would include –

I would seek leave to include section 85A in ground 3 of the notice of contention.

GUMMOW J:   Would you not need a new order?  Would you not be in cross‑appeal territory or do you seek no more than to support what the Full Court did or what the trial judge did?

MR GLEESON:   With respect, your Honour is correct.  The notice of contention would allow us to say that the orders can be safely left intact on the ground that, as we have put it, if any issue of difficulty arises under 79A, further orders could be made below, but I think it is appropriate that we also seek leave to at least provide in draft a cross‑appeal which would formulate the exact order that we would seek.

GUMMOW J:   You would need special leave, would you not?

MR GLEESON:   Yes.

GUMMOW J:   I am not saying you cannot get it, but you would need it.

MR GLEESON:   Your Honour, as the argument has fallen out, we had sought in our written submissions to identify, perhaps incompletely, that the position of Mrs Spry as a discretionary object was an important basis upon which the essential justice and equity of the orders could be sustained.  In the course of argument it is perhaps clear that we should have sought to go a little further and I would seek the opportunity to do that.  Your Honours, could I then just put the concluding matters on this first topic if I might?

GUMMOW J:   While we are at page 4, we do not see any reference to section 79, do we? I know you took us to a later reference in the material at page 352.

MR GLEESON:   I want to be absolutely accurate.  I am told that the crossed out material on pages 4 to 5 represents the original document, but we know that ‑ ‑ ‑

GUMMOW J:   That just talks about 78, you see?

MR GLEESON:   Yes.  If that be correct, the original document simply had a fairly general claim under (1) in the broadest of possible terms without limiting itself to a section.  I would like to have the exact document for your Honours and I am trying to do that.

FRENCH CJ:   It only requires a statement of the orders sought. 

MR GLEESON:   Yes.  Your Honours, the final matters on this first topic are that the approach we are arguing for in our submission does not offend statements of this Court in Ascot Investments 148 CLR 337. In the judgment of Justice Gibbs at page 354 his Honour said that the authorities which were largely authorities on the 1959 Act:

do not establish that any such order may be made if its effect will be to deprive a third party of an existing right or to impose on a third party a duty which the party would not otherwise be liable to perform . . . There is nothing in the words of the sections that suggests that the Family Court is intended to have power to defeat or prejudice the rights, or nullify the powers, of third parties, or to require them to perform duties new duties -

His Honour then distinguished the case of either the sham or the case where a company was completely controlled by a party.

GUMMOW J:   I think that the best clue to it really is in Sir Garfield Barwick at 343 in the middle of the page, the sentence:

Consequently, the shares in the appellant did not entitle . . . The property of the husband in the shareholding did not extend . . . could not be ordered . . . he might be ordered to use his best endeavours . . .   Whether he could be ordered to exercise his vote as a director –

et cetera.

MR GLEESON:   So it was inherent in the property itself that it carried with it a restriction, namely you could not automatically compel a registration of a transfer and the court could not override that restriction.  Our submission is we are not in that territory here for the reasons I have sought to go through.

Your Honours, in terms of whether the order was available as a matter of discretion I think I have said enough to indicate our primary case was that the assets were built up by husband and wife. None of the children made any contribution to the build up of the assets, nor did any third party. They were, in large measure, the primary assets of the marriage. They included the matrimonial home for well over 10 years. Under section 79(4)(a) and (b) we submit there is ample ground to treat them as joint matrimonial property of the husband and wife.

The findings of the trial judge as to the contributions to the assets are set out between pages 423 to 427 and we submit they amply justify the approach taken. 

KIEFEL J:   I am taking you back to the beginning perhaps, Mr Gleeson, but the orders of Justice Strickland are to pay a money sum that is not expressed to be themselves an alteration of a property interest.

MR GLEESON:   That is correct, your Honour.

KIEFEL J:   They reflect notions of contribution as Mr Jackson explained, but they are not themselves dealing with the trust property.

MR GLEESON:   We seek to deal with that in two stages and it is the material in our written submissions, paragraph 66 to the end.

MR GLEESON: If we are correct that the assets in the trust are property within the scope of the Act and the Court could have made an order directly altering the interests in the manner I have identified, then we would seek to defend what the trial judge has done at pages 440 to 442 on the basis that the net asset pool that he has identified in paragraph 266 is correctly identified. Paragraph 267 is correct. His Honour then has made a common sense assumption that the husband will either through his own cash resources in hand or through indirect benefit he may obtain after distributing to the children who have contributed nothing be able to meet the order, and what we seek to put is that, firstly, if that cause any practical difficulty in the working out of that common sense assumption, that is a matter which the court can deal with under section 79A.

KIEFEL J: I was not necessarily suggesting that his Honour’s approach created a difficulty for you in your argument. I just wondered the extent to which you need to identify his property interest given the nature of the order his Honour made. Do you have to for the purpose of contribution assessment under section 79(4) have to identify his entitlement to property, or is that only necessary if the court’s order was directed to an alteration of a property interest?

MR GLEESON: As your Honour put in argument this morning, for the purpose of section 79(4)(a) and (b) one can look at contributions to present or previously held matrimonial property and on that basis one ‑ ‑ ‑

KIEFEL J:   That is what his Honour did.

MR GLEESON:   That is what his Honour did.

KIEFEL J:   His Honour considered that the husband’s interest, however described in the trust, was – I am sorry, I am interrupting you – part of or reflected his property interests or the marriage ‑ ‑ ‑

MR GLEESON:   It reflected, yes, the contributions he had made.

KIEFEL J:   The contributions of the parties, and she made, one would ‑ ‑ ‑

MR GLEESON:   Yes, essentially it was ‑he made for the purpose – I am sorry to interrupt your Honour – his contribution under 79(4)(a), to put it shortly, and her contribution was largely under 79(4)(b), and his Honour then made an order which primarily is an order under 79(1)(d).  It is an order for a transfer of property being a money sum.  So it is within power under that section.

KIEFEL J:   But it is not itself a transfer of the trust property and it does not require the trust property to be in existence.

MR GLEESON:   No.

KIEFEL J:   For the purposes of contribution it does not matter that the property that the parties have contributed to have ceased to exist altogether, which is the point Justice Hayne made this morning.

MR GLEESON:   Yes, we submit that, your Honour.

KIEFEL J:   When his Honour is doing that assessment of the assets and has regard to the trust, can his Honour’s approach be regarded as one which took into account because of his narrative about the acquisition of property the contribution of each of the parties to the marriage to the assets which were the trust assets regardless as to whether or not the parties have a present legal entitlement to them?

MR GLEESON:   Yes, your Honour.  That is found in the sections between pages 424 to 428 and the wife’s contribution to the assets of the trust is identified at 427, line 5.  The husband’s contribution is identified at 424 between lines 10 to 15. 

GUMMOW J:   Is it the position that if one looks at order 4, is it not in a sense requiring the husband to pay a sum of money not out of any particular fund?

MR GLEESON:   Yes.

GUMMOW J:   But on the hypothesis that because of these other steps that could be taken or are to be treated as being taken under the orders that could be made under these sections, he should have available to him resources to permit this to happen?

MR GLEESON:   Yes.

GUMMOW J:   Without any in specie claim being allowed in favour of the wife?

MR GLEESON:   Yes, that is the route that has been chosen and we defend that as a matter of power under the sections I have been to, and if the route proves to have any difficulty in implementation, there are a further series of orders that could be made.

KIEFEL J:   I think there might be two matters that you need to address.  One is his Honour’s consideration of the contributions of the parties which were reflected in assets, whether they be found in the trust or not, and the other, which I think is where Justice Gummow was directing your attention, was the means by which the husband then makes good the order for money payment.  Now, it is not immediately apparent to me why he has to go to the trust to do that.

MR GLEESON:   The practical issue is that on these numbers the net assets in his name are $1.79 million.  That is page 440, line 18.  He is ordered to pay a sum greater than that, $2.18 million.

KIEFEL J:   The only other issue then would be the shares which were transferred as a separate issue.

MR GLEESON: Yes, and the shares are very important to this argument because they were about four to five hundred thousand dollars. They were property of the husband. They were never in any trust. He transferred them to the children at a time when the marriage was in trouble. His Honour found that was a transaction which attracted section 106B beyond doubt. The husband argued you do not need to actually set aside that one because there is otherwise going to be enough to meet the order, and for that reason his Honour did not set it aside.

KIEFEL J:   But what do you say, Mr Gleeson?  Did his Honour proceed upon the basis that there was this fund to which the husband could have access to meet the order?  That would affect the just and equitable question, would it not?

MR GLEESON:   Yes, and on page 440 at about line 29 his Honour framed it in the negative:

That of course will not prevent the husband reaching some arrangement with the children about this –

this being the four or five hundred thousand dollars in shares –

given that I have still notionally added back these assets to the net asset pool of the parties.

So, in effect, his Honour has made a commonsense assumption.  The reasons of the court are that that is a transaction which operated to defeat the Act.  The children are bound by that finding.  They are likely to make an arrangement.  There is four or five hundred thousand dollars before he starts.  If any difficulty emerged, one can go back before a first instance judge under 79A and ask for the 106B order plus an order that he directly transfer the proceeds and the shares to the wife.

So we do submit the position of the shares is important in the practical sense in explaining why there is no unjust and inequitable order being made here against the husband ‑ ‑ ‑

GUMMOW J:   Paragraph 264 is important, is it not, in his Honour’s reasons?

MR GLEESON:   Yes.

GUMMOW J:   That is how he gets the pool.

MR GLEESON:   Yes.

GUMMOW J:   And the order that is then made, order 4 on page 446 in terms of cash, may reflect the court striving to do what it is directed by section 81, namely, to achieve a final wash up of financial relations, section 81 of the Act.

MR GLEESON:   Yes.  There is, with respect, a long tradition with solid pedigree in the Family Court which we submit is within the just and equitable to strive for lump sum orders where possible and to allow parties to take steps without direct court order, if not necessary, to achieve those orders and within that jurisprudence to come up with a lump sum that will bring the parties’ relationship to an end is an appropriate order. 

Could I give your Honours one example where, if only at special leave level but with brief reasons, this Court has considered a situation where the root of distributing by a trustee to the spouse as a discretionary object is an available means within the concept of property because we submit it provides some support for what we are seeking.

GUMMOW J:   Who said it and when?

MR GLEESON:   I was trying to peak your Honour’s interest.  Your Honours, in Marriage of Davidson in the second decision reported in (1994) 17 Fam LR 656, this is when the matter came back before the court the second time when the husband was avoiding the orders. At the foot of page 659 there are brief reasons given in 1991 for refusing special leave from the first Davidson matter and the Court said:

We are not persuaded that there was an error of principle on the part of the Full Court of the Family Court in concluding that the applicant could cause the trustee company to apply the capital of the trust fund for the benefit of the respondent –

that is the respondent wife –

or for the benefit of a company in which he was a shareholder, so long as a beneficiary is a shareholder.

So the two roots identified in that case in the Full Family Court as bringing it within the scope of the Act were, firstly, that there could be direct distributions to the wife as a discretionary object and, secondly, the husband could benefit himself indirectly.  I will just give your Honours the reference to the earlier Full Court decision where that is clear.  It is Davidson [1991] FLC 92‑197, and the root of distribution to the wife is found at page 78,366.

Your Honours, I have now the original application which was filed on 19 April and the amended application filed on 4 July 2002.  I would seek leave to hand up copies of those.

Your Honours, finally, on the first topic, we have given your Honours a small bundle with the background material to the 1975 Act.  In the second reading speech at page 2 in the first column of the last paragraph, it was said that:

The Bill empowers the courts to determine the existing interests of parties to a marriage who are not engaged in divorce proceedings.

That appears to be a reference to what became section 78.  Then the next sentence says:

Where the parties are applying for a divorce the Bill empowers the court to alter their interests in much the same way as does the Matrimonial Causes Act, but the Bill introduces criteria to which the court must have regard in determining what order to make. 

To the extent it is relevant to refer to this material, we submit there was no narrow intention to create a more restricted jurisdiction than was available under section 86. Secondly, I should indicate, in answer to one of your Honour Justice Hayne’s questions, if one looks at section 79 as enacted, which your Honours should have, the link between the property settlement proceedings and the divorce proceedings was drawn a little differently to in the present Act, but nevertheless – this is section 79(3) – indicates the close interconnection between the intended property settlement proceedings and the dissolution proceedings, suggesting it unlikely that a narrow view would be taken of property, depending on the order in which they were resolved.

Your Honours, the final matter on that topic is – I can have copies made, but in the explanatory memorandum to the 1983 Act no great light is shed on why section 85 was included.  It simply says it is similar to the old subsection 86(2) of the 1959 Act.

FRENCH CJ:   You are talking about 85A here, are you not?

MR GLEESON:   Yes.  I am sorry, your Honour.  The section will enable the Court to make property settlement orders with respect to “property dealt with by ante-nuptial or post-nuptial settlements”.  Can I then move to the second topic which we raise only in the alternative to the above?  Could your Honours go to the ‑ ‑ ‑

GUMMOW J:   Just before you leave the later section, the report of the Joint Select Committee on the Family Law Act which was reported, I mentioned before, in 1980, paragraph 5-117 said:

It has been brought to the Committee’s attention that problems can arise in property proceedings under the Family Law Act where the property in which one of the parties claims an interest is subject to a family trust or company arrangement. The problem was explained by the judges of the Family Court in their submission to the Committee in the following terms:

Although the court has wide powers to deal with property under s. 79 it can deal directly only with legal and equitable interests which a spouse holds in relation to property. The court cannot deal directly with the unascertained interest which a spouse may have in a discretionary trust -

Is that too cautious a view of section 79?

MR GLEESON:   We would submit it is when one has regard to the situation in the present trust whereas we have analysed no one else has any vested or non‑vested interest in it and the power to order settlements, the power to alter interests, and the power to do what is just and equitable to achieve the result under the Act.  That is our primary submission.  Our second submission is that we would seek to make the amendment to introduce section 85A in the manner I have foreshadowed.

GUMMOW J:   Thank you.

MR GLEESON:   Your Honours, on the second topic, if I could ask your Honours to go to the 1983 deed at page 64 and to our submissions at paragraph 47, we submit that it is critical to identify what legal route is being employed by the so‑called release.  We identified in our submissions in paragraph 47 four possibilities.  The first can be readily disposed of.  Neither party contends that what Dr Spry was doing was distributing the whole of the fund to himself and then resettling it on new trusts.

The second possible option was for Dr Spry to exercise as settlor the power of variation under clause 2 of the 1981 deed. that is, to seek to vary the terms of that deed, in particular clause 4, to create a different definition of the beneficiaries such that clause 4 were to read, “The beneficiaries mean all issue of Charles Chambers Fowell Spry and all persons married to such issue, save that the beneficiaries shall not include Ian Charles Fowell Spry”, but for the avoidance of doubt we will still include “persons married to him”.  That is what is the effect of the argument that has been put this morning by Mr Jackson. 

We submit that Dr Spry did not use his power under clause 2 to create such a variation.  The first reason for that is that it is not worded as an exercise of the power of variation.  Clause 2 of the 1983 deed is very carefully worded as the settlor claiming to release and abandon two things; firstly, all and any beneficial interest or rights held by him, that speaks to the present, or which may hereafter be held by him under the trust instrument.  So our first proposition is he has deliberately chosen the language of release of beneficial interest, that is, speaking as discretionary object, not speaking as settlor with power to vary the class of beneficiaries.

The second reason why we submit one would not read it as an exercise in the power of variation is that that would have risked a resettlement with adverse stamp duty consequences of which Dr Spry was well familiar.  If what he was saying was, “I propose to vary the deed so as to create a different class of beneficiaries”, excluding what might be thought to be one or the central members of that class, there would be a significant risk that he would be resettling the entirety of the trust property exposing himself to stamp duty.

Now, the third possibility which we identify in paragraph 47(c) is that Dr Spry as donee of the power under clause 6 was engaging in a partial release of the power.  We submit that that is not the route he took.  That would have involved him as trustee and donee of the power seeking to release it.  Clause 2 of the 1983 deed does not refer to his position as trustee.  Secondly, it has a major problem in the law of powers which we refer to in paragraph 48(c) that while a mere power can be released in whole or in part a power with a fiduciary character attached to it cannot be the subject of release.

We have given your Honours the references in footnote 11 to Lewin on Trusts and Thomas on Powers and we submit that those references and the cases there cited make good the proposition that if a power is vested in a person in a fiduciary capacity, it cannot be the subject of release.

In one of the submissions by the parties on the other side, the response to that is that your Honour should construe clause 6 of the 1981 deed as having no fiduciary character.  Your Honours will find that in paragraph 4 of the trustee’s reply submissions.  They ask your Honours to find that although the power is vested in Dr Spry as trustee, that is the power under clause 6, he has no fiduciary obligations attached to him in respect of it.

We submit that that is probably wrong in law.  If it were right, it would have the consequence adverse to Dr Spry’s argument that the character of the interest he has as discretionary object becomes even more ephemeral if he is donee of a power which is a mere power which can be released any day of the week without equitable restraint.

Your Honours, in our paragraph 48(c) we refer to Farwell which Dr Spry or those to this side refer to in their submissions.  We have handed up pages 16 and 17 of Farwell.  We submit those passages are of little assistance.  They concern the situation where a donee of a power seeks to release it, which we submit is not this case.  Secondly, they speak of a mere power.  They do not refer to the situation where the power has a fiduciary duty attached to it. 

Could I then ask your Honours briefly to go to the extract from Thomas on Powers that we have supplied?  On page 604, the fourth proposition cited by Thomas in paragraph 15-03, is that where:

(4)     A power is coupled with a duty or a trust –

the power cannot be released, it being the trustee’s duty to preserve it.  The case cited for that proposition, footnote 13, is Re Eyre of which we have provided your Honours a copy.  We submit it supports the proposition of the author.  At 15-05 Thomas deals with section 155 of the Law of Property Act 1925, which has its Australian equivalents.  While in terms that may permit release of a power, Thomas says, correctly, we submit, that it is not dealing with a power coupled with a trust or a fiduciary duty.  Lewin on Trusts speaks to similar effect.

Finally, if your Honours were to go over to page [609], there is an extract from Justice Warner’s modern classification in Mettoy Pension Trustees where there are four categories of powers.  The relevant power is category 2 which is “a fiduciary power in the full sense” and “cannot be released”.

Your Honours, that brings us to our paragraph 50, which is that the correct characterisation of clause 2 of the 1983 deed is that Dr Spry, as a member of the class of discretionary objects, is purporting to release his present and future “beneficial interest” in their favour.  That is also clear from the recital on the previous page.  The purpose is that he desires to benefit the beneficiaries of the trust by two means.  The second is by releasing all of his beneficial interests.

Could I ask your Honours to go to the discussion of this Court of the concept of a release in MSP Nominees v Commissioner of Stamps (1999) 198 CLR 494. At page 508, paragraph 31, over to 509, paragraph 33 the Court discusses the concept of a release in its conveyancing sense as involving a person in the position of a reversioner or remainderman releasing the interest to the life tenant in possession so as to enlarge the estate of the tenant for life. That is paragraph 31. The essential nature of a release of property, meaning that the person has a true interest and by releasing it enlarges the estate of another person holding an interest.

Now, the Court cautions in paragraph 32 that these concepts can only be applied by analogy, to conveyances which had as their subject matter equitable interests, and the analogy may be imperfect.  However, the Court says in paragraph 33:

there remains the essential characteristic of the enlargement of one interest by the absorption or “drowning” of the other.

For that reason, in the context of the unit trust involved there, the redemption did not amount to surrender or release.

Your Honours, applying that to the present case, if we come back to clause 2 of the 1983 deed, so far as it speaks to the present, our submission is that Dr Spry did not have in 1983 any vested interest which he was capable of releasing so as to enlarge any other person’s beneficial interest, nor did he have a contingent interest which he could release and thereby enlarge some other person’s beneficial interest.  The most he seems to have had is the so‑called right to have his interest considered, but as Dr Hardingham pointed out, that has a slight oddity to it, when at the date of this instrument he is both trustee and discretionary object.  He cannot go to a court of equity in 1983 and get an order compelling himself to duly administer the fund in his own name.

Even if he is purporting to release that right, it does not result in the enlargement of the beneficial interest of any other person.  Each other discretionary object remains in the same position of having no more than a hope of receiving a distribution from the trustee.  On that question of the position of the discretionary objects, we would also rely upon the decision of your Honour Justice French in ASIC v Carey which we have referred to in our submissions.

We should refer to a decision in New Zealand given recently.  It is the decision in Kain and others v Hutton and others [2008] NZSC 61, a judgment of five members of the court. I have only just received this your Honours. I will provide copies afterwards if appropriate. The relevant paragraphs are paragraphs 5 and 25. The context of the case involved whether there was a fraud on a power by the trustee of a discretionary trust. Significantly, the court, consistent with Gartside, with what Justice Dixon said in Commissioner of Stamp Duties v…..described the discretionary beneficiary as having nothing more than a mere expectancy.

GUMMOW J:   That is not quite fully accurate, is it?

MR GLEESON:   Save for the right to be considered or the right to compel a due administration of the trust ‑ ‑ ‑

GUMMOW J:   It had to be looked at since in the light of what Lord Walker said in the Rosewood Case, does it not, on appeal from the Isle of Man to the Privy Council?

MR GLEESON:   Your Honours, all I am seeking to put is that if one applies the notion of a release as an enlarging of the interest of another person, that is not happening under the first limb of paragraph 2 and as to the second limb, he purports to release what he may hereafter hold, that can only be an attempt to deal with future property absent any consideration which is of no effect.  The question then is what effect does clause 2 have, because clearly he is trying to do something.  The effect that we would argue for is as per paragraph 51 of our submissions, that in circumstances where no consideration passes, where no reliance interest is engendered, and where each of the children and the other persons in the class of objects remain in exactly the same position after as before, this should be treated as a revokable, self‑denying ordinance, no vested interest being affected or defeated if Dr Spry revokes the ordinance.

Your Honours, can I test that in a practical sense.  Dr Spry made two distributions from the trust to himself.  That is found on page 349.

FRENCH CJ:   These were repaid, were they not?

MR GLEESON:   They were repaid to the wrong trust.  At 349, line 20, he made two distributions to himself, presumably because the income tax position was then favourable in the sum of $46,000.  By making those distributions to himself he clearly indicated he wished to again be considered as an available object of his own bounty.  The logic of our argument is that he did not commit any breach of trust by allowing himself to be reconsidered for that bounty.  In terms of the repayment, he repaid them to the wrong trusts because what he did was to repay them to the children’s trusts, not to the trust from which he made the distributions.

FRENCH CJ:   When were they repaid to the children’s trusts?

MR GLEESON:   It appears to be sometime in 2003.  That is page 41 line 30 to page 42 line 10, after the decree absolute and while the property proceedings were under way.  Your Honours, there is one factual matter about those distributions and the repayment which has not been addressed on orally but is referred to in the written submissions and I should address. 

If your Honours would go to Dr Spry’s submissions in‑chief at page 13, paragraph (e) at the top?  When I come to our third argument, which I will do very shortly, that he can exercise the clause 2 power of variation to either put the wife or himself back in, one of the answers made by Dr Spry is that clause 2 no longer exists.  He cites page 150 of the book, if I could go to that.  At paragraph 85 of his affidavit in reply he asserts that:

T67-af

On 14 June 2003, I was discharged from any liability in respect of [those] distributions . . . in consideration of my making repayments of those amounts to the Children’s Trusts –

So it confirms that is where the repayment went and in consideration of:

my releasing verbally the power of variation contained in Clause 2 –

Now, that paragraph, we submit, has numerous problems in it.  He is assuming that he had an arguable liability for breach of trust by reason of receiving those distributions.  He says that he can be discharged from that liability by making a repayment to a different trust and by releasing verbally one asks with who, how, the power of variation.

GUMMOW J:   Does that mean orally, does it?

MR GLEESON:   Orally, but to whom and how.  The proposition seems to be that as a defaulting trustee you are arguably defaulting trustee seeking to remedy his breach of trust.  What he has done is to repay the money to a different trust and then to engage in a release of a power which he holds as settlor.  Now, the submission made by Dr Spry is that this paragraph was not made the subject of adverse comment or cross‑examination by Mrs Spry.  It would have been difficult for the trial to cross‑examine Dr Spry on the verbal release which appeared to occur with himself. 

Your Honours, to conclude that second topic we would submit – and this is paragraph 53 – that the analysis of the Full Federal Court in Commissioner of Taxation v Ramsden on the nature of a disclaimer is illuminating and applicable here.  It is a judgment involving Justices Hely, Lee and Merkel.  It analyses that ‑ ‑ ‑

GUMMOW J:   What is a citation?

MR GLEESON:  Yes, 2005 ATC 4136.

HEYDON J: I have 58 ATR 485.

MR GLEESON:   Yes, thank you, your Honour.  The relevant passage is between paragraphs [32] to [35] where the court discusses that in the context of a “discretionary trust” like the present – citing Buckle – that because no entitlement to income passes unless until there is an exercise of discretion – that is paragraph [35] – disclaimer will operate only as and when each gift is made.  Each gift is an independent gift which is capable of being disclaimed or not. 

In our submission, when Dr Spry chose to make a distribution of $46,000 to himself in the early 2000s he had the choice and would not be restrained by a court of equity from either accepting or rejecting the gift; he accepted it.  Your Honours will also see over at paragraphs [45] to [48] ‑ ‑ ‑

GUMMOW J:   Gift of what?

MR GLEESON:   A distribution of income under clause 6 of the deed.  At paragraphs [45] to [48] the court discusses that disclaimer operates by way of avoidance rather than disposition and ‑ ‑ ‑

GUMMOW J:   That is an enigmatic statement.  I know it says it in the case, but it is an enigmatic statement.

MR GLEESON:   Yes.  We give it the meaning of it is not operating as a disposition of an interest in property.  There is then some discussion of Re Gulbenkian Settlements, which is cited against us.  We submit that what is put in paragraph [48] is correct, namely, Re Gulbenkian is a particular example of the more general principle that:

where there are independent gifts, acceptance of one does not preclude a disclaimer of another.

Your Honours will recall the Re Gulbenkian was distinguished by Justice Warnick and Justice Bryant in the present case, we submit correctly.  It was a case dealing with a disclaimer for consideration and a disclaimer not just of rights as a beneficiary object, but there was a complete removal from the trust of the person as settlor, trustee, appointor and discretionary object. 

Your Honours, in relation to the fact that it is in a deed, there are two short points we would make.  The first is that we differ from the opposing parties as to the capacity in which the wife was joined in the deed.  We submit that Mrs Spry is a party for the purpose of clauses 4 and 5.  She is not a party for the purpose of clause 2.  Clause 2 is said to be the settlor engaging in and releasing favour of “the beneficiaries as a whole”.  Therefore, we would differ from Chief Justice Bryant.  There was no need for Mrs Spry to be party to a cancellation or revocation of clause 2. 

The second matter is that to the extent that the deed needs to be revoked, we would offer to your Honours the authority in paragraph 58 of Smith v Smith [2001] 1 WLR 1937, a first instance decision where there is a careful analysis of whether there can be a disclaimer in the face of a deed. It is in the context of a will, we accept that. However, at page 1940 we submit that proposition (a) is correct. The underlying principle is you cannot be required to take a gift you do not with to have. At about letter F, the intended donee:

has a mere expectancy . . . There are no proprietary rights, or other rights to control the destination of the estate –

There is nothing to be disclaimed.  If I could go over to page 1941, letter D.  While we accept that on the facts of this case the disclaimer occurred prior to the death of a testator, the court obiter, in paragraph 15, follows In re Cranstoun:

for the proposition that a disclaimer of a gift under a will can be revoked at any time before it is acted on.

That is even after the death of the testator.

FRENCH CJ:   A disclaimer does not have legal effect until the bequest would otherwise vest, is that right?

MR GLEESON:   Yes, and the significance of In re Cranstoun is that in that case the disclaimer occurs after the death of the testator.  When there is some form of interest in a Livingston sense it is disclaimed and yet there is an ability to revoke that disclaimer prior to the point at which the interest becomes vested in a fuller sense. 

Your Honour Justice Gummow asked, is this question dealt with in the text writers?  We have given your Honours Scott on Trusts, 4th edition, where In re Cranstoun in cited with some approval for this proposition that there can be a revocation at any time before the disclaimer has been acted upon.  I believe it is page 400.  In the 5th edition under different authors the proposition is stated a little less certainly.  So the short point we make is in circumstances where there is no consideration, there is no reliance interest, there is no change of position, for Dr Spry to resume his full position under clause 6 of the original deed would not be restrained in a court of equity.

Could I deal with the final part of this argument which is clause 3 of the 1983 deed.  This is a clause which is said to be for the purpose of removing doubt and it deals with three subject matters.  Mr Jackson relies upon the third part of it and says what really has happened here is not the removal of doubt but that there has been a variation of the settlor’s power of variation.  We would submit that the clause as it reads is only to remove doubt.  It is intended to indicate what clause 2 of the earlier deed did.  It is not designed to vary the settlor’s power of variation.

We would submit that in the passage from Justice Strickland, to which you have been taken this morning, there is a little oddity in the settlor being able to vary the power of variation if that has not been expressly reserved because if you can vary the power of variation, that is, it would seem that one is moving a long way away from this being a valid trust at all.  The settlor has said “Here is the property, here are the trusts, I can vary, subject to a limitation.  If I can vary the power to vary, it is very hard to know what stability this has as a series of rights”.

HEYDON J:   It is very common in superannuation trusts for constant variations to take place including the power to vary.

MR GLEESON:   That may be so.  I am seeking to submit that in the context of clause 2 of the original deed the settlor has reserved such power as it has to vary.  It can vary anything which falls within the terms.  It cannot vary in a manner which increases rights to the beneficial enjoyment of the fund.  That is the definition of what has been reserved and one cannot, without a further reservation within that, I submit, enlarge that power of variation and the superannuation deed example would have in it ‑ ‑ ‑

HEYDON J:   It is not enlarging it, it is contracting it.

MR GLEESON:   It is seeking to impose a further fetter upon the power which is there existing.

GUMMOW J:   Can you just go back to Professor Scott.  Why were we taken to Scott on Trusts?  It is not talking about object of powers, is it?

MR GLEESON:   For the proposition that the ‑ ‑ ‑

GUMMOW J:   I am sure Dr Hardingham read it, too.  It is not dealing with the “release” or “disclaimer”.  It is talking about beneficiaries.  I know these instruments drawn by the husband use that term, and I can understand that, but in fact these various people were objects of the power, including himself.  How does what is said by Professors Scott and Fratcher bear upon that question?

MR GLEESON:   Only to the extent that it is proper to draw an analogy between a person with an interest under a will, even after the death of the testator, and one of the objects that we have under this instrument.  Your Honours, the final argument, if I might conclude on that ‑ ‑ ‑

GUMMOW J:   Just before you get to that, can we just go back to these orders which still mystify me a little bit, made by the primary judge.  Your client’s interest is just in order 4, is it not?

MR GLEESON:   Yes.

GUMMOW J:   That is what she wants.  Orders 2 and 3 do not much interest her, necessarily, do they?  They interest the daughters, I can understand that.  But what was the point in making orders 2 and 3 if what was going on was to work out what was just inequitable under 79(2), as the judge said, and there was this pool of assets which he “created”, I suppose, by these orders.  The trial judge keeps saying it is matter for the husband, where he gets this money from.  All I am saying is, it is just and equitable to do it this way.  Well, it will not be unjust or inequitable to require payment of this sum when I have set aside these transactions.  In other words, as between the husband and the daughters, he will have the assurance of these orders 2 and 3 if he needs to fund order 4 out of those assets.  Is that what it comes to?

MR GLEESON:   Yes, that is it.

GUMMOW J:   He will not be behaving improperly as regards his daughters if he does this to fund order 4.

MR GLEESON:   Yes, and it will not be a fraud on the power because it is being done ‑ ‑ ‑

GUMMOW J:   Under court order.

MR GLEESON:   ‑ ‑ ‑ for the purpose under a court order of reinstating the primary trust to the status it should have been in, and if he makes distributions under it, one could never accuse that of being a fraud on the power.  Your Honours, the third argument concerned the scope of the power of variation in clause 2 itself and this is ground 3 of the notice of contention.  Could I just focus first on Mrs Spry’s position. 

We submit that if it be necessary for Dr Spry to exercise his power of variation under clause 2 to provide that the beneficiaries include persons presently or previously married to issue, that would be within the scope of his power and would not be a fraud on the power.  In circumstances where had the order of proceedings played out differently, the wife would still have been in the class of beneficiaries before the property settlement order has been made.  For him to vary the power in that way could in no way be a fraud on the beneficiaries where it is necessary to do justice in the context of the working out of the relationships of the parties.

In other words, what I started with under my first argument as an order could make under section 79(1)(c) for a variation of the power in clause 6 can equally be done by Dr Spry as settlor under clause 2. Now, the main opposition that was put to that below, and it is the reason your Honours have the orange book, is that a lot of opinions were written about the doctrine of substratum of trusts. We have offered your Honours a submission in paragraph 64 that that doctrine should be treated with a little caution. Ultimately it is a matter of construction of clause 2. It permits a variation of any terms of the trust as long as it does not increase the beneficial enjoyment of the husband. The fairly modest edition to bring the wife back in even after she ceases to be married does not offend the express prohibition and is otherwise a variation in the terms of the trust.

In relation to the substratum doctrine we have offered your Honours the decision of the Court of Appeal of New South Wales in Kearns v Hill (1990) 21 NSWLR 107 where at page 110F to 111B Justice Meagher indicated that that doctrine, if it existed, had little assistance in the construction of the power of variation in the case and he permitted a variation to proceed which expanded the class of beneficiaries. We submit there can be little difficulty in the modest expansion to retain the wife in the class for long enough to allow these matters to be worked through.

The other variation under clause 2 that we had contemplated, which is unnecessary if the first operates successfully, is for Dr Spry to put himself back in, as it were, as if he had not executed the 1983 deed.  That, we submit, again causes no difficulty.  He is restoring the deed to the status it was in consistent with the settlor’s original intention.

Your Honours, the final matter I mentioned was orders.  This is dealt with in paragraphs 81 and following of our submission.  If the appeal were allowed, the issues which have not yet been dealt with include the issue of financial resources.  We would submit that is an important issue.  Each of Justice Finn and Chief Justice Bryant considered that there was a substantial argument to be made on the financial resources ground.  The argument is not just, have we proved Dr Spry will continue to use assets of the trust for his benefit for the rest of his life?  The argument is he has now the control of 60 per cent of the marital assets and he can determine how and when beneficiaries, being children, receive them, and clearly has a significant opportunity to benefit or at least relieve himself of obligations.

The leading authority of the Family Court on the concept of financial resources, which we submit is correct, is Kelly (No 2) (1981) 7 Fam LR 762. The concept of financial resources is discussed between pages 770 and 773.

Secondly, there would be the leftover issue of the shares for the children which could clearly be the subject of a section 106B order. Thirdly, Mrs Spry had attempted to raise arguments based on the new Part 8AA, which had not yet been finally determined by the Full Court. We suggest what would happen for costs if we were unsuccessful in paragraph 83(e). We would oppose any order for the appeal for the opposing parties for more than one set of costs. Your Honours, on the question of the amendment to the ‑ ‑ ‑

GUMMOW J:   Your primary position is you want to hold on to order 4, is it not?

MR GLEESON:   We want to hold on to order 4.

GUMMOW J:   If you hold on to order 4, these subsidiary questions do not come into play, do they?

MR GLEESON:   That is correct.  Could I seek leave by say 3 o’clock tomorrow to provide the proposed amended notice of contention with any proposed cross‑appeal?

FRENCH CJ:   Application for special leave.

MR GLEESON:   Application for special leave to cross‑appeal.  But primarily, as I have said, your Honour is correct, it is order 4 we seek to hold on to.  If your Honours please.

MR FRANCIS:   Thank you.  Yes, Mr Jackson?

MR JACKSON:   Your Honours, may I deal with a number of matters  First of all the first argument raised by our learned friends in relation to property and we would say in relation to that that it is no doubt true that in the case of a discretionary trust the trustee is for some purposes a person who is entitled to the property in possession, but that is a less likely view of the intended operation of the term “property” as used in the Family Law Act.

Your Honours, could I go to the definition of “property” once more in section 4 page 17.  We would say that the term “property” used in the expression “in relation to the parties to a marriage” and in circumstances where it says “to which those parties are, or that party is, as the case may be, entitled” is not looking to entitlement in the capacity of trustee, but is looking to entitlement which is beneficial in nature so that that entitlement or that property is property which can be the subject of orders.

Your Honours, the reference to “in possession or reversion” recognises, of course, that the property may be held now or that it may fall then in the future. Your Honours, it also is a rather curious interpretation that the subject matter of the discretionary trusts of which the trustees are, for example, divorced persons are thereby property to which section 79 applies, leaving it as a matter of judicial discretion whether they should or should not be dealt with pursuant to that provision.

Your Honours, no doubt one might say, the discretion would not be exercised to utilise assets which were entirely unrelated to the family, but your Honours, that suggests - the view that the discretion would not be so exercised rather suggests that the interpretation is incorrect in the first place.  Your Honours, what we would submit is it is not to say that the term “property” is one which applies to cases where the trustee of a discretionary trust holds the property, simply is not correct and the discretionary trustee has no interest in the property himself or herself is a view that should not be taken.

HEYDON J:   Was anyone entitled in possession or aversion under the 1981 memorandum of the 1968 trust.

MR JACKSON:   No.  Your Honours, could I mention then the question of section 85A.  In order for section 85A to have any application – if I could just take your Honours to it for a moment – there has to be an ante‑nuptial or a post‑nuptial settlement made, as it says, in relation to the marriage.  Your Honours, the requirement that there be a settlement, ante or post‑nuptial settlement made in relation to the marriage is an essential part of the operation of the provision.

Your Honours, the ICF Spry Trust was not made in relation to the marriage, nor, in our submission, was the variation of it in 1983.  Neither of them, your Honours, we would submit, could be regarded as either an ante‑nuptial settlement or a post‑nuptial settlement.  There is no settlement of that kind.  Your Honours, one comes, if I could refer to what was said in the House of Lords in Brooks v Brooks [1996] 1 AC 375. Your Honours will see in the speech of Lord Nicholls at page 391 between letters F and G, he says:

In the Matrimonial Causes Act 1973 settlement is not defined, but the context of section 24 affords some clues . . . The section is concerned with a settlement “made on the parties to the marriage”.

The expression here is in relation to the marriage –

So, broadly stated, the disposition must be one which makes some form of continuing provision for both or either of the parties to a marriage, with or without provision for their children.  Conversely, a disposition which confers an immediate, absolute interest in an item of property does not constitute a settlement of that property.

Now, one goes on, your Honours, to see on the next page he said at the first new paragraph:

Beyond this the authorities have consistently given a wide meaning to settlement in this context, and they have spelled out no precise limitations . . . The continuing use of the archaic expressions “ante‑nuptial” and “post‑nuptial” does not point in the opposite direction.  These expressions are apt to embrace all settlements in respect of the particular marriage, whether made before or after the marriage.

Now, your Honours, that, in our submission, lies at the heart of the concept of an ante or post‑nuptial settlement.  It is one made before or after the marriage or in contemplation of the marriage.

HAYNE J:   That would, I think, stand apart from the authorities that predated Brooks, which can be traced to various origins, but the origins may include Prinsep v Prinsep [1929] P 225, particularly at 232 and thereabouts, a decision of Mr Justice Hill, which was I think affirmed on appeal and thereafter applied more than once. His Lordship said, leaving aside the ante‑nuptial settlement:

Is it upon the husband in the character of husband or in the wife the character of wife, or upon both in the character of husband and wife?  If it is, it is a settlement on the parties within the meaning of the section.  The particular form of it does not matter.  It may be a settlement in the strictest sense of the term . . . What does matter is that it should provide for the financial benefit of one or other or both of the spouses as spouses and with reference to their married state.

And his Lordship went on to note that in that instrument Mr Prinsep was designated principal beneficiary but also has in contemplation his then wife and any future wife, child and future children.  That seemed to be what developed ultimately into Brooks v Brooks.

MR JACKSON:   Yes.  Your Honour, I am not disputing that there are some circumstances in which considerations of that kind would be apposite.  What one sees in the present case, however, is that the trust deed, in fact, the original trust, was not one created in any respect as something that one might regard as a marriage settlement in relation to a particular marriage.  What you see, actually, is that the people who are to be the beneficiaries of it are the descendants of a person and persons who are their spouses.

That does not have a particular relationship to Dr Spry, Mrs Spry.  Of course he was a person who was an original subject of it.  His wife became one also.  When one goes to the deed of variation in 1983, it is applying itself to that document, to the concepts under that trust.  Your Honour, I see the time.  I will be some little time yet, I am afraid.

FRENCH CJ:   How much longer do you think you will be, Mr Jackson?

MR JACKSON:   Your Honour, I think I will be another 20 minutes.

FRENCH CJ:   Yes, Mr Myers.

MR MYERS:   Your Honours, I do want to say something in reply to the oral arguments that were put today.  I just mention that.  Depending upon what my learned friend says, I can see myself being 15 minutes.

FRENCH CJ:   We will sit on for the time being, Mr Jackson.

HEYDON J:   Let us go back to one point, Mr Jackson.

MR JACKSON:   Yes, your Honour.

HEYDON J:   You say that mere trusteeship does not cause, as it were, the situation to fall within the definition of “property”.  I understand that.  You also said that no one was entitled under the 1968 trust as recorded in the 1981 memorandum.  If that is the case, then we need not bother our heads much about the 1983 transaction or the 1998 transaction or the 2002 transaction, need we?  It would simply be that in relation to this trust neither the husband nor the wife had any property.  They merely had hopes.

MR JACKSON:   That is what the position was, your Honour, yes.

HEYDON J:   Well, in that case, most of the case, most of the matter, as it were, most of the controversy can be put on one side if that position is sound.

MR JACKSON:   Well, your Honour, it is a question of definition, no doubt, and I think it right to say that there has not earlier been a consideration of the nature of the rights as being, in effect, no more than that.  But what your Honour puts to me is correct.  It was a hope or expectation and that is where the matter lay.  One then comes to a situation where what was being done in the 1983 deed was to say that the persons who were the objects of that were reduced by removing Dr Spry from it.  But, your Honours, if it is just simply a matter of there being no property as defined, then the situation is that neither his right gone nor her right gone also is something that could be the subject of the orders.

HEYDON J:   Her right survives in 1983, but it is gone by 1998.  So it does not matter that it is gone because it was never property anyway.  It did not rise high enough to be property.

MR JACKSON:   Your Honour, that is so.

FRENCH CJ:   The only right being a right of due administration.

MR JACKSON:   Yes.  Your Honours, could I go the formal order that was actually made by the primary judge in the first place and if I could just take your Honours to volume 2, pages 445 to 446.  Now, your Honours have seen the orders that were actually made and one appreciates, of course, that what was said by the primary judge was that there was to be paid a particular sum, but in arriving at that particular sum, it is clear from paragraph 264 on page 440, in the fourth and fifth lines of that, that the assets of the trust have to be in the pool to allow the wife to receive her entitlement as the figures disclose.  Your Honours, that is the first thing, and so it is really impossible, we would submit, in reality to separate out the terms of orders 3 and 4 to make ‑ ‑ ‑

GUMMOW J:   I was looking at paragraph 268, Mr Jackson.

MR JACKSON:   Yes, your Honour, where that will come from is entirely up to the husband, but, your Honours, one has to look at reality, where else is it to come from apart from coming from the children’s trusts?

KIEFEL J:   Mr Jackson, in paragraph 264, is the primary judge speaking of the need to take account of assets acquired during the marriage in the sense of dealing with the percentage for contribution rather than actual receipt?

MR JACKSON:   I am sorry, rather than actual?

KIEFEL J:   The means by which payment will be made.  I am a little confused about what his Honour means there.

MR JACKSON:   Your Honour, he describes it as what he says, your Honour, in a sense, the assets of the trust need to be in the asset pool to allow her to receive her entitlement.  When he comes to work that out in the next paragraph, it seems to be meaning that those amounts have to be taken into account.  Your Honours, could I come ‑ ‑ ‑

GUMMOW J:   I think your point, Mr Jackson, may be that it will not be just and equitable unless your client has this facility which he only gets through the setting aside to fund this payment.

MR JACKSON:   Unless Dr Spry in his personal capacity – I am appearing for the trustees. 

GUMMOW J:   Yes, I understand.

MR JACKSON:   Your Honours, so far as the temporal aspects are concerned, if I could just go back to that.  Your Honours have heard various submissions made, various suggestions made.  There is not, in our submission, anything to support the view that the Act speaks relevantly at a time other than that of the making of the order.

There have been endeavours made to say perhaps this provision is germane to it, perhaps the other provision, but in the end, when one comes to look at section 79 it speaks of:

In property settlement proceedings, the court may make such order as it considers appropriate . . . 

altering the interests of the parties to the marriage in the property -

Your Honours, if one looks at the succeeding forms of orders that might be contemplated by section 79(1), you will see that it speaks of in paragraph (c) the orders that may be made are orders:

for a settlement of property in substitution for any interest in the property -

That assumes the existence of an interest in the property for which there is to be substitution.  Then if one goes to paragraph (d) there may be an order requiring a party to the marriage to make “such settlement or transfer of property as the court determines”.  Now, for that to be the case there has to be property which is to be the subject of it.  In our submission, it is the property which is contemplated by paragraph 1(a).

Your Honours, so far as our learned friend’s second topic is concerned, could we go to the terms of the document itself and that is the deed of 1983.  Our learned friends argue that the terms of that document were not worded as an exercise of the power of variation.  Your Honours, could we go to clause 3 of that document at page 65.  If one goes to clause 3 of page 65 it is very difficult, in our submission, to see why on any fair reading of the document, the words:

any variation of the trusts of the said instrument shall be invalid to the extent to which it purports to confer directly or indirectly any right or benefit upon the settlor –

should not be treated as a variation of the power of variation.  It limits the ambit of the power and, your Honours, why is it not effective according to its terms?  No doubt one can exercise powers of variation by the use of a number of different forms of words, but it does seem to be clearly a variation, in our submission.

Could we note, your Honours, also in relation to clause 2, that it commences with the words “The settlor”.  Our learned friend suggested and one notes that it is the settlor, namely, the person, not the trustee, who is releasing and abandoning any right which that person may have.  Your Honours, could we refer also to paragraph 48(c) of our learned friend’s submissions.  I do not think I need take your Honours to the words of it.  May I just say this, that it is the party in which it is said that there could not be a disclaimer or release, whatever it might be, because you had a situation where there was a combination of the holder of a power also having a fiduciary interest. 

But if one goes, your Honours, to the opening words of clause 2 on page 65, what is apparent is that the capacity in which the release is taking place is not the fiduciary capacity but the capacity as settlor or as an individual person.  Your Honours, could we note also in that regard the reference to Thomas at paragraph 15-03.  In relation to that one can understand that a fiduciary power may not be capable of being released because one either has the task or one does not, but this was not relevantly fiduciary. 

It is said also that the terms of the 1983 deed had no effect, but what it did have, quite apart from anything else, was to result in a reduction in the number of possible objects of the exercise of the power.  Whether one can cause the drowning, absorption or whatever other watery image might be given, the reality of it is that it does result in the reduction of the number of possible objects. 

Could we also say, your Honours, that this document was of course a deed.  Your Honours will see at page 66 that the document is signed, sealed and delivered.  Section 73A of the Property Act of Victoria said that one does not need actually to put the seal on it provided the words “signed, sealed and delivered” are there.  So, your Honours, the document in the absence of consideration, in our submission, if there be an absence, does not matter.  It is a case in which the person having the right has given them up.

It was said also by our learned friends that if one looks at clause 3 of the deed at page 65, it is a provision which is inserted only to remove doubt.  Your Honours, doubt as to what?  The doubt is really as to the use of the expression “issue”.  Thereafter, it says in terms that do not really admit of much doubt at all that “any variation of the trusts”, et cetera, shall be invalid.

I was going to give your Honours two - in relation to section 85A and the interpretation of it.  They are extracts, your Honours, from Finlay and others Family Law in Australia dealing with the interpretation given to section 85A, and also from the Thompson Legal online dealing with that topic.  Now, your Honours, effectively what they say is that the provision in question to satisfy section 85A must have a nuptial character, some kind of relationship between the settlement and the marriage, but the fact that there are other persons not the subject of the marriage who are involved militates against the notion of it being a settlement of that kind.

Could I give your Honours copies of those documents?  I am sorry, I had not intended to read from them.  Your Honour, those are our submissions.

FRENCH CJ:   Thank you, Mr Jackson.  Mr Myers, has Mr Jackson left something out?

MR MYERS:   A few things, your Honours.

FRENCH CJ:   Yes, Mr Myers.

MR MYERS:   Thank you, your Honours.  I am indebted to your Honours for sitting on.  Just taking up the last matter that Mr Jackson adverted to, which concerns section 85A, if the Court goes to section 85A(1), one will see that the concluding words refer to:

ante-nuptial or post-nuptial settlements made in relation to the marriage.

Now, those words seem to be the basis of a considerable amount of learning as to what constitutes a settlement to which 85A can apply.  Perhaps the fons et origo of it is Knight v Knight (1987) FLC 91-854, a decision of Justice Nygh and what he said in the penultimate paragraph of the judgment was that:

In my view a settlement cannot be described as being a settlement in relation to a marriage, if persons outside of the marriage are substantial potential beneficiaries.  The purpose of s 85A is to allow the Court to deal with the property which is the subject of the trust. 

GUMMOW J:   Yes, but did Justice Nygh refer to any of the antecedents of sections like that?

MR MYERS:   He did not.

GUMMOW J:   No, I feared not.

HAYNE J:   There is another century before.  There was about a century of learning before.

MR MYERS:   That may be so, but if there are third party rights, that is the rights of persons who are not parties to the marriage or children of the marriage involved as potential beneficiaries then the question is whether that is an ante-nuptial or post-nuptial settlement made in relation to the marriage.  We say, with respect, the approach that has been taken for some years in the Family Court is correct.  In any event, that is what has happened.

Your Honours, may I refer to another provision of the Act, and this is to take up what your Honour Justice Gummow said about the detail being in the definitions.  The question of who is a party to a marriage, section 4(2) says that – on page 22 of the print:

A reference in this Act . . . to a party to a marriage includes a reference to a person who was a party to a marriage that has been:

(a)      terminated by divorce -

So in section 79 the reference to a party to a marriage would include in this case Mrs Spry and the difficulties that might otherwise arise do not because of that definition.

HAYNE J:   Sorry, what difficulties have you just swept away with one grand gesture, Mr Myers?  What are the difficulties to which you refer?

MR MYERS: The suggestion was made that section 79 would not work properly because if the property proceedings came after the order absolute, the reference to a party to a marriage would not make sense because you could not deal with persons who had ceased to be parties to a marriage.

Your Honours, it is fundamental to this question of why order 4 was made as it was that the judge at first instance and the majority in the Full Court decided that the 1983 deed could be revoked, and the release which it effected of the rights of Dr Spry to be considered as a beneficiary would be reinstated thereby. Thus, both Justice Strickland and the majority of the Full Court decided that Dr Spry was a person who was entitled to exercise a power in his own favour to acquire all the assets of the trust. Now, that did not depend upon an application of section 106B. It depended upon a view as to the effect of the release or the ability to revoke the release or whatever.

It is not simply a matter of looking at the case as if the powers under section 106B have been exercised. One also has to bear in mind that the courts have proceeded on a particular basis in relation to the 1983 deed. If that basis is wrong, then of course the order is very unjust because Dr Spry did not have the means to acquire the property to satisfy the order and it is at the heart of our case, and I will not repeat it, that we say that Justice Strickland and the majority of the Full Court were wrong about the 1983 deed.

HAYNE J:   Just before you part from that point, was the power of Dr Spry to choose his wife as an object of benefaction before divorce an item of property, as that expression is used in the Act?

MR MYERS:   In my respectful submission, no.  The word.....was used, I think, between counsel and the Court a few moments ago.

HAYNE J:   And is the right to due administration that she and other beneficiaries had before divorce an item of property?

MR MYERS: In our respectful submission, no, not for the purposes of section 79 at least. A word like “property” is a word of very general meaning and shifting meaning too and it derives its meaning from, in a statutory context, the statutory context and the purposes and objects of the statute and there is no point served in regarding such a right as a right of property for the purpose ‑ ‑ ‑

HAYNE J:   So that if the property of the parties to the marriage, or a party to the marriage, included on the one side the power of the husband to choose the wife as the object of benefaction and on the other the right of the wife to due administration, was it, if property is referring back to the time before divorce, within the power of the court to make an order requiring one party to the marriage, here Dr Spry, to make a payment which would depend upon his having made an appointment in favour of the wife?

MR MYERS:  In my respectful submission, no, your Honour. Section 79(1)(a), to take that case, says:

In property settlement proceedings, the court may make such order as it considers appropriate:

(a)in the case of proceedings with respect to the property of the parties to the marriage or either of them –

In the hypothesis your Honour puts to me, it is the right to due administration which is the property.  It is not the assets in respect of which the right to due administration exists.  The judges of the Family Court were not taking a too conservative view when they made the submission in 1983 to the parliamentary committee, your Honour.  That, in essence, is our submission.

Just taking this a little further, your Honours, if one gets to a case where it is acknowledged that Mrs Spry is not a person in whose favour a distribution of property can be made under the trust because she is no longer married to an issue of Brigadier Spry and the question arises whether by exercise of a power of variation, which is the last point my friend relied upon, she can again become an object, the hope that one might be the beneficiary of an exercise of the power of variation so as to become a person in whose favour property can be distributed under the trust, a fortiori is not a right of property.  Regardless of what might be the correctness of

the argument about the power of variation, it does not take my learned friend anywhere because it does not result in the wife having property in the relevant sense.

On the question of the power of variation we say this.  Either there is a power of variation to add beneficiaries or there is not.  In our respectful submission, on the construction of the whole of that trust the natural construction is that there is not a power to add beneficiaries by exercise of the power of variation.  Powers of variation may be broadly construed generally, but they have to be construed in the context of the trust.  In the context of this trust it is clear enough, we say, that Dr Spry does not have on any hypothesis a power to vary the trust by adding whomsoever he likes.  It is not the point to say that the person he might add, if he adds someone, is someone who might well be a deserving person as a beneficiary.  Either there is the power to add or there is not.

Your Honours, some point was made of the fact that two distributions were made to Dr Spry, or by Dr Spry to himself, from the trust after 1983.  Dr Spry said that those distributions were made mistakenly.  There is not a hint anywhere in the judgments that that was called in question.  I have had a look at the reasons for decision quickly as I have been sitting at the Bar table and I cannot find any express finding on it.  The reason, no doubt, is that there is no suggestion that there was anything but a mistake and it does not reflect upon a question of the construction of the 1983 instrument.  If your Honours please, they are the submissions that I wish to make in reply.

FRENCH CJ:   Thank you, Mr Myers.  In relation to Mr Gleeson’s foreshadowed application for special leave to cross‑appeal and to amend the notice of contention, are you able to lodge both an application and a draft notice and a proposed amended notice of contention by 3 o’clock tomorrow?  Is that your position?

MR GLEESON:   Yes, your Honour.

FRENCH CJ:   Mr Jackson, seven days, would that suffice thereafter and will that do for the other appellants as well?

MR JACKSON:   Yes, your Honour.

FRENCH CJ:   And then, Mr Gleeson, perhaps seven days after that to reply.

MR GLEESON:   Yes.  Did your Honours wish a written submission in support of a special leave application or simply the ground and the ‑ ‑ ‑

FRENCH CJ:   Yes, we would want a written submission.

MR GLEESON:   Could your Honour extend it then to 3.00 pm the next day?

GUMMOW J:   Yes, I thought you were being a bit ambitious.

HAYNE J:   Daunting ambition?

FRENCH CJ:   So 3 o’clock on 4 September and then the response from the appellants on 11 September and your reply by 18 September and the Court will consider the application at the same time as we consider our decision in the matter. 

The Court will reserve its decision and we will adjourn until 10.15 tomorrow morning.

AT 4.46 PM THE MATTER WAS ADJOURNED