Kennon v Spry

Case [2008] HCA 56

HIGH COURT OF AUSTRALIA

FRENCH CJ,
GUMMOW, HAYNE, HEYDON AND KIEFEL JJ

Matter No M25/2008

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) & ORS  APPELLANTS

AND

HELEN MARIE SPRY & ORS  RESPONDENTS

Matter No M26/2008

IAN CHARLES FOWELL SPRY  APPELLANT

AND

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

Kennon v Spry
Spry v Kennon
[2008] HCA 56
3 December 2008
M25/2008 & M26/2008

ORDER

Matter No M25/2008

1.Appeal dismissed.

2.Appellants to pay the costs of the appeal of the first respondent.

3.Application by first respondent for special leave to cross-appeal dismissed with no order as to costs.

Matter No M26/2008

1.Appeal dismissed.

2.Appellant to pay the costs of the appeal of the third respondent.

3.Application by third respondent for special leave to cross-appeal dismissed with no order as to costs.

On appeal from the Family Court of Australia

Representation

Matter No M25/2008

D F Jackson QC with M C Hines for the appellants (instructed by the appellants)

J T Gleeson SC with P Kulevski for the first respondent (instructed by Kennedy Wisewoulds)

A J Myers QC with S Smith for the second respondent (instructed by Nedovic & Co)

I J Hardingham QC with M C Hines for the third to sixth respondents (instructed by Victor Ismailovic)

Matter No M26/2008

A J Myers QC with S Smith for the appellant (instructed by Nedovic & Co)

D F Jackson QC with M C Hines for the first and second respondents (instructed by the first and second respondents)

J T Gleeson SC with P Kulevski for the third respondent (instructed by Kennedy Wisewoulds)

I J Hardingham QC with M C Hines for the fourth to seventh respondents (instructed by Victor Ismailovic)

Notice:  This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

Kennon v Spry
Spry v Kennon

Family law – Courts having jurisdiction in matrimonial causes – Powers – Jurisdiction under s 79(1) of Family Law Act 1975 (Cth) to make orders – "Proceedings with respect to the property of the parties to the marriage or either of them" – Definition of "property" of parties to marriage – Whether right of wife with respect to due administration of trust and discretionary power of husband to appoint whole of trust assets to wife constituted part of the property of the parties to the marriage.

Family law – Courts having jurisdiction in matrimonial causes – Powers – s 85A of Family Law Act 1975 (Cth) – Court's power to make orders respecting property the subject of "ante-nuptial or post-nuptial settlements made in relation to the marriage" – Whether contributions by parties to existing trust are post-nuptial settlements – Whether just and equitable – Interests of third parties.

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Details
AGLC
Kennon v Spry [2008] HCA 56
Case
[2008] HCA 56
Decision Date

CaseChat Overview and Summary

The case involved appeals concerning property settlement orders made by the Family Court of Australia. The primary dispute centred on whether certain trust assets, controlled by the husband (Dr Spry), should be included in the pool of property divisible between him and his wife (Mrs Spry) following their separation and impending divorce. The husband had established trusts and subsequently made dispositions of assets to these trusts, which he argued were beyond the court's jurisdiction to divide.

The High Court was required to determine several key legal issues. These included whether the wife's equitable right to the due administration of a trust and the husband's discretionary power to appoint trust assets constituted "property" of the parties to the marriage under section 79(1) of the *Family Law Act 1975* (Cth). The Court also considered whether contributions to existing trusts could be characterised as "ante-nuptial or post-nuptial settlements" under section 85A of the Act, and whether the court retained jurisdiction to make property orders even after the dissolution of the marriage, as if the divorce had not yet occurred.

The High Court reasoned that the wife's equitable right to due consideration and due administration of the trust, coupled with the husband's discretionary power as trustee, created an interest that could be treated as property for the purposes of the *Family Law Act*. This right, akin to an equitable chose in action, attracted the protection of a court of equity and possessed a degree of concreteness or solidity, distinguishing it from a mere hope. The Court found that the husband's actions in varying the trust and disposing of assets were intended to defeat an anticipated property settlement order, and therefore, the assets could be brought back into the divisible property pool.

The appeals were dismissed. The High Court upheld the trial judge's orders, which had treated the trust assets as part of the divisible property of the parties. The appellants were ordered to pay the costs of the appeal, and applications for special leave to cross-appeal were dismissed.

Orders

Orders of the court

Matter No M25/2008:

1. Appeal dismissed.

2. Appellants to pay the costs of the appeal of the first respondent.

3. Application by first respondent for special leave to cross-appeal dismissed with no order as to costs.

Matter No M26/2008:

1. Appeal dismissed.

2. Appellant to pay the costs of the appeal of the third respondent.

3. Application by third respondent for special leave to cross-appeal dismissed with no order as to costs.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

FRENCH CJ (dissent) GUMMOW AND HAYNE JJ (dissent)
By the 20 January 2002 Dispositions, Dr Spry conveyed to his four children shares held by him beneficially. By an instrument of 20 May 2002 he appointed Mr Kennon as joint trustee with him of each of the Children's Trusts. Judgment of the primary judge The learned primary judge made extensive findings of fact and law. Key findings for present purposes are summarised in the following paragraphs. As to the effect of the 1983 Deed, his Honour held: 1.Prior to the 18 January 2002 Dispositions Dr Spry was able to benefit from the assets of the Trust to an extent that, if the Family Court were to set aside the 1998 Instrument, the assets could be treated as his property. In that case, Dr Spry would then be reinstated as capital beneficiary subject to the terms of the Trust and the 1983 Deed.2.There was nothing to prevent Dr Spry from revoking the 1983 Deed or just cl 2 of it. Clause 2 was not a variation of the terms of the Trust. Its revocation could not be invalidated by cl 3. Clause 3 was invalid to the extent it attempted to vary the power of variation. If cl 2 were a variation, Dr Spry was not thereby validly excluded as a beneficiary and remained a person to whom any part of the Trust fund and income could be applied.3.Even if cl 2 of the 1983 Deed remained, Dr Spry sufficiently controlled the Trust such that once the instruments and dispositions of 7 December 1998 and 18 January 2002 were set aside its assets could be treated as his property. 4.In the alternative, Dr Spry's level of control over the assets of the Trust meant that they could be treated as "a financial resource". 5.Although his Honour regarded the Trust assets as "at the very least" able to be taken into account as a financial resource of Dr Spry, he proceeded on the basis of treating them as Dr Spry's property. As to the 1998 Instrument, his Honour found, inter alia: 1. Dr Spry did not tell his wife of the instrument. 2.Its primary effect was to exclude Dr and Mrs Spry as capital beneficiaries and create a situation where that could not be changed. 3. Mrs Spry remained an income beneficiary. 4.Dr Spry made the 1998 Instrument knowing the marriage was in trouble and that an order dealing with the property of the parties, including the assets of the Trust, was likely. He wanted to remove the assets of the Trust from the reach of the Family Court and considered the instrument would achieve that result. He was looking to defeat an anticipated order for property settlement. 5.All the necessary elements of s 106B were satisfied in relation to the 1998 Instrument and it was open to make an order setting it aside. As to the Children's Trusts and the 18 January 2002 Dispositions, his Honour found:1.There was no need for Mrs Spry to pursue an application to set aside the Children's Trusts under s 106B. The crucial step was the transfer of assets to those trusts. 2.Dr Spry, as trustee of the Trust, applied one quarter of all of its income and capital to each of the Children's Trusts. As a result each of the Children's Trusts acquired assets to the value of approximately $875,000 which included $1,888,000, being net proceeds of the sale of a property at Mathoura Road, Toorak. That property had been purchased by the Trust in December 1979 for about $152,000, then rented until occupied by the family from 1983.3.There was no money owing by the Trust to either Dr Spry or his wife. 4.Dr Spry had not made an agreement with his wife that the assets of the Trust could be passed to the children when Dr Spry determined to do so. 5.Dr Spry did not adequately explain why it was necessary to set up the Children's Trusts and apply the capital and income of the Trust to them.6.At a time not long after separation at which it could clearly be anticipated an order would be made dealing with the parties' property, Dr Spry determined, without informing Mrs Spry, that it was time to move approximately $3,500,000 from the Trust and place it in the Children's Trusts. He was concerned that despite the 1998 variation the assets of the Trust might still have been within the reach of Mrs Spry and the Family Court. 7.The instruments were made to defeat an anticipated order in future proceedings.

Ratio Decidendi

Legal Principle Established

Established by:

In light of the trial judge's findings about the purposes of the 1998 Instrument and the 18 January 2002 Dispositions, the preceding conclusion is sufficient to support the trial judge's orders and the dismissal of these appeals. They are also supported by a consideration of Mrs Spry's equitable right to due consideration as an object of the Trust prior to the 1998 Instrument and, for the reasons enunciated by Gummow and Hayne JJ, by consideration of that right in conjunction with Dr Spry's power as trustee to apply the assets or income of the Trust to any of the beneficiaries in his discretion. It is desirable to say something further specifically about that. The rights to due consideration and due administration as "property" Each of the beneficiaries had the right to compel the trustee to consider whether or not to make a distribution to him or her and a right to the proper administration of the Trust[34]. In Gartside v Inland Revenue Commissioners, Lord Wilberforce put it thus[35]:"No doubt in a certain sense a beneficiary under a discretionary trust has an 'interest': the nature of it may, sufficiently for the purpose, be spelt out by saying that he has a right to be considered as a potential recipient of benefit by the trustees and a right to have his interest protected by a court of equity. Certainly that is so, and when it is said that he has a right to have the trustees exercise their discretion 'fairly' or 'reasonably' or 'properly' that indicates clearly enough that some objective consideration (not stated explicitly in declaring the discretionary trust, but latent in it) must be applied by the trustees and that the right is more than a mere spes. But that does not mean that he has an interest which is capable of being taxed by reference to its extent in the trust fund's income: it may be a right, with some degree of concreteness or solidity, one which attracts the protection of a court of equity, yet it may still lack the necessary quality of definable extent which must exist before it can be taxed."[34]Gartside v Inland Revenue Commissioners [1968] AC 553 at 617.[35][1968] AC 553 at 617-618; see also Sainsbury v Inland Revenue Commissioners [1970] Ch 712 at 725. The rights to consideration and to due administration are in the nature of equitable choses in action. There has been considerable judicial discussion about the nature of a beneficiary's right to due administration in the case of the residuary legatee of an unadministered deceased estate and members of superannuation funds whose benefits have not vested. The residuary legatee has an equitable right[36], "a chose in action, capable of being invoked for any purpose connected with the proper administration of [the] estate"[37]. Such a right has been treated as property for the purposes of the Bankruptcy Act 1966 (Cth)[38]. In the case of a residuary legatee the right to due administration is connected to a real expectancy of an interest in the property. The same is true for the members of a superannuation fund although vesting of a benefit may be many years in the future. However, the right to due administration taken by itself in relation to a superannuation fund was described by the Full Court of the Family Court in 1986, in a brief consideration of the question, as "an empty present right of no relevance"[39].[36]Livingston v Commissioner of Stamp Duties (Q) (1960) 107 CLR 411 at 444 per Fullagar J; [1960] HCA 94.[37]Commissioner of Stamp Duties (Q) v Livingston (1964) 112 CLR 12 at 27; [1965] AC 694 at 717.[38]Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 at 314.[39]In the Marriage of Hauff (1986) 10 Fam LR 1076 at 1081.