Lowther Park Pty Ltd as trustee for the Lowther Park Family Trust v Simon Della Marta

Case •

[2023] NSWSC 1555

•

12 December 2023

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: Lowther Park Pty Ltd as trustee for the Lowther Park Family Trust v Simon Della Marta [2023] NSWSC 1555
Hearing dates: 8 December 2023
Date of orders: 12 December 2023
Decision date: 12 December 2023
Jurisdiction: Equity - Duty List
Before: McGrath J
Decision:

See [76]

Catchwords:

EQUITY — trusts and trustees — rectification of trust deed — no issue of principle

EQUITY — trusts and trustees — variation of trust — release or surrender pursuant to Trustee Act 1925 (NSW), s 81(1)

Legislation Cited:

Duties Act 1997 (NSW)

Foreign Acquisition and Takeovers Act 1975 (Cth)

Income Tax Assessment Act 1936 (Cth)

Land Tax Act 1956 (NSW)

Land Tax Management Act 1956 (NSW)

Trustee Act 1925 (NSW)

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Budumu Pty Ltd [2021] NSWSC 522

Casibond Pty Ltd [2021] NSWSC 320

Commissioner of Stamp Duties (NSW) v Carlenka (1995) 41 NSWLR 329

Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336

Public Trustee v Smith [2008] NSWSC 397

Re Cecil Investments Pty Ltd [2021] NSWSC 211

Re Dion Investments Pty Ltd [2020] NSWSC 1661

Re Dion Investments Pty Ltd (2014) 87 NSWLR 753; [2014] NSWCA 367

Sanwick Pty Ltd v Kalyk [2016] NSWSC 100

TNB 878 Pty Ltd [2022] NSWSC 527

Category:Principal judgment
Parties: Lowther Park Pty Ltd (Plaintiff)
Simon Della Marta trading as In the matter of the Lowther Family Trust (Defendant Contradictor)
Representation:

Counsel:
D Barlin (Plaintiff)
JP Nathan (Defendant Contradictor)

Solicitors:
HWL Ebsworth (Plaintiff)
Pointon Partners (Defendant Contradictor)
File Number(s): 2023/00440420
Publication restriction: Nil

JUDGMENT

INTRODUCTION

  1. These proceedings were commenced by summons filed 5 December 2023 by the plaintiff, Lowther Park Pty Ltd as trustee for the Lowther Park Family Trust.

  2. There is considerable urgency for parts of the application to be determined by me sitting as duty judge because unless the principal order sought is made, the Lowther Park Family Trust will vest on 1 January 2024 with adverse consequences for it.

  3. The Lowther Park Family Trust was established by way of a Deed of Trust dated 19 June 1974 made between William Wentworth Thompson (as settlor) and Lowther Park (as trustee). The Lowther Park Family Trust was created to benefit members of the Lowe family. Without meaning any disrespect, for convenience in this judgment I will refer to members of the Lowe family by their first names.

  4. During the course of the hearing on 8 December 2023, Lowther Park foreshadowed an application to amend the summons. I directed that the form of the proposed amended summons be provided to me in chambers. On 11 December 2023, I received the proposed amended summons and have decided to grant leave for it to be filed. In this judgment I have determined the issues based on the form of the amended summons to be filed consequent on the orders at the conclusion of this judgment.

  5. The parts of the amended summons on which Lowther Park move are as follows:

(1) Order pursuant to rule 7.6 of the Uniform Civil Procedure Rules 2005 (NSW) that Mr Simon Della Marta be appointed to represent the interests of any unborn and/or unascertained beneficiary of the Lowther Park Family Trust (“the Trust Estate”).

…

(3)   Order that the terms of the Trust Estate contained in the Trust Deed by rectified by deleting the following words from the “7th Part – The Terminal Date” contained in the schedule of the Trust Deed, being:

“or

the first day of January in the year 2024”

(4) In the alternative to prayer 3, Order pursuant to section 86A of the Trustee Act 1925 (NSW) (“Trustee Act”) so that the trusts be varied and the powers enlarged with respect to the Trust Estate such that the “Terminal Date” of the Trust Estate as defined in paragraph 1(g) and the 7th Part of the schedule of the Trust Deed does not include the date of 1 January 2024.

(5) In the alternative to prayer 4 of the summons, order pursuant to section 86A of the Trustee Act so that the trust be varied, and the powers enlarged with respect to the Trust Estate such that the “Terminal Date” of the Trust Estate as defined in paragraph 1(g) and the 7th Part of the Schedule of the Trust Deed be eighty (80) years from the date of the orders of the Court.

(6) Order pursuant to section 86A of the Trustee Act so that the trusts be irrevocably varied and that the powers be irrevocably revoked with respect to the Trust Estate so that a “foreign person” as that term is defined in section 104J of the Duties Act 1997 (NSW) cannot benefit under the Trust Estate.

(6A) In the alternative to prayer 6, Order pursuant to section 81 of the Trustee Act that the Trustee irrevocably surrenders and/or releases all trusts and/or powers as appropriate so that any beneficiary of the Trust Estate that is a “foreign person” as that term is defined in the Land Tax Act 1956 (NSW), the Land Tax Management Act 1956 (NSW) and the Duties Act 1997 (NSW) is not a beneficiary whilst they meet the definition of “foreign persons”.

…

(9)   Order that the Plaintiff and the Defendant be entitled to costs from the income and/or capital of the Trust Estate on the indemnity basis.

  1. Lowther Park do not move on prayers 2, 7 and 8 of the amended summons.

  2. At the commencement of the hearing, I made the order in prayer 1 of the amended summons that Mr Simon Della Marta (Mr Della Marta) be appointed to represent the interests of any unborn and/or unascertained beneficiary of the Trust Estate. Mr Della Marta consented to the filing of the amended summons.

EVIDENCE

  1. Lowther Park relied on the following evidence:

  1. affidavit of William Wentworth Thompson sworn 14 November 2023;

  2. affidavit of Caroline Wilcher affirmed 23 November 2023;

  3. affidavit of Catherine White affirmed 27 November 2023 and the exhibit to that affidavit;

  4. affidavit of Mark Edward McLellan-Drehs affirmed 29 November 2023;

  5. second affidavit of Mark Edward McLellan-Drehs affirmed 29 November 2023;

  6. affidavit of Mark Edward McLellan-Drehs affirmed 7 December 2023; and

  7. affidavit of Thomas Harold Hilton Dodds affirmed 7 December 2023.

  1. Mr Della Marta relied on the affidavit of Simon Della Marta sworn 7 December 2023.

  2. At the hearing, Mr D Barlin appeared for Lowther Park instructed by HWL Ebsworth and Mr JP Nathan appeared for Mr Della Marta instructed by Pointon Partners.

THE DEED OF TRUST

  1. As I have stated, the Lowther Park Family Trust was established by the Deed of Trust made on 19 June 1974. The “Settlor” defined in cl 1(a) of the Deed of Trust is William Wentworth Thompson, who is now 91 years of age and gave evidence in the proceedings by way of affidavit. The “Trustee” defined in cl 1(b) of the Deed of Trust is Lowther Park.

  2. The relevant provisions of the Deed of Trust are described below.

  3. Clause 1(d) defines “The Trust Fund”:

…shall mean and include the Initial Amount and all other monies and property (if any) which may from time to time hereafter be paid and transferred to the Trustee by the Settlor or any Contributor to be held by it upon trusts and with the powers duties and discretions herein set out and all accretions thereto and investments from time to time representing the same.

  1. Clause 1(c) defines “The Initial Amount” as the sum of money set out in the 3rd part of the schedule, which is stated to be $10.

  2. Clause 1(e) defines “The Beneficial Class” as the persons named and described in the 4th part of the schedule and the persons from time to time comprised in the class of persons (if any) defined in the said 4th part of the schedule. The 4th part of the schedule sets out the class of persons comprising:

  1. Frederic Edward Lowe [whose second name is actually Edwin]; and

  2. Audrey Margaret Lowe, his wife; and

  3. every child of the said Frederic Edward Lowe and the said Audrey Margaret Lowe and of either of them [there are two such children – Catherine White and John Lowe]; and

  4. every spouse to whom any such child shall have been married prior to the Terminal Date; and

  5. if any child of the said Frederic Edward Lowe and the said Audrey Margaret Lowe or of either of them shall die before the Terminal Date leaving a child or children surviving him or her then this class shall also include every such surviving child.

  1. In short, The Beneficial Class comprises Frederic and Audrey, their children and spouses if married prior to the Terminal Date, and their grandchildren in certain circumstances.

  2. Clause 1(g) defines “The Terminal Date” as the date specified in or determined in accordance with the provisions of the 7th part of the schedule. The 7th part of the schedule states:

The 20th Anniversary of the date of death of the last survivor of all the lineal descendants living at the date of this Settlement of his late Majesty King George the Fifth

or

the 1st day of January in the year 2024

or

such date as shall be declared by memorandum in writing under the common seal of my Trustee to be the Terminal Date (as to which its discretion shall be absolute and unfettered)

WHICHEVER shall first occur.

  1. Clause 3 states:

Subject to clauses 4 and 5 hereof, the Trustee shall hold the Trust Fund for all or such one or more of them the members of the Beneficial Class living at the Terminal Date for such interests and in such proportions as the trustee as at the terminal date in its absolute discretion by memorandum in writing under the Common Seal of the Company declares not earlier than one year prior to the Terminal Date PROVIDED ALWAYS that failing any declaration by the Trustee as aforesaid or to the extent that any such declaration as aforesaid shall not extend or shall result in invalidity the Trustee shall hold the Trust Fund upon the Terminal Date upon the trusts set out in the 5th part of the schedule hereto.

  1. The 5th part of the schedule contains a gift over of corpus in the following form:

Upon trust absolutely for the members of the Beneficial Class living on the Terminal Date and if more than one in equal shares…

  1. This gift over is subject to a proviso in the event that the Beneficial Class included one or more grandchildren of Frederic and Audrey, a further proviso if on the Terminal Date there was no person living who is entitled under the preceding portion of the provision and a final proviso concerning the potential share of any great grandchildren of Frederic and Audrey.

  2. Clause 4 states:

Until the capital the Trust Fund shall become absolutely vested in possession the Trustee shall hold the net annual income arising from the Trust Fund during each Year of Income upon trust absolutely for such one or more of the members of the Beneficial Class to the exclusion of the other or others of them (and if more than one then in such proportion as the Trustee shall in its absolute discretion determine) as the Trustee shall by memorandum under the Common Seal of the Company prior to 30th June in any year determine or failing a determination by the Trustee by memorandum as aforesaid or to the extent that any such determination may not dispose of the whole of the net annual income arising during the Year of Income then the Trustee will hold that income or the residue thereof as the case may be upon the trusts set out in the 6th part of the schedule hereto.

  1. The 6th part of the schedule contains a gift over of intermediate income in the following form:

Upon trust absolutely for such of the respective members of the Beneficial Class as are living on the last day of the relevant Year of Income and if more than one in equal shares…

  1. This gift over is subject to a similar series of provisos as are contained in the 5th part of the schedule set out above.

  2. The Deed of Trust does not contain a provision allowing for it to be amended or varied.

SALIENT FACTS

  1. On 18 June 1974, Lowther Park was incorporated with Frederic and Audrey as directors and Audrey as the secretary. Two of the shares in Lowther Park were owned by Audrey and one share was owned by Frederic.

  2. William Thompson is “The Settlor” (as defined in cl 1(a) of the Deed of Trust) of the Lowther Park Family Trust. He recalls that on 19 June 1974 he attended at the residence of his cousin, Audrey, and her spouse, Frederic, to execute the Deed of Trust to establish the Lowther Park Family Trust. He also recalls that he contributed “The Initial Amount” of $10. Mr Thompson is a party to the Deed of Trust in his capacity as “The Settlor”, together with Lowther Park, and he signed it on the execution page. Frederic signed the Deed of Trust on the execution page as a director of Lowther Park, and his signature was witnessed by Audrey.

  3. The evidence is that the main asset comprising “The Trust Fund” (as defined in cl 1(d) of the Deed of Trust) of the Lowther Park Family Trust is a unit known as 4/2-12 Eastbourne Road, Darling Point, New South Wales (Darling Point Property), which was purchased on 17 September 1974 for $52,000, thereby classifying it as a pre-capital gains tax asset under the relevant provisions of the Income Tax Assessment Act 1936 (Cth) (ITAA).

  4. The other assets comprising “The Trust Fund” (as defined in cl 1(d) of the Deed of Trust) of the Lowther Park Family Trust are a trading account with Rural Bank and $10 held in cash forming “The Initial Amount” (as defined in cl 1(c) of the Deed of Trust).

  5. Mr Thompson recollects that he was told by Frederic and Audrey that the main purpose behind the establishment of the Lowther Park Family Trust was to acquire the Darling Point Property for the benefit of Frederic and Audrey and, after their death, for the families of their children by providing them with a place to stay while in Sydney. Catherine was told precisely the same thing by each of her parents, Frederic and Audrey, at the time that the Lowther Park Family Trust was set up.

  6. Mr Thompson says that he did not read the terms of the Deed of Trust in detail but relied on the solicitor who prepared it (whose name he does not recall). To support this recollection, he says that the misspelling of Frederic’s second name as Edward instead of Edwin in the Deed of Trust indicates that he did not read it because he would have noticed that error.

  7. Mr Thompson says that at the time he signed the Deed of Trust he did not know that it contained a set of perpetuity rules and a vesting date defined by reference to “The Terminal Date” which had the effect of limiting the life of the Lowther Park Family Trust to a period less than the maximum allowed by law at that time. He says that he did not know that the Deed of Trust provided that the Lowther Park Family Trust was to vest on 1 January 2024 or after a period of time of 50 years or less from the date of its establishment on 19 June 1974.

  8. Mr Thompson said it was not his intention at the date of the establishment of the Lowther Park Family Trust that it would terminate on 1 January 2024. He also does not recall Frederic, Audrey or the solicitor involved in the preparation of the Deed of Trust ever mentioning that the Lowther Park Family Trust was to vest on 1 January 2024 and it was certainly not his intention that it do so.

  9. Mr Thompson does not recall any reason why the Deed of Trust would have provided that the Lowther Park Family Trust would vest in less than 50 years from the date of its establishment. To the contrary, he said it was his intention that the Lowther Park Family Trust would run for as long as possible by law on the understanding that the Darling Point Property could be kept in the family of Frederic and Audrey and used for the benefit of future generations of that family.

  10. Catherine recalls that neither Frederic nor Audrey ever mentioned that it was their intention as directors of Lowther Park and the intention of Mr Thompson to cause the Lowther Park Family Trust to vest on 1 January 2024 or after a period of time of 50 years or less from the date of its establishment. Catherine also said that Frederic and Audrey had told her that the Lowther Park Family Trust was to run for their future generations in the context of her being provided with control over the Lowther Park Family Trust after their respective deaths.

  11. The solicitor who prepared the Deed of Trust was Peter Thompson, a principal at the law firm Priddle Gosling, located at 60 Martin Place, Sydney, New South Wales. Despite the considerable efforts which have been taken by the solicitor from HWL Ebsworth acting for Lowther Park, Mark McLellan-Drehs, to locate the client file of Priddle Gosling relating to the establishment of the Lowther Park Family Trust, none have been successful in doing so. This includes multiple enquiries at each of the current successor firms of Priddle Gosling, which have variously transformed into Barker Gosling, Dibbs Barker Gosling, Dibbs Abott Stillman, Dentons Australia, Murphy & Moloney, Murphy & Murphy, Prior Tzannes & Wallis and Hunt & Hunt.

  12. On 22 May 2000, Frederic died. Catherine then became a director of Lowther Park.

  13. On 19 May 2018, Audrey died. The husband of Catherine, Andrew White, then became an additional director of Lowther Park.

  14. Under the wills of each of Frederic and Audrey, Catherine was gifted the 3 shares in Lowther Park held by them. As a result, Catherine is now the sole shareholder of Lowther Park.

  15. While the Darling Point Property was originally used as Sydney accommodation for different family members of Frederic and Audrey, since 2020 the Darling Point Property has been rented to produce income for the Lowther Park Family Trust for anticipated strata and other costs. This is due to the fact that the entire building in which the Darling Point Property is located is to be the subject of major structural work involving the replacement of all windows. Unless the Darling Point Property produces sufficient income to meet the strata and other costs, it will have to be sold. If the Lowther Park family trust vests on 1 January 2024, there will be a deemed disposal of the Darling Point Property so that it would no longer be regarded as a pre-capital gains tax asset under the ITAA.

  16. The current value of the Darling Point Property is about $2 million.

  17. Catherine and her spouse Andrew are alive and form part of the Beneficial Class as defined in the Deed of Trust. Annabel White and Nicholas White (both alive) are the children of Catherine and Andrew. All of them have expressly consented to the orders which are sought in the summons.

  18. John and his spouse Margaret Shepherd are also alive and form part of the Beneficial Class as defined in the Deed of Trust. Charles Lowe and William Lowe (both alive) are the children of John and Margaret. All of them have expressly consented to the orders which are sought in the summons.

  19. On 21 October 2020, the accountant for Lowther Park (Boyce Pty Ltd) lodged the Deed of Trust with Revenue NSW via its online portal explaining that the Deed of Trust was not capable of amendment to irrevocably exclude “foreign persons” as potential beneficiaries and that none of the existing beneficiaries of the Lowther Park Family Trust were “foreign persons” for the purposes of the Foreign Persons Land Tax Surcharge under the Land Tax Act.

  20. In December 2020, NSW Revenue via their portal stated that the Lowther Park Family Trust is not foreign owned and that the Deed of Trust excludes foreign beneficiaries. This position was then clarified by telephone conversation between the accountant from Boyce and a representative of NSW Revenue who stated that they had accepted the self assessment of Lowther Park as not being foreign owned. If that position is maintained (although it is not binding) the Foreign Persons Land Tax Surcharge will not be charged to Lowther Park.

  21. On 12 January 2023, the portal of Revenue NSW indicated that the assessment for land tax of the Darling Point Property which had been charged to Lowther Park for 2023 was for an amount of $10,496.40, and the amount of the Foreign Persons Land Tax Surcharge was stated to be “not applicable”. This same amount was contained in the land tax assessment notice issued to Lowther Park on 12 January 2023.

  1. On 6 December 2023, Mr McLellan-Drehs sent emails with attached letters on behalf of Lowther Park to the Commissioner of Taxation at the Australian Taxation Office and the Chief Commissioner of State Revenue at Revenue NSW informing each of them of this application and providing copies of the summons and such of the supporting affidavits which had been made by that time. The letters particularly drew attention to the fact that the relief being sought included extending the vesting date of the Lowther Park Family Trust and ensuring that “foreign persons” cannot benefit from it. Mr McLellan-Drehs asked whether each of the Commissioner of Taxation and the Chief Commissioner of State Revenue wished to be heard in relation to the application.

  2. By letter dated 7 December 2023, the Chief Commissioner of State Revenue indicated that he did not wish to participate in the proceedings.

  3. By email dated 7 December 2023, the Commissioner of Taxation indicated that he did not propose to intervene or seek to be heard in the proceedings.

ISSUE 1: RECTIFICATION

  1. In my opinion, the issue in relation to the vesting date of 1 January 2024 under the Deed of Trust can be resolved by the application of the principles by which a document may be ordered to be rectified because it mistakenly expresses the common intention of the parties to it, in the manner in which those principles apply to trust deeds.

  2. In Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336, Mason J at 350 said:

What is of importance is that the purpose of the remedy is to make the instrument conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately. And there has been a firm insistence on the requirement that the mistake as to the writing must be common to the parties and not merely unilateral, except in cases of a special class….

  1. As stated in Commissioner of Stamp Duties (NSW) v Carlenka (1995) 41 NSWLR 329 (which involved the rectification of a trust deed), by Mahoney AP at 331:

…the principle upon which rectification is granted involves two things: that the party (in the case of a unilateral transaction) or the parties (in the case of a transaction between parties) had at all relevant times an intention which was to be given effect by the document to be rectified; and that that document does not give effect to that transaction.

  1. In the judgment of McLelland AJA in Carlenka at 345, his Honour considered the nature of the evidence required to establish the conditions for an order of rectifications, saying:

In general, the remedy of rectification of an instrument is available where it is established by clear and convincing proof that at the time of execution of the instrument the relevant party or parties as the case may be had an actual intention (if more than one party, a common intention) as to the effect which the instrument would have which was inconsistent with the effect which the instrument as executed did have in some clearly identified way. In this context “effect” means the legal and factual operation of the instrument according to its true construction, but does not include legal or factual consequences of the operation of the instrument of a more remote, or collateral, kind (for example, its liability to stamp duty).

  1. These principles have been elucidated in two decisions of this court in relation to trust deeds.

  2. In Public Trustee v Smith [2008] NSWSC 397, White J (as his Honour then was) at [71] said:

…For the trust deed to be rectified there must be clear and convincing evidence that at the time the trust deed was executed the trustee and the settlor had an actual intention as to the effect which the deed was intended to create which was different from the effect which the instrument did have in a clearly identified way (Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 345). It must be demonstrated with clarity that the parties had a sufficiently precise intention that the court can determine both the substance and the detail of the precise variation to be made to the wording of the instrument (Bush v National Australia Bank Ltd (1992) 35 NSWLR 390 at 407; Muriti v Prendergast at [137]).

  1. In Sanwick Pty Ltd v Kalyk [2016] NSWSC 100, Stevenson J at [16] referred to the passage from Maralinga extracted above and said:

An example of the “special class“ to which Mason J referred is a voluntary settlement creating a trust where the settlor has no independent intention as to how the trust is to operate and who acts on the instruction of, or at the request of the proposed trustee; or, as here, the person who in substance stands behind the trustee.

  1. The decision in Sanwick was to order the rectification of the trust deed in that case to delete the date which would have the effect of causing the trust to vest.

  2. Similarly to the settlor in each of Smith at [73] and Sanwick at [9], Mr Thompson as the Settlor under the Deed of Trust did not read the Deed of Trust and had no input into its contents, and the circumstances inferentially demonstrate that Mr Thompson intended the Deed of Trust to operate in whatever manner Frederic and Audrey intended it to operate. Both Mr Thompson and Catherine give contemporaneous evidence that it was the intention of Frederic and Audrey that the Lowther Park Family Trust acquire the Darling Point Property, and that the Darling Point Property was to be kept in the family of Frederic and Audrey and used for the benefit of future generations of that family.

  3. In these circumstances, I am satisfied that there is clear and convincing evidence that at the time the Deed of Trust was executed by the trustee, Lowther Park (through its director Frederic) and by the Settlor, Mr Thompson, each of them had an actual intention that the Lowther Park Family Trust was not to vest as early as 1 January 2024 and that the Deed of Trust does not reflect this intention.

  4. At the hearing, Mr Nathan for Mr Della Marta made the submission that the interests of the unborn and unascertained beneficiaries are not adversely affected by the rectification of the Deed of Trust sought by Lowther Park.

  5. For these reasons, I propose to order that the Deed of Trust be rectified by deleting the words “or the 1st day of January in the year 2024” from the definition of “The Terminal Date” in the 7th part of the schedule to the Deed of Trust.

  6. As a result of the view I have formed regarding the rectification of the Deed of Trust, it is unnecessary for me to address any of the submissions that were made to me in relation to the variation of this part of the Deed of Trust pursuant to s 86A of the Trustee Act as sought in prayers 4 and 5 of the amended summons. The complexity of the operation of that provision in the circumstances that arise in this case will have to await another day.

ISSUE 2: FOREIGN PERSONS

  1. The issue of the variation of the Deed of Trust pursuant to either ss 81 or 86A of the Trustee Act to irrevocably vary the Lowther Park Family Trust and the powers be irrevocably revoked so that a “foreign person” as defined in s 104J of the Duties Act cannot benefit under it arises from prayers 6 and 6A of the amended summons.

  2. I consider that such an order can be made pursuant to s 81 of the Trustee Act and so again it is not necessary for me to embark on any issue that might arise in making the order under s 86A of the Trustee Act.

  3. Under s 2A of the Land Tax Act, a “foreign person” is defined to have the same meaning as in Chapter 2A of the Duties Act, which provides in s 104J that a “foreign person” is a modified form of that definition in s 4 of the Foreign Acquisition and Takeovers Act 1975 (Cth) (FATA), which states:

foreign person means:

(a)   an individual not ordinarily resident in Australia; or

(b)   a corporation in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or

(c)   a corporation in which 2 or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest; or

(d)   the trustee of a trust in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or

(e)   the trustee of a trust in which 2 or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest; or

(f)   a foreign government; or

(g)   any other person, or any other person that meets the conditions, prescribed by the regulations.

  1. The modification to the definition of “foreign person” in s 4 of FATA which is made by s 104J(2) of the Duties Act is as follows:

(a)   an Australian citizen is taken to be ordinarily resident in Australia, whether or not the person is ordinarily resident in Australia under that definition,

(b) a New Zealand citizen who holds a special category visa, within the meaning of section 32 of the Migration Act 1958 of the Commonwealth, at any particular time is taken at that time to be an individual whose continued presence in Australia is not subject to any limitation as to time imposed by law.

  1. Section 5A(1) of the Land Tax Act creates a surcharge land tax for residential land owned by a “foreign person”. The definition of a “foreign person” in the Land Tax Act has the same meaning as in Chapter 2A of the Duties Act, which is contained in s 104J as extracted above.

  2. Section 5D of the Land Tax Act contains a particular provision for how a trustee of a discretionary trust is taken to be a “foreign person” by providing:

(1)   The trustee of a discretionary trust is taken to be a foreign person in that capacity for the purposes of section 5A if the trust does not prevent a foreign person from being a beneficiary of the trust.

(2)   If a discretionary trust prevents a foreign person from being a beneficiary of the trust, the trustee is not in that capacity a foreign person for the purposes of section 5A.

(3)   A discretionary trust is considered to prevent a foreign person from being a beneficiary of the trust if (and only if) both of the following requirements are satisfied—

(a)   no potential beneficiary of the trust is a foreign person (the no foreign beneficiary requirement),

(b)   the terms of the trust are not capable of amendment in a manner that would result in there being a potential beneficiary of the trust who is a foreign person (the no amendment requirement).

Note—

Under the transitional arrangements for this section in Schedule 2 to the Principal Act, the no amendment requirement does not apply to a trust that satisfies the no foreign beneficiary requirement immediately before the commencement of this section.

(4)   A person is a potential beneficiary of a discretionary trust if the exercise or failure to exercise a discretion under the terms of the trust can result in any property of the trust being distributed to or applied for the benefit of the person.

Note—

A potential beneficiary is not limited to persons named in the trust instrument and extends to the members of any class of persons to whom or for whose benefit trust property can be distributed or applied pursuant to the discretions of the trust.

(5)   For the removal of doubt, a person is not a potential beneficiary of a discretionary trust if the terms of the trust prevent any property of the trust from being distributed to or applied for the benefit of the person.

(6)   In this section, property includes money, and a reference to the distribution or application of property includes a reference to the payment of money.

  1. In short, if the terms of the Lowther Park Family Trust prevent a “foreign person” from being a potential beneficiary of it, no surcharge land tax will be payable by Lowther Park on any residential land held by it, which currently is the Darling Point Property. Obviously, if a surcharge land tax became payable by Lowther Park it will have a detrimental financial effect on the Lowther Park Family Trust.

  2. In general terms, a trustee of a discretionary trust cannot amend or vary a trust deed unless the terms of the trust or legislation expressly permits it: Re Dion Investments Pty Ltd (2014) 87 NSWLR 753; [2014] NSWCA 367, Barrett JA (with whom Beazley P and Gleeson JA agreed) at [44]-48].

  3. Section 81 of the Trustee Act states:

(1)   Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure, or transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust, or by law, the Court—

(a)   may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, including adjustment of the respective rights of the beneficiaries, as the Court may think fit, and

(b)   may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne as between capital and income.

(2)   The provisions of subsection (1) shall be deemed to empower the Court, where it is satisfied that an alteration whether by extension or otherwise of the trusts or powers conferred on the trustees by the trust instrument, if any, creating the trust, or by law is expedient, to authorise the trustees to do or abstain from doing any act or thing which if done or omitted by them without the authorisation of the Court or the consent of the beneficiaries would be a breach of trust, and in particular the Court may authorise the trustees—

(a)   to sell trust property, notwithstanding that the terms or consideration for the sale may not be within any statutory powers of the trustees, or within the terms of the instrument, if any, creating the trust, or may be forbidden by that instrument,

(b)   to postpone the sale of trust property,

(c)   to carry on any business forming part of the trust property during any period for which a sale may be postponed,

(d)   to employ capital money subject to the trust in any business which the trustees are authorised by the instrument, if any, creating the trust or by law to carry on.

(3)   The Court may from time to time rescind or vary any order made under this section, or may make any new or further order.

(4)   The powers of the Court under this section shall be in addition to the powers of the Court under its general administrative jurisdiction and under this or any other Act.

(5)   This section applies to trusts created either before or after the commencement of this Act.

  1. I am of the view that the present case is one in which the reasoning regarding the operation of s 81 of the Trustee Act in similar circumstances (albeit involving applications for judicial advice) as stated by Sackar J in each of Re Dion Investments Pty Ltd [2020] NSWSC 1661, Re Cecil Investments Pty Ltd [2021] NSWSC 211, Casibond Pty Ltd [2021] NSWSC 320, Budumu Pty Ltd [2021] NSWSC 522 and TNB 878 Pty Ltd [2022] NSWSC 527 should be followed.

  2. This line of reasoning is encapsulated in TNB, where Sackar J at [81] said:

The relief falls within the scope of the power of the Court in s 81 of the Trustee Act, as it:

(1)   is an issue in the management or administration of property vested in the Trustee (ss 81(1) of the Trustee Act);

(2)   is a release or surrender (ss 81(1) of the Trustee Act);

(3)   is given the tax savings, expedient (ss 81(1) of the Trustee Act);

(4)   cannot be effected by reason of absence of power (in the trust instrument or at law) (ss 81(1) of the Trustee Act);

(5)   may adjust the respective rights of beneficiaries (paragraph 81(1)(a) of the Trustee Act); and

(6)   may be an alteration whether by extension or otherwise of the trusts or powers (ss 81(2) of the Trustee Act).

  1. At the hearing, Mr Nathan for Mr Della Marta made submissions in support of the proposed variation of the Deed of Trust on the basis that there is no evidence that there is any person that might be within the Beneficial Class or the second rank of such persons who may fit the description of a “foreign person”.

  2. I note that the Chief Commissioner of State Revenue and the Commissioner of Taxation did not wish to be heard in these proceedings. Those positions do not, however, prevent either of them acting on the basis that the Lowther Park Family Trust do not prevent a “foreign person” from being a potential beneficiary of it.

  3. For these reasons, I propose to order pursuant to s 81 of the Trustee Act that Lowther Park irrevocably surrenders and/or releases all trusts and/or powers as appropriate so that any beneficiary of the Lowther Park Family Trust who is a “foreign person” as that term is defined in the Land Tax Act, the Land Tax Management Act and the Duties Act is not a beneficiary whilst they meet the definition of “foreign person”

CONCLUSION

  1. The orders I propose to make are as follows:

  1. Order that the plaintiff be granted leave to file the amended summons dated 11 December 2023.

  2. Order pursuant to rule 7.6 of the Uniform Civil Procedure Rules 2005 (NSW) that Mr Simon Della Marta be appointed to represent the interests of any unborn and/or unascertained beneficiary of the Lowther Park Family Trust.

  3. Order that the Deed of Trust dated 19 June 1974 between William Thompson and the plaintiff be rectified by deleting the following words in the 7th part of the schedule to that deed:

“or the 1st day of January in the year 2024”

  1. Order pursuant to s 81 of the Trustee Act1925 (NSW) that the plaintiff irrevocably surrenders and/or releases all trusts and/or powers as appropriate so that any beneficiary of the Lowther Park Family Trust who is a “foreign person” as that term is defined in the Land Tax Act 1956 (NSW), the Land Tax Management Act 1956 (NSW) and the Duties Act 1997 (NSW) is not a beneficiary whilst they meet the definition of “foreign person”.

  2. Order that the plaintiff and the defendant are entitled to be reimbursed in respect of their costs from the Lowther Park Family Trust on an indemnity basis.

  3. Order that the amended summons be listed for further directions before the Registrar in Equity on 6 February 2024.

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Decision last updated: 12 December 2023

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Cases Citing This Decision

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Cases Cited

12

Statutory Material Cited

7

Budumu Pty Ltd (ACN 001 216 397) [2021] NSWSC 522
Casibond Pty Ltd: In the matter of George Tsivis Family Trust [2021] NSWSC 320
Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407