Mandie v Memart Nominees Pty Ltd

[2020] VSCA 281

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2018 0160

EDWARD NICHOLAS MANDIE & ORS (according to the attached Schedule)	Applicants
v
MEMART NOMINEES PTY LTD (ACN 005 024 617) (as trustee of the DAVID MANDIE FAMILY TRUST)	Respondent

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JUDGES:	TATE, NIALL and EMERTON JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	14 and 17 August 2020
DATE OF JUDGMENT:	13 November 2020
MEDIUM NEUTRAL CITATION:	[2020] VSCA 281
JUDGMENT APPEALED FROM:	[2018] VSC 719 (Ginnane J)

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TRUSTS – Family discretionary trust – Trustee’s removal of some family members as General Beneficiaries by exercise of exclusion power – Whether exercise of exclusion power invalid for going beyond power or for improper purpose – Disclaimer of interests under discretionary trust – Effect on grandchildren’s possible interests – Doctrine of acceleration.

PRACTICE AND PROCEDURE – Leave to amend pleadings – Issue of ambit and scope of power unavoidable – Civil Procedure Act 2010.

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APPEARANCES:	Counsel	Solicitors
For the Applicants	Mr A J Myers QC with Mr A P Young QC and Mr R W Short	Cornwalls
For the Respondent	Ms W A Harris QC with Mr P D Herzfeld SC	Allens

TATE JA
NIALL JA
EMERTON JA:

TABLE OF CONTENTS

Introduction and summary.............................................................................	2
The facts.............................................................................................................	6
The Trust.............................................................................................................	6
Dispute in the family...........................................................................................	12
Information proceeding.......................................................................................	16
The Trustee seeks advice from counsel................................................................	16
The Western Australian regulatory requirement................................................	21
The May Declaration...........................................................................................	22
The September Declaration..................................................................................	23
Broad overview of issues and findings of the judge...................................	25
Ground 1:  Are the grandchildren takers in default of the Trust property?	29
The judge’s reasons..............................................................................................	30
The authorities	32
Applicants’ submissions on Ground 1/Notice of Contention.............................	40
Respondent’s submissions on Ground 1/Notice of Contention..........................	40
Consideration  .....................................................................................................	41
(1)  Disclaimers...........................................................................................	41
(2)  Do the applicants have an interest under cl 5(2)?...........................	42
(3)  How does cl 5(2) work?.......................................................................	44
Ground 2:  Is the May declaration invalid?.................................................	50
Consideration  .....................................................................................................	52
(1)  Principles..............................................................................................	52
(2)  Analysis.................................................................................................	55
Ground 3:  The September Declaration — should leave to amend have been granted to allege absence of power?..............................................................	59
The September Declaration..................................................................................	59
The judge’s rulings on the amendments on power – proposed [26D].................	62
Parties’ submissions at trial on leave to amend..................................................	64
The judge’s ruling on amendment.......................................................................	66
Parties’ submissions on the appeal, [26D], Ground 3(a) and (b).......................	67
Analysis...............................................................................................................	68
Was the September Declaration beyond power? Ground 3(c)............................	70
Grounds 4, 5 and 6:  Was the September Declaration made for an improper purpose?.............................................................................................................	73
Ground 5 — Should the applicants have been entitled to rely on [164] to support the allegation of improper purpose?..........................................................................	74
Parties’ submissions on the appeal in relation to [164]......................................	79
Analysis...............................................................................................................	79
Ground 6 — Should the judge have drawn a Jones v Dunkel inference?...........	81
Ground 4 — Should the judge have inferred improper purpose? ......................	82
Ground 7:  Had David Mandie’s sentiment changed from his Statement of Wishes?..............................................................................................................	86
Ground 8:  Did Memart know that the grandchildren were well provided for?	86
Conclusion.........................................................................................................	87

Introduction and summary

1. David Mandie was a successful businessman.  He and his wife, Minnie, amassed considerable wealth.  Some of that substantial wealth is now found in the David Mandie Family Trust (‘the Trust’) constituted by a deed of settlement (‘the ‘Deed’).[1]  Under the Deed, their three children, Evelyn, Ian and Stephen, are named as ‘Specified Beneficiaries’ and their grandchildren are included, although not by name, within the class of ‘General Beneficiaries’.

   [1]For example, the Trust booked a profit of approximately $5 million in 2012 and $6 million in 2013.

1. In the mid-1990s, there was a major fracture in the family with David, Minnie and Evelyn on one side, and Ian and Stephen on the other.  The dispute resulted in Ian and Stephen disclaiming their interests under the Trust and leaving the family business in return for substantial payments.  It is accepted that, notwithstanding their terms, the disclaimers did not bind the children of Ian and Stephen.

1. The applicants, the plaintiffs below, are the spouses and children of Ian and Stephen.  Edward and Isabella are the children of Ian and Jane Mandie.  Nicholas and Daniella are the children of Stephen and Amanda Mandie.[2]  The respondent is the corporate trustee of the Trust (‘the Trustee’).[3]  In September 2014, after David’s death, the Trustee resolved to remove the applicants as General Beneficiaries pursuant to an express power in the Deed.[4]  Earlier, in May 2014, the Trustee had removed Ian and Stephen as General Beneficiaries. For Ian and Stephen the removal was largely symbolic as they had already disclaimed any interest in the Trust in a settlement agreement executed on 19 December 1995 (‘the 1995 Settlement Agreement’).  Each of the exclusions was reflected in formal declarations made by the Trustee (‘the May Declaration’ and ‘the September Declaration’, respectively).

   [2]Edward is the first applicant, Jane is the second, Isabella is the third, Amanda is the fourth, Nicholas is the fifth and Daniella is the sixth.  First names are used because of the common surname without any disrespect.  The references in this judgment to the applicants are to the applicant grandchildren (Edward, Isabella, Nicholas and Daniella) unless the contrary appears from the context.  When we refer to ‘the grandchildren’ we mean Edward, Isabella, Nicholas and Daniella.  We shall return to the position of the spouses of Ian and Stephen (Jane and Amanda, respectively) later in this judgment.

   [3]In this judgment, the respondent is referred to as ‘Memart’, ‘the Trustee’, or ‘the respondent’.

   [4]The Deed cl 1(2)(iv).

1. In a proceeding brought in the Trial Division, the applicants alleged that the May Declaration was made without power and for an improper purpose and that the September Declaration was made in bad faith and for an improper purpose.  They sought declarations that both the May Declaration and the September Declaration were invalid.  Based on that alleged wrongdoing, they sought an order removing or replacing the Trustee.

1. The applicants also sought, belatedly, leave to amend their pleading to broaden their challenge to the September Declaration by adding an allegation of want of power and by adding to the particulars of improper purpose.  Leave to amend was refused by the trial judge.

1. The applicants failed at trial and the proceeding was dismissed.[5]  It is from that order that the applicants seek leave to appeal.  They assert that the judge should have found that the May Declaration and the September Declaration were invalid.  As part of their application for leave to appeal in this Court, they submit that the judge misunderstood the nature of the grandchildren’s interests in the Trust, and should have given leave to amend the pleading.  The proposed grounds of appeal traverse the nature of the grandchildren’s interests in the Trust,[6] the validity of the May Declaration[7] and the September Declaration,[8] and the decision to refuse leave to amend the pleading[9].  Separately, the applicants seek leave to appeal a special costs order made in favour of the Trustee.

   [5]Mandie v Memart Nominees Pty Ltd [2018] VSC 719 (‘Reasons’).

   [6]Ground 1.

   [7]Ground 2.

   [8]Grounds 3, 4 and 6.

   [9]Ground 5.  Grounds 7 and 8 deals with the judge’s findings about David Mandie’s wishes and the extent to which the applicants have been well provided for by their parents.

1. For the reasons that follow, we would grant leave to appeal.[10]  We uphold Grounds 1, 3 and 5 and we would therefore allow the appeal.  We reject Grounds 2, 4, 6, 7 and 8.

   [10]For convenience, we refer hereafter simply to ‘the appeal’.

1. In the result, we would not make any order in relation to the May Declaration.  We would make orders granting leave to appeal, allowing the appeal, setting aside the order of the primary judge dismissing the proceeding, and in its place make the following orders that reflect our conclusions:

(1)        a declaration that:

(a)        Edward, Isabella, Nicholas and Daniella Mandie are not bound by the 1995 Settlement Agreement;

(b)       insofar as cl 9.2 of the 1995 Settlement Agreement purports to affect the rights or entitlements of Edward, Isabella, Nicholas and Daniella Mandie, it is:

(i)       of no effect;  and

(ii)      not enforceable as against Edward, Isabella, Nicholas and Daniella Mandie.

(2)        a declaration that each of Edward, Isabella, Nicholas and Daniella Mandie is a child of a Specified Beneficiary within the meaning of cl 5(2) of the Deed.

(3)        a declaration that, to the extent that the September Declaration purported to have effect beyond removing the grandchildren as General Beneficiaries, it is invalid.[11]

[11]The first two declarations reflect those sought in the pleadings.

1. We decline to make the declarations sought in the Amended Application for Leave to Appeal and, on the basis of the evidence to which we were taken, make no findings, draw no inferences and reach no conclusions supporting the removal of the Trustee.  However, given that the appeal has exposed a controversy about the status of the grandchildren under the Deed, which was the subject of full argument in this Court, it is desirable that the issue be resolved by the grant of limited declaratory relief.  The Amended Application for Leave to Appeal invited this Court to make ‘[s]uch further or other order as to the Court seems fit.’  We have set out in the immediately preceding paragraph the orders we deem fit to make.

1. These reasons are structured as follows.  First, we set out the facts.  The facts are largely drawn from documents.  The respondent did not adduce oral evidence and the evidence of the applicants was, for present purposes, largely peripheral.  The applicants seek to make out their case from inferences drawn from the documents.

1. Next, we will identify the issues in the proceedings arising from the pleadings and, in broad terms, the conclusions of the judge on the major issues.  Following that broad overview, we will deal with each of the grounds separately and address the applicable findings of the judge and the arguments in this Court before stating our conclusions on each ground.

The facts

The Trust

1. On 24 April 1978, the Trust was established by the Deed with Memart (then known as Ricoh Time Corporation Pty Ltd) as trustee.  The Settlor was Barry David Bloom and the amount settled was $20.  Bloom had no relation by blood or marriage to the Mandie family.

1. The directors of Memart have changed in ways that reflect the shifting dynamic within the family.

(a)   David and Minnie were directors from 19 August 1976 until their deaths, on 17 August 2011 and 26 April 1999, respectively.

(b)  Ian and Stephen were directors from 13 June 1980 until 18 August 1994 (around the time the dispute with their father arose).

(c)   Evelyn Danos (née Mandie) was a director between 13 June 1980 and 18 August 1994, re-joined on 4 May 1999 (shortly after her mother’s death), and remains a director.

1. In addition, there are currently two independent directors:

(d)  Milton Bernard Lasnitzki (‘Lasnitzki’) (since 18 August 2011);  and

(e)   Garry Stock (since 23 May 2014).[12]

[12]Both Lasnitzki and Stock work in the James Richardson Group which conducts the business established by David;  the former as chief executive officer and the latter as ‘duty free chairman’.

1. The Deed is in conventional form for a family trust of its time.  David Mandie is named as both ‘Guardian’ and ‘Appointor’.

1. There are two types of beneficiary:  a ‘Specified Beneficiary’ and a ‘General Beneficiary’.

1. Under cl 1(1) of the Deed, ‘Specified Beneficiaries’ are defined to mean ‘the person or persons (if any) named or described as such in the Schedule’.  In the Schedule to the Deed the Specified Beneficiaries are described as:  ‘The children of David Mandie and Minnie Mandie’.  Ian, Stephen and Evelyn are the children of David and Minnie Mandie and are thus the Specified Beneficiaries under the Trust.

1. ‘General Beneficiaries’ is defined in cl 1(2) to mean and include the Specified Beneficiaries and various persons identified by reference to their relationships or connections with the Specified Beneficiaries.  They include:

(f)    the Specified Beneficiaries (the children of David and Minnie Mandie, ie Ian, Stephen and Evelyn);

(g)  the brothers, sisters, spouses, widows, widowers, children and grandchildren of the Specified Beneficiaries and the spouses, widows, widowers, children and grandchildren of such brothers and sisters, spouses, children and grandchildren;

(h)  any corporation in which any General Beneficiary beneficially owns more than 10% of the issued shares or in which any combination of General Beneficiaries owns more than 10% of the issued shares;

(i)     the trustee or trustees of any trust or settlement which the Trustee may nominate in writing as a General Beneficiary;  and

(j)     such additional beneficiaries if any as are described or defined in the schedule to the Deed as a member of the class of General Beneficiaries.  This includes David and Minnie Mandie, who are defined in the Schedule to the Deed expressly as additional members of the class of General Beneficiaries.

1. Clause 1(2) contains a proviso which excludes certain persons or entities from the class of General Beneficiaries, including the Settlor.  In addition to those persons or entities that are excluded, the further proviso to cl 1(2) (following cl 1(2)(iv))[13] provides a power to exclude General Beneficiaries in the following terms:

... PROVIDED FURTHER that the Trustee at any time and from time to time may (subject to Clause 10 hereof) declare in writing that any person shall thereafter be excluded from the class of General Beneficiaries notwithstanding that but for such exclusion he would by reason of one or more of the matters or circumstances hereinbefore referred to have been a General Beneficiary and the class of General Beneficiary shall as from the date of the making of any such declaration be modified accordingly …[14]

[13]The first proviso excluded from the class of General Beneficiaries specific persons, namely (i) the Settlor;  (ii) the Guardian;  (iii) the Trustee and (iv) any corporation or the Trustee of any trust or settlement in which any of the persons excluded under (i), (ii), or (iii) have any beneficial interest so long as that interest continues.

[14]The parties agree that the reference to cl 10 should be a reference to cl 19 that provides for every discretion vested in the Trustee to be absolute and uncontrolled.

1. This power was exercised to exclude the applicants (the spouses and grandchildren) as General Beneficiaries in the September Declaration.  There is no express power in the Deed to remove a Specified Beneficiary.  Whether the amendment power within the Deed could produce such a result need not be considered.

1. The ‘Trust Fund’ is defined as the settled sum ($20) and all moneys, investments and property paid or transferred to and accepted by the Trustee.  The Deed treats differently the annual net income of the Trust, calculated at the end of each accounting period, and the corpus of the Trust.

1. The Trustee has a non-compellable discretion to pay or apply to or set aside the net income of the Trust for charitable purposes;[15]  and to make annual distributions of income to General Beneficiaries ‘in such proportions and manner and subject to such limitations and provisions as the Trustee in its absolute discretion shall think fit.’[16]  The Trustee may also accumulate the net income[17] and pay taxes and duty.[18]

   [15]The Deed cl 4(1)(a).

   [16]Ibid cl 4(1)(b).  See also cl 4(2)(d) and (e).

   [17]Ibid cl 4(1)(c).

   [18]Ibid cl 4(1)(d).

1. In the exercise of the power in cl 4(1)(b), the Trustee has, from time to time, appointed income in favour of one or more General Beneficiaries.  Prior to 1995, no distributions were made to the grandchildren or to Ian, Stephen or Evelyn.[19]  The only distributions that were made were minimal — to James Richardson Group to pay mortgage debts, to David for charitable donations and payments to David to cover personal drawings.[20]

   [19]Reasons [39].

   [20]Ibid.

1. In more recent times, substantial distributions have been made.  For example, on 29 June 2012, 27 June 2013 and 27 June 2014, Trust income of, respectively, $1,250,045.00, $3,207,142.86 and $640,000.00 was appointed to Evelyn, with the balance in each year paid to other trusts of which she and members of her family (other than Ian and Stephen and their families) are beneficiaries.  The judge noted that the distributions were made to honour charitable pledges made by David, and to satisfy other obligations incurred before David’s death.[21]  No appointments of income have been made in favour of any of the applicants.[22]

   [21]Ibid [40].

   [22]Ibid [38]–[40].

1. The discretion to pay, apply or set aside some or all of the net income in favour of the General Beneficiaries does not give rise to a corresponding right in a General Beneficiary to receive any payment or entitlement to income.  For that reason, it has been described as a mere or bare power or a power collateral rather than a trust power.[23]  The General Beneficiaries have no vested interest in income or corpus of the Trust but they do enjoy rights to due administration of the Trust which a court of equity would protect.[24]  The due administration of the Trust includes considering whether or not to make a payment to the General Beneficiaries.[25]

   [23]Re Gulbenkian’s Settlement Trusts [1970] AC 508, 521 (Lord Upjohn).

   [24]Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226, 242 [37] (Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ); [1998] HCA 4 (‘Buckle’);  Kennon v Spry (2008) 238 CLR 366; [2008] HCA 56.

   [25]National Trustees Executors & Agency Co of Australasia Ltd v Federal Commissioner of Taxation (1923) 33 CLR 491, 504 (Isaacs J); [1923] HCA 63.

1. However, pursuant to cl 4(4), in the event that the Trustee does not determine to appoint the whole of the net income of the Trust in one or more of the ways provided for in cl 4(1), the income not disposed of ‘shall be paid and applied to and set aside for each of the Specified Beneficiaries then living for the benefit of each of such Beneficiaries in equal shares each for his or her own use and benefit absolutely.’

1. Two things may be said immediately.  First, each of the Specified Beneficiaries is a taker in default of appointment of the net income of the Trust that is not applied by the Trustee in one of the permitted ways, including by accumulating it to the Fund.

1. Second, the clause establishing takers in default in respect of the net income of the Trust, cl 4(4), only operates in favour of a Specified Beneficiary ‘then living’.  It follows that, in the event that one of the Specified Beneficiaries dies, the interests of the remaining Specified Beneficiaries (as takers in default of appointment) are correspondingly enlarged.  Clause 4(5) provides that ‘[a]ny amount paid, applied, or set aside to or for any Beneficiary shall not form part of the Trust Fund but shall be held upon separate trusts for such Beneficiary with power to the Trustee ... to invest or apply or deal with the same and any income thereof as the Trustee in its absolute discretion thinks fit’.

1. Clause 5 deals with what is to happen to the Trust Fund on and from the ‘Vesting Day’.  The ‘Vesting Day’ is defined to mean one year less than 80 years from the date of the making of the Deed or such earlier date as the Trustee may appoint.  It follows that the Vesting Day is 79 years from the making of the Deed, which is 24 April 2057, unless an earlier date is appointed.

1. As from that day, the Fund vests in possession in favour of the Trustee and the Deed provides four cascading alternatives for the disposition of the Fund.

1. Pursuant to cl 5(1) of the Deed, the first alternative is that the Fund is to be held on trust for such of the beneficiaries and for such charitable purposes as may be appointed by the Trustee with the consent of the Guardian.  It would be open to the Trustee to appoint all of the Fund to a single beneficiary or a single charity or to distribute the Fund across the nominated class in any proportion it chooses.

1. In the event that the whole of the Fund is not appointed under the first alternative, cl 5(2) (a clause that assumed much importance on the appeal) provides that:

the Trustee shall stand possessed of such part and the income thereof in the trust for the Specified Beneficiary absolutely (and if more than one as tenants in common in equal shares) provided always that the children of any Specified Beneficiary who shall have died before the Vesting Day shall take (and if more than one as tenants in common in equal shares) the share which such deceased Specified Beneficiary would have taken had he survived to the Vesting Day and attained a vested interest and provided also that if any children of a deceased Specified Beneficiary shall die before the Vesting Day then the issue of any such deceased General Beneficiary remoter than his children and living at the Vesting Day shall take per stirpes and equally between them the share which such children would have taken if they had survived to the Vesting Day and attained a vested interest;

1. It is cl 5(2) that provides the foundation of the grandchildren’s submission (examined below) that they are takers in default of the Trust property.  Clause 5(2) does not apply to the spouses of Ian and Stephen, Jane and Amanda respectively, as it is directed to Specified Beneficiaries and their issue.

1. In the event that the whole of the Fund has not been disposed of under cll 5(1) and (2), cl 5(3) provides that the Trustee shall hold the Fund on trust for the brothers and sisters of each Specified Beneficiary and then down through that line of descent.

1. Finally, if there remains any part of the Fund after cll 5(1), (2) and (3) have been exhausted, cl 5(4) provides that the Trustee shall hold the balance of the Fund on trust for the next of kin (but excluding the Settlor or any person claiming under or in right of the Settlor) of the Specified Beneficiary or of the survivor of the Specified Beneficiaries living at the Vesting Day (and if more than one, as tenants in common in equal shares) absolutely and if there shall be no such next of kin then in trust for charitable objects or purposes, ‘any resulting trust to the Settlor or any person claiming under or in right of the Settlor being hereby expressly negatived’.

1. The Deed, by these mechanisms, endeavours to ensure that any assets of the Trust remaining on the Vesting Day are distributed within the Mandie family and do not fall into a resulting trust in favour of the Settlor.

1. Clause 11 provides that:

The Trustee may exercise or concur in exercising all powers and discretions hereby or by law given notwithstanding that it or any person being … a Director or Shareholder of the Trustee has or may have a direct or personal interest in the mode or result of exercising such power or discretion or may benefit either directly or indirectly as a result of the exercise of any such power or discretion …

1. Clause 19 provides that, subject to any express provision to the contrary, ‘every discretion vested in the Trustee shall be absolute and uncontrolled and every power vested in it (including the making of any determination hereunder) shall be exercisable in its absolute and uncontrolled discretion’.  This was subject to a proviso concerning the position of the Guardian.

Dispute in the family

1. David established very successful businesses operating duty free stores and in property through various corporate entities within the James Richardson Group.  His three children worked in the business.

1. In the mid-1990s, Ian and Stephen made claims in respect of the assets of companies, trusts and other entities owned or controlled by David and Minnie, including companies within the James Richardson Group.  On 14 September 1995, those claims were resolved by an immediately binding ‘Initial Agreement’ signed on that day.

1. On 28 September 1995, David and Minnie signed a Statement of Wishes (‘the Statement of Wishes’), indicating to their executors and the directors of corporations acting as trustees of the various family trusts and of companies owned or controlled by them ‘how we wish our affairs and those of the various trusts and companies managed after our deaths’.  The Statement of Wishes included the following:

We wish to record our utter disappointment with the manner and behaviour of Ian and Stephen Mandie during the last few years.  They have demonstrated to us that they are prepared to use whatever means that are at their disposal to achieve their own short term financial interests.  In particular, they have harassed valued employees of the James Richardson Group and conducted themselves in a most improper way.  Furthermore, they have threatened us and our daughter with litigation in circumstances which we regard as most improper if not criminal.  We have reached an agreement with Ian and Stephen which satisfies what we consider to be our moral obligations to them and their families.

Accordingly, it is our wish that our sons and their families be excluded from any interest in our estates or in the companies and other entities controlled by us except to the extent that it is necessary to satisfy our obligations under the agreement which we have reached with them.

We have appointed Mark Cerché and Trevor Brown our legal and accounting advisers respectively to be executors and trustees along with our daughter.

…

It is our wish that our trustees take steps to see that any amounts due to our sons under our agreement with them are paid in accordance with the terms of that agreement.  Subject to those obligations, our wish is that our trustees exercise their powers to ensure that the benefit of the wealth controlled by us passes to our daughter Evelyn and her children.

Our Trustees are to take such steps as they consider necessary to protect our estates and companies and entities controlled by us from any claim which may be made by Ian or Stephen or their respective families.[26]

[26]Emphasis added.

1. On or about 19 December 1995, David, Minnie, Ian, Stephen and Memart, and various members of the James Richardson Group, among others, but none of the applicants, entered into a more detailed settlement agreement, the 1995 Settlement Agreement, which replaced the Initial Agreement, pursuant to which, among other things:

(k)  Memart agreed to pay Ian and Stephen jointly the sum of $10 million, plus a further $2.5 million each (cll 3.1, 3.3);  and

(l)     David and Minnie transferred to Ian and Stephen control of various assets (cl 4), their homes (which were owned by Memart) and their cars (which were owned by the James Richardson Group) (cl 5).

1. Memart estimates that in total, Ian and Stephen each received well over $20 million (in 1995) out of the settlement.

1. Pursuant to cl 9.2 of the 1995 Settlement Agreement, Ian and Stephen disclaimed any interest in the Trust (‘the disclaimers’).  That clause provided:

neither Ian nor Stephen have any further rights against David or Minnie or their respective estates or any company in the James Richardson Group or any other company trusts or entity owned or controlled by them or any of them and save as set out in this Agreement, Ian and Stephen, for themselves, their legal personal representatives and issue agree to release:

(a)each and every company, trust or other entity owned or controlled by David and Minnie, or either of them, from any Claim that they or any of them might have against any such company, trust or other entity;

(b)the Trustee of the David Mandie Family Trust … from any Claim that they or any of them may have against such trustee or the assets of any such trust and agree irrevocably to disclaim any entitlement in relation to any such trust and not to assert any rights as beneficiaries of any such trust;

…

and Ian and Stephen agree to indemnify each of the parties referred to in this clause 9.2 against any loss … which may be sustained or incurred by them or any of them as a result (directly or indirectly) of any such Claim.

1. Clause 11 imposed obligations of confidentiality on the parties save for disclosure for the purpose of enforcement or, for example, under a binding order of a government agency, or for the purpose of discovery in a proceeding, or with the prior written consent of David, Minnie, Ian and Stephen.

1. It is not in dispute that as at the date of the 1995 Settlement Agreement, David controlled the Trust.  He was the Guardian under the Deed and a director of Memart;  he and Minnie held the issued shares in the Trustee.

1. David died on 17 August 2011.  His will, made on 14 October 2004, provided for a legacy in the sum of $500,000 to each of his grandchildren who attained the age of 25 years (cl 5) and otherwise left the residue of his estate to Evelyn or, in the event of her death, to her children who attained the age of 25 years (cl 6).

1. The executors of David’s estate were Mr Mark Cerché of Allens, who was Memart’s solicitor, Mr Garry Stock, an employee within the James Richardson Group, and Evelyn.  Mr Cerché played an important role in the events which followed, including drafting the May Declaration and it would appear that he was familiar with the Statement of Wishes.

1. The grandchildren gave evidence, accepted by the judge, of their close relationship with David and Minnie over many years.[27]  The judge observed that ‘David and Minnie appeared to have a great affection for all the grandchildren, spent time with them, gave them money on their birthdays and were proud of them.’[28]

   [27]Reasons [52].

   [28]Ibid.

1. The judge found that the grandchildren lived a life of ‘great abundance’ and had been well provided for by their parents.  In this respect, he said:

They appeared to often travel overseas to Europe and to resorts in Australia and participate in expensive recreations such as skiing and polo.  They lived in their parents’ substantial homes in Toorak.  They had access to a house in Portsea and a farm at Corowa.  Their parents provided them with motor vehicles and also were paying for the costs of this litigation.[29]

[29]Ibid [57].

1. Since her father’s death, Evelyn has been the executive chairman of the James Richardson Group.  Lasnitzki is the chief executive officer and reports to Evelyn.

Information proceeding

1. Although the grandchildren were General Beneficiaries, they did not know of the existence of the Trust until around April 2012.  In mid-July 2012, two of the grandchildren, Edward and Nicholas, began to seek information to which they believed they were entitled from the Trustee about the Trust, but the information was not forthcoming.  On 14 August 2013, they commenced a proceeding in the Trial Division of this Court against the Trustee, seeking information about the Trust (‘the information proceeding’).  This followed a proceeding that Ian and Stephen had commenced on 12 October 2012 against the executors of David’s estate seeking further provision under pt IV of the Administration and Probate Act 1958 (‘the pt IV proceeding’).  The pt IV claim was ultimately abandoned.

The Trustee seeks advice from counsel

1. On 12 September 2013, the Trustee’s solicitors briefed counsel, Mr Merralls QC and Dr Michael Rush, to advise as to the Trustee’s obligations to consider the circumstances of the General Beneficiaries when making income distributions and whether it could exclude Ian and Stephen and their spouses and descendants from the class of General Beneficiaries of the Trust.

1. On 25 September 2013, the solicitors for the Trustee received, and emailed to the directors of the Trustee, written advice from counsel (‘the 25 September advice’).

1. In their advice, counsel set out the questions on which they were asked to advise as follows:

[W]e are instructed to provide advice about the obligations of the Trustee in respect of … the power to exclude beneficiaries.  Specifically, we have been asked to address the following three questions: … (3) Can the Trustee exercise properly (ie lawfully) the power to exclude Ian, Stephen, their spouses and descendants from the class of general beneficiaries under the Trust, particularly in light of the dispute and settlement with Ian and Stephen (in 1994–1995), and the two proceedings that have now been commenced?

1. In an email sent to the three directors,[30] attaching the 25 September advice, the Trust’s solicitor, Ms Jenkins, offered the following summary:

As you will see, [counsel] have opined that the trustee's discretion must be exercised ‘in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred’.  In practical terms, they have suggested that the trustee invites the beneficiaries to provide a statement setting out their needs and their ability to meet those needs towards the end of each financial year.  Finally, they have noted that while the trustee could lawfully exercise the discretion to exclude Stephen, Ian, their spouses and children from the Trust, great care need be taken to ensure that if this occurred, it did not involve any improper purpose, even in part.  Therefore, they recommend caution on the part of the trustee in exercising the power to exclude, particularly where there is likely to be consequential litigation.

[30]Evelyn, Lasnitzki and Stock.

1. In the body of the 25 September advice, counsel referred to the duties of a trustee and the need to act in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred.  Relying upon Karger v Paul,[31] they advised that the Trustee must give real and genuine consideration to the exercise of their discretionary powers and the position of beneficiaries.

   [31][1984] VR 161 (McGarvie J).

1. Counsel advised that the Trustee need not consider the circumstances of Stephen and Ian as they had disclaimed any entitlement and agreed not to assert any rights as beneficiaries under the Trust by the 1995 Settlement Agreement.  In relation to the grandchildren, counsel advised that it would be sensible, although not obligatory, to seek information from them to inform the decision as to whether to appoint income in their favour.

1. As to the exercise of the power of exclusion against the grandchildren, counsel advised that the power to exclude a beneficiary was, by reason of cl 19, absolute and uncontrolled, even though a trustee beneficiary may derive some benefit.  They noted that there ‘appear to be relatively few authorities concerning the exercise of a discretionary power to exclude beneficiaries from a family trust [but] ... such authorities as there are support the view that the general principles concerning the exercise of a trustee’s discretion (as described in Karger v Paul in the context of a distribution) also apply to exclusion cases’.  Counsel advised that the Trustee could lawfully exercise the discretion to exclude Ian and Stephen, their spouses and children from the Trust, although they observed that it would seem to be unnecessary to do so in respect of Ian and Stephen.  They noted that if one of the motives for exclusion (even if not a dominant one) involved an improper purpose, such as to prevent access to trust accounts or other information relating to a trust, the exercise of the power would likely be invalidated.  Counsel went on to advise caution on the part of the Trustee in exercising the power to exclude, particularly when there was a reasonable prospect that any such decision would be tested in court.

1. The 25 September advice referred to the power to exclude in cl 1(2)(iv) which, in its terms, refers to the exclusion of any person from the class of General Beneficiaries.  The advice did not distinguish between General Beneficiaries and Specified Beneficiaries although, somewhat curiously, it noted that:

an amendment of the Trust deed may have stamp duty consequences if it constitutes a resettlement of the Trust.  Although we do not consider it likely that a resettlement would occur if the Trust deed were amended to exclude certain General Beneficiaries and Specified Beneficiaries, this remains a possibility.

1. To that point, the 25 September advice had not been concerned with amendments to the Deed, and it appears that the power of amendment was not further considered or exercised.

1. The judge recorded that in an email to Allens on 3 October 2013, counsel stated:

As you know, there is a reasonable likelihood that any decision to exclude Stephen and Ian’s spouses and children will [be] sought to be impugned on the basis that the discretion was not exercised in conformity with the requirements set out in Karger v Paul.  In particular, it might be expected that the excluded beneficiaries would contend that the trustee decided to exclude them only after the two proceedings were commenced. Even if the directors of the trustee company were to deny this, the coincidence in timing is difficult to escape, and the Court will likely be asked to infer that there were improper considerations motivating the trustee.[32]

[32]Reasons [37].

1. On 9 October 2013, the directors of the Trustee attended a conference with Mr Merralls QC and Dr Rush, in which counsel were asked whether it would be proper for the Trustee to exclude Ian and Stephen and their families.  Senior Counsel replied that the most that could be said was that if the court was asked for advice by the Trustee, the court would say that the exclusion was not improper.  The risks would be reduced if there was an independent director.

1. As the judge recorded, emails between Allens and counsel made it clear that the solicitors understood that David and Minnie did not make changes to the Deed because they were ‘simply too upset to deal with [the varying of the Deed]’, and, after that, David ‘never got around to making the changes and just did not want to know about dealing with this aspect’.[33]  A file note of the conference records that Mark Cerché explained to counsel the history of David taking steps to protect the family wealth from his sons’ ‘weaknesses’ and said that David’s attitude had ‘hardened’ after the settlement.

   [33]Ibid [38].

1. Following the conference, counsel set out certain assumptions in an email to their instructing solicitors on 13 October 2013.  Those assumptions included that David had been advised to take steps to exclude Ian and Stephen and their families from the Trust but had not done so because he and Minnie were too upset to deal with this matter at around the time of the 1995 Settlement Agreement;  he preferred to keep his options open;  and he hoped there may be a reconciliation with his sons.

1. In a further brief to counsel dated 17 October 2013, it was recorded that the Trustee’s object remained ‘to exclude Ian and Stephen Mandie, and their spouses and children, as beneficiaries under the Trust.’

1. On 30 October 2013, the Trustee’s solicitors received, and emailed to its directors, a written advice from counsel (‘30 October advice’).  The principal question considered by counsel in that advice was whether the Trustee would succeed in obtaining a direction from the Supreme Court that it was a proper exercise of the Trustee’s power to exclude Ian, Stephen, and their spouses and children, as beneficiaries under the Trust.  Counsel reiterated the governing principles attaching to the exercise of discretionary powers, to which they had referred in their 25 September advice.[34]

   [34]Citing Karger v Paul [1984] VR 161 and Curwen v Vanbreck Pty Ltd (2009) 26 VR 335, 348 [24]; [2009] VSCA 284 (‘Curwen’).

1. After noting the obligation to give real and genuine consideration to the exercise of the power, counsel emphasised some matters of particular significance:

Some of them might reasonably be considered by the Trustee to support a decision to exclude Stephen, Ian, their spouses and children as Beneficiaries under the Trust.  Examples include the terms of the statement of wishes;  the fact that the statement of wishes was not rewritten nor renounced;  Evelyn but not Stephen and Ian was re-appointed a director of Memart Nominees;  no provision was made for Ian and Stephen and their spouses out of the estate of David Mandie;  and, at least in relation to Stephen and Ian, cl 9.2(b) of the December 1995 settlement agreement provided that Stephen and Ian irrevocably disclaimed any entitlement in relation to the Trust and would not assert any rights as beneficiaries of any such trust.  But there are also countervailing matters to which the Trustee should give real and genuine consideration in deciding whether to exercise its power of exclusion.  These include, for example, that David could have formally excluded Stephen and Ian and their families from the Trust but did not do so;  that after the 1995 settlement there appears to have been some rapprochement between David, Stephen and Ian (albeit their relationship was not of the kind or extent previously experienced);  and that $500,000 was bequeathed by David to each of his grandchildren (including Stephen and Ian's children).

1. Counsel advised that the Statement of Wishes was an appropriate matter for the Trustee to take into account.[35]  Counsel noted their understanding that the death of David and the commencement of the pt IV proceeding by Ian and Stephen and the information proceeding ‘provided the occasion but not a reason for the Trustee to consider exercising the power of exclusion under the Trust’.

   [35]Citing Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405, 429–31 (Mahoney JA) and Breakspear v Ackland [2009] Ch 32, 36 [6G]–[7H], 37 [8B].

1. Counsel concluded that:

Subject to what we have said about the Trustee … giving real and genuine consideration to relevant matters, and on the assumption that any decision of the Trustee is made in good faith, we expect that a court would advise the Trustee that it could properly exercise its power to exclude Stephen, Ian, their spouses and children as Beneficiaries under the Trust.

The Western Australian regulatory requirement

1. On 21 January 2014, James Richardson Pty Ltd or associated entities sought approval from the Western Australian Government (Department of Racing, Gaming and Liquor) (‘the WA regulator’) for the transfer of a licence to permit James Richardson Pty Ltd, a subsidiary of Memart, to sell liquor at Perth International Airport.  (On 31 October 2012, James Richardson Pty Ltd had been selected as the successful tenderer for the new Perth Airport Duty Free Concession.)

1. On 10 March 2014, the WA regulator requested ‘the full name, date of birth and current residential address of each specified beneficiary’ of the Trust and foreshadowed the need for a police report for each.

1. In answer to its request, the WA regulator was advised that David and Minnie had three children and that only one, Evelyn, had been involved in the Trust since 1995.  That answer did not satisfy the WA regulator, which required documentary evidence that Stephen and Ian had been removed or their details to allow a police check.  On 23 April 2014, the Western Australian solicitor for James Richardson Pty Ltd, who had carriage of the licence application, recommended providing details for the police check.  He also indicated that there was some time pressure.

1. On 28 April 2014, counsel were advised about the developments in Western Australia and further advice was sought from them.  A file note of a conference with counsel contained the following summary:

Merralls opined that there was a risk involved in simply letting the police conduct their investigations and we agreed that it was highly likely this would come back to Ian and Stephen Mandie.  Merralls noted that he and Rush could not add to what they had said last year about the nature of the risks.  He simply added another adverse side to the balance and there was a risk that the discretion was being used wrongly because of this nuisance of the WA liquor licensing issue.  Against that, it was simply another occasion about the fact that they had not been formally excluded has come to the mind of the trustees and presents issues.[36]

In all, they consider that a simple exclusion is the least risky course open to all the parties.  Merralls noted that we need to consider how this is done because they are referred to in sub-paragraphs.  Rush noted that the declaration must be in writing and it was agreed there should be no recording of reasons.

In view of the settlement, it was agreed there was no obligation to tell Ian and Stephen of this decision.  It was also agreed that the third [director of the] trustee should be appointed as soon as possible.

[36]Although the meaning of this sentence is unclear, this is as it appears in the original.

1. On 23 May 2014, Garry Stock was appointed as a director of the Trustee.

The May Declaration

1. On 27 May 2014, Mr Cerché emailed Ms Jenkins a draft declaration in the form of the declaration that was ultimately made.  In the email, Mr Cerché said:

Attached is a revised draft of the Memart Declaration.  I have referred specifically to Specified Beneficiary at Evie’s request as the WA liquor people have noted the [brothers] as Specified Beneficiaries.

Under the Deed Specified Beneficiaries are a subset of General Beneficiaries and the addition does no harm

Comments before I send to directors for adoption.  There is no power to exclude them as Specified Beneficiaries

Expressly.

1. On the same day, the directors of the Trustee resolved to make a declaration in the form tabled and to authorise the directors to sign it.  The May Declaration, signed by Lasnitzki and Stock on 27 May 2014, is in these terms:

In pursuance of the power vested in the Trustee by the proviso in sub-clause (iv) to Clause 1(2) of the Deed of Settlement dated 24 April 1978 relating to the David Mandie Family Trust and of all other powers enabling it so to do, the Trustee declares that Ian Mandie and Stephen Mandie, being two of the children of David and Minnie Mandie, are excluded for all purposes from the class of General Beneficiaries from the date of this Declaration and neither Ian Mandie nor Stephen Mandie shall have any interest whether as a General Beneficiary, Specified Beneficiary or otherwise under the Deed of Settlement.

1. On 30 May 2014, the Trustee sent a copy of the minutes of the 27 May meeting, and a copy of the May Declaration, to the WA regulator.

1. On 26 June 2014, the Trustee invited the grandchildren to submit information regarding their circumstances for it to take into account in considering whether to make distributions from the Trust for the financial year 2013/2014.  On 27 June 2014, shortly before 5:00 pm, the applicants’ solicitors provided short statements on behalf of the applicants and said that the applicants were willing to make themselves available to meet the Trustee.  That evening, the directors of the Trustee resolved to appoint trust income to Evelyn and trusts associated with her family.  No income was appointed to the applicants.

1. Only a few days earlier, on 20 June 2014, Macaulay J had dismissed the information proceeding.  He held that, in circumstances where the Trustee had not waived the immunity of a trustee from giving reasons for exercising an absolute discretion and had not volunteered the reasons, there was no duty to provide the information to General Beneficiaries outside of an action for breach of trust or mala fides.[37]  An application for an extension of time for leave to appeal was refused on 22 August 2014.

   [37]Mandie v Memart Nominees Pty Ltd (2014) 42 VR 325; [2014] VSC 290.

The September Declaration

1. On 1 September 2014, the Trustee’s solicitors received a written memorandum from Dr Hardingham QC (who had appeared for the Trustee in the information proceeding).  He advised that it was now open to the Trustee to exclude the applicants were it minded to do so, and that it was not necessary to wait until after the expiry of the period for seeking special leave to appeal to the High Court before doing so.

1. That evening, on 1 September 2014, Lasnitski and Stock resolved to exclude the applicants as General Beneficiaries:

pursuant to subclause (iv) to clause 1(2) of the Deed of Settlement relating to the David Mandie Family Trust to declare that:

(a)the spouses, the children and the grandchildren of Ian Mandie and Stephen Mandie, being two of the children of David and Minnie Mandie, and the spouses, widows or widowers of such children and grandchildren;  and

(b)any corporation in which any of Ian Mandie, Stephen Mandie or any of the persons specified in paragraph (a) hold more than ten per centum of the issued shares,

are excluded as General Beneficiaries from the date hereof and that Mr Lasnitzki be authorised to sign a declaration to that effect on behalf of the Company as Trustee of the David Mandie Family Trust.

1. On 18 September 2014, in writing signed by Lasnitzki, the Trustee made the September Declaration in these terms:

In pursuance of the power vested in the Trustee by the proviso in sub-clause (iv) to clause 1(2) of the Deed of Settlement dated 24 April 1978 relating to the David Mandie Family Trust and of all other powers enabling it to do so, the Trustee declares that:

(a)the spouses, the children and grandchildren of Ian Mandie and Stephen Mandie, being two of the children of David and Minnie Mandie, and the spouses, widows or widowers of such children and grandchildren;  and

(b)any corporation in which any of Ian Mandie, Stephen Mandie or any of the persons specified in paragraph (a) hold more than ten per centum of the issued shares,

are excluded for all purposes from the class of General Beneficiaries and from the date of this Declaration none of them shall have any interest as a General Beneficiary, or otherwise, under the Deed of Settlement.

1. The evidence does not disclose how the words ‘or otherwise’ came to be included in the last line of the September Declaration.  As the inferences that might be drawn from the inclusion of those words are controversial and important to the present appeal, it will be necessary to return to them.

Broad overview of issues and findings of the judge

1. As foreshadowed above, the applicants sought to impugn both the May Declaration and the September Declaration.  In their pleading, the applicants set out the background and alleged that Memart breached its duties as Trustee as follows:

(m)      the Trustee made distributions of income without considering whether the applicants ought to receive any distributions[38] (this allegation was not persisted with in this Court);

[38]Further Amended Statement of Claim [25]–[26] (‘FASOC’).

(n)  by the May Declaration the Trustee purported to exclude Ian and Stephen as Specified Beneficiaries when there was no power for it to do so;[39]

[39]Ibid [26A]–[26B].

(o)   the exclusion of Ian and Stephen as Specified Beneficiaries was for the purpose of ensuring that the applicants ‘would not be children of a Specified Beneficiary within the meaning of sub-cl 5(2) of the trust deed;’[40]  and

(p)  the September Declaration was made in bad faith and for an improper purpose.[41]

[40]Ibid [26C].

[41]Ibid [27].

1. In [27] of the FASOC, the applicants alleged that Memart, by its directors Lasnitzki and Stock, made the September Declaration:

(q)  in bad faith, arbitrarily, capriciously;

(r)    without any real or genuine consideration;  and

(s)    otherwise than for the purpose for which the power in sub-cl 1(2)(iv) of the trust deed was conferred.

1. The particulars appended to [27] stated:

Memart’s purpose in making the [September] Declaration was to ensure that the assets of the Trust enure for the exclusive benefit of Evelyn and the close members of her family, to the exclusion of the plaintiffs.

The [September] Declaration was made in circumstances where:

(i) Edward and Nicholas had, since July 2012, been requesting information from Memart;  and

(ii) in the context of such requests, Edward and Nicholas had, by letter from their solicitors to Memart’s solicitors dated 12 September 2014, put Memart on notice of matters which caused them to believe that they had or may have had grounds on which to obtain relief against Memart on the basis that it had acted, or was acting, in breach of its duties and was therefore liable to be removed from office.

1. In its defence to the FASOC, the Trustee admitted that the Deed does not empower it, either under cl 1(2)(iv) or otherwise, to exclude any person as a Specified Beneficiary,[42] and it denied that the purpose of the May Declaration was to exclude Ian and Stephen so as to exclude the grandchildren.[43]  Further, the Trustee pleaded that the purpose of the May Declaration was to provide a formal record that Ian and Stephen no longer had any interest in the Trust as requested by the WA regulator.[44]

   [42]Defence [26B].

   [43]Ibid [26C].

   [44]Ibid [26C].

1. The Trustee in its defence pleaded that Ian and Stephen could no longer take an interest under cl 5(2) of the Deed, not because of the operation of the May Declaration, but because of the release in cl 9.2 of the 1995 Settlement Agreement.[45]

   [45]Ibid [11C], [11D].

1. At the trial, the grandchildren submitted that the disclaimers had the effect of removing any entitlement of Ian and Stephen[46] but did not bind the grandchildren, who then became the holders of a vested, but defeasible, interest in the Trust as takers in default of appointment of the Trust property.  They argued that the doctrine of acceleration applied so that the disclaimers of Ian and Stephen accelerated the grandchildren’s interests under cl 5(2).  They submitted, in this context, that the May Declaration knowingly went beyond the exclusion power in the Deed by purporting to exclude Ian and Stephen as Specified Beneficiaries.

   [46]Re Stratton’s Disclaimer;  Stratton v Inland Revenue Commissioners [1958] 1 Ch 42, 54 (Jenkins LJ, with whom Sellers LJ and Roxburgh J agreed).

1. In their written submissions at trial, the applicants alleged that the purpose of the May Declaration was to misrepresent the true position to the WA regulator.  That allegation was not pressed and was replaced with the allegation that the purpose was as pleaded in [26C] of the FASOC, namely, to ensure that the applicants ‘would not be children of a Specified Beneficiary within the meaning of sub-clause 5(2) of the trust deed.’

1. As to the September Declaration, the applicants submitted that it was beyond power for three reasons, which we will set out in full below.  The judge found that only the third reason was pleaded.  Consequently, the applicants were prevented from arguing the first two bases, and an application to amend the pleadings to introduce them was refused.  The third basis, considered by the judge as an aspect of improper purpose, was that the power of exclusion could only be exercised in respect of named individuals, not classes or categories of individuals, and required some disentitling conduct justifying exclusion.

1. The applicants alleged that the September Declaration involved a fraud on the power in that the power was exercised for a purpose or with an intention beyond the scope of or not justified by the Deed.[47]  They contended that the purpose of the September Declaration was to stop the Trust being for the benefit of all of the objects of the Trust and for it to become, instead, a trust for the sole benefit of Evelyn and her family.

   [47]Duke of Portland v Topham (1864) 11 HLC 32; 11 ER 1242; Vatcher v Paull [1915] AC 372, 378 (Lord Shaw, Lord Parker, Lord Sumner and Sir Joshua Williams) (‘Vatcher’);  D M Maclean, Trusts and Powers (Law Book Co, 1989) 86.

1. The applicants submitted that a purported exercise of a power that occurs even partly for an improper purpose is a fraud on the power for ‘there is not the absence of an ulterior object necessary to support it’.[48]  They acknowledged that the question is the subjective intention or purpose of the party exercising the power.

   [48]Re Brook’s Settlement;  Brook v Brook [1968] 1 WLR 1661, 1668E (Stamp J); Redman v Permanent Trustee Co of New South Wales Ltd (1916) 22 CLR 84, 93 (Griffith CJ and Barton J); [1916] HCA 47.

1. The applicants also submitted that the power was not executed in good faith.  In their written submissions, they alleged that the September Declaration was not made honestly and in good faith, was made capriciously and was ‘actuated by spite’.  They relied on a list of facts, contained in [164] of their written closing submissions, to establish an absence of good faith.  In circumstances which we shall explain, the judge did not permit the applicants to rely on the matters alleged in that paragraph or on the allegation that Evelyn was motivated by spite.

1. In seeking to make their case, the applicants invited the judge to draw an adverse inference as to purpose because of the failure of the Trustee’s directors to give evidence to explain the decisions that were made.  They submitted that the judge should not take into account the Statement of Wishes because it was inconsistent with the Deed, and the evidence established that David had good relationships with his grandchildren — he left them substantial bequests in his will and had deliberately not taken the step of altering the Deed or removing them during his lifetime.

1. In very brief summary, the judge concluded as follows:

(t)    the grandchildren’s position as takers in default had not been accelerated by their fathers’ disclaimers because ‘[t]here was nothing to accelerate until 2057’.[49]

[49]Reasons [109].

(u)  the May Declaration did not purport to remove Stephen and Ian as Specified Beneficiaries and was not made for that purpose.  It removed them as General Beneficiaries and simply recited the consequences that had earlier arisen from the 1995 Settlement Agreement and disclaimers.[50]  The judge further noted that the May Declaration had no effect on the applicants.[51]

[50]Ibid [146]–[147].

[51]Ibid [148].

(v)  the attack on the power to make the September Declaration was outside the pleadings and leave to amend the FASOC to include it was refused.

(w)the applicants had failed to establish that the September Declaration was made for an improper purpose notwithstanding that the Trust was likely to continue only for the benefit of Evelyn and her family.[52]  There was no evidence that the Trustee did not give genuine consideration to the circumstances of the applicants;[53]  it had an unfettered discretion and was entitled to take into account the effect of the 1995 Settlement Agreement and the benefits that Ian and Stephen received, and the Statement of Wishes.[54]  The judge found the evidence that David and Minnie had changed their wishes since the Statement of Wishes to be equivocal.[55]

[52]Ibid [160]–[162].

[53]Ibid [163].

[54]Ibid [164].

[55]Ibid; Re Day (2017) 91 ALJR 262, 268 [18] (Gordon J); [2017] HCA 2.

1. At the conclusion of his reasons, the judge indicated that he would hear further argument on the application to remove the Trustee in light of his reasons.  Subsequently, and without any further hearing, an order was made dismissing the proceeding.

Ground 1:  Are the grandchildren takers in default of the Trust property?

1. Ground 1 is, in substance, that the judge erred in failing to hold that the grandchildren were takers in default of appointment with vested interests in the Trust property from the time of the disclaimers in 1995.[56]  Memart filed a Notice of Contention in which it seeks to support the judge’s conclusion that the doctrine of acceleration was inapplicable to cl 5(2) of the Deed on the ground that the interests of the grandchildren under that clause were not equivalent to the gift of a vested remainder.  It also asserts that the judge erred in failing to conclude that the consequence of the disclaimers was that the children could not take under cl 5(2) of the Deed.  The parties addressed Ground 1 of the grounds of appeal and the Notice of Contention at the same time.

   [56]Or, in the case of Daniella, who was not born at the time of the disclaimers, from the time of her birth in 1997.

1. This issue involves identifying the nature of the interests of the grandchildren, if any, under cl 5(2) of the Deed, and the effect of the disclaimers in circumstances where cl 5(2) refers only to the ‘death’ of a Specified Beneficiary.  As will become apparent, although this issue assumed great prominence on the appeal, it was much less significant at trial.  The focus of the trial was the decision to remove the applicants as General Beneficiaries and not the nature of the residual interests of the grandchildren as takers in default.

1. The parties disagree as to the nature of the interests held by the grandchildren under the Deed.  However, whether the exercise of power to remove the applicants as General Beneficiaries was made for an improper purpose is central to the appeal, and because both the May Declaration and the September Declaration arguably travel beyond simply removing the applicants from the class of General Beneficiaries, it is convenient to address the nature of the grandchildren’s interests under the Deed.

The judge’s reasons

1. The judge set out the competing submissions and concluded that:

the potential interest of the plaintiff grandchildren arises under clause 5(2) if their fathers ‘shall have died’.  The content of that potential interest is the share that their fathers would have taken had they survived to the vesting day in 2057 and attained a vested interest.[57]

[57]Reasons [102].

1. Although the judge had earlier concluded that the Specified Beneficiaries were takers in default,[58] he considered that cl 5(2) could not be applied until the Vesting Day because the Trust property may have been appointed before then, leaving nothing on which cl 5(2) could operate.  On that basis, the judge rejected the submission that nothing could flow to the grandchildren as a result of the disclaimers, going on to say that this could not be answered until 2057.  He identified as one possible scenario that the disclaimers could be varied before the Vesting Day.[59]

   [58]He said: ‘Under the terms of the Trust Deed, the plaintiff grandchildren’s interests under clause 5(2) as takers in default of appointment exist despite Ian and Stephen’s disclaimers. This is because the provision operates on the assumption that the deceased father would have taken a vested interest. Under the Trust Deed, as distinct from the disclaimers, had the fathers not died before the vesting day, they would have attained a vested interest in any share of the Trust property that had not been otherwise appointed’: Reasons [101].

   [59]Reasons [103].

1. The judge then addressed the application of the doctrine of acceleration, holding that it did not apply to advance the applicants’ interests.  He said:

In my opinion, the doctrine of acceleration did not operate following Ian and Stephen’s disclaimers in 1995 so as to advance to their children their interests as takers in default of appointment.  While the acceleration doctrine applies upon a disclaimer, in the same way as it does upon the prior interest holder’s death, its operation is subject to any contrary intention apparent in the will or settlement deed.  In this case, the plaintiffs grandchildren had to survive until 2057 to the vesting day to learn whether there remained any Trust property for them to take.  There was nothing to accelerate until 2057 and then only if there was some Trust property remaining and not otherwise appointed.  The present circumstances differ from the disclaimer of a life interest in property where the person holding the remainder can accelerate to possession of the property.[60]

[60]Ibid [109].

1. In summary, therefore, the judge held that the grandchildren were takers in default of appointment, that it was not known whether or not they would take under the Trust and this could only be known in 2057.  The doctrine of acceleration did not apply to advance their interests.

1. Before coming to the arguments and our conclusions on this ground, it is necessary to refer to the applicable principles.  It is convenient to do so, as the parties did, by reference to a number of authorities.  They are important because they show that, commonly, a clause of a will or trust deed that provides for an interest to terminate on the death of the holder with the residuary to pass to another, will be construed as operating on any termination of the prior interest including, for example, by disclaimer.

The authorities

1. In Tompkins v Simmons,[61] the testator’s will directed that the proceeds of his residuary personal and real estate should form a trust fund, the income of which he bequeathed to his wife for life and after her death ‘to and among all my children of whom there are six’ and after the death of any one or more of such children a one sixth part of the trust fund was to be held ‘upon trust to pay and divide the same equally among the children of any such one or more of my deceased sons or daughters who shall live to attain the age of twenty-one years or being daughters marry before that age.’  By a codicil to that will, the testator revoked the interest of one of his daughters.

   [61](1931) 44 CLR 546; [1931] HCA 8 (‘Tompkins’).

1. The removal of one of the daughters from the gift gave rise to a number of issues.  On one view, the gift to the children was a gift to a class (‘my children’) and, in accordance with established principles, that meant the members of the class alive at the time of the mother’s death.  On that view, once the daughter’s interest was revoked, the estate would be divided equally amongst the remaining five.  The High Court rejected that construction.  Rather, it was held that the will intended to create six undivided shares in the trust fund, and to limit each of them to one of the named children of the testator for life and, after his or her death, to his or her children who should attain the age of twenty-one or (in the case of daughters) marry, with an accruer in default of such children.

1. Thus the removal of one daughter from the gift did not enlarge the interest of the remaining children.  The issue then became what was to happen to the interest of the daughter who had been removed from the gift, given that the children would only vest in possession on the death of her mother and, read literally, the interest of the daughter could only pass to her children on her death.  Two possibilities were identified:  either the removal of the daughter created an intestacy in respect of her interest or the interests of the daughter’s children were accelerated.

1. Dixon J explained why the second of those possibilities was correct.  He said:

But the destruction of such an interest for life does not cause an intestacy in respect of the interest, unless it is clear that the interest limited in succession to the life interest was to take effect only upon the specified event of the death of the life tenant and was not to fall into possession on the sooner determination of the life interest.  In a limitation to a donee for life and after his death upon trust for his children, or some other donee, the reference to his death whether expressed by the words ‘upon,’ or ‘after his death,’ or ‘from and after his decease,’ or otherwise, may have one of two imports.  It may mean that the second donee shall take nothing until the death of the first, or it may merely show the order of the limitations through which the estate or interest is to pass.  It is well established that, prima facie, these words are to be understood as denoting the order of succession of limitations.  (See per Turner LJ, Lainson v Lainson.)

In this case the limitation of the corpus of the trust fund is introduced by the words ‘and immediately after the decease of any one or more of my sons or daughters.’  There is nothing to rebut the prima facie rule that these words simply mark out the order of succession, and create an interest expectant upon the determination of the prior interest by whatever means that determination may be brought about.  In such a case if the prior interest fail from the incapacity of the donee to take, as, for instance, if he attests the will, or if it be revoked, or for some other reason be abolished or abridged, the succeeding interest in the same property is accelerated and takes immediate effect in possession. … In my opinion there is no intestacy as to the income of her revoked share, but the gift of corpus to her children is accelerated and subject to such children attaining twenty-one or being daughters marrying took effect immediately upon the death of the testator’s widow.[62]

[62]Ibid 558–9 (emphasis added).

1. The prima facie position identified by Dixon J in Tompkins was also described as ‘well settled’ by Jenkins LJ in Re Flower’s Settlement Trusts;  Flower v Inland Revenue Commissioners.[63]  Jenkins LJ described the principle as follows:

where there is a gift to some person for life, and a vested gift in remainder expressed to take effect on the death of the first taker, the gift in remainder is construed as a gift taking effect on the death of the first taker or on any earlier failure or determination of his interest, with the result that if the gift to the first taker fails — as, for example, because he witnessed the will — or if the gift to the first taker does not take effect because it is disclaimed, then the person entitled in remainder will take immediately upon the failure or determination of the prior interest, and will not be kept waiting until the death of the first taker.[64]

[63][1957] 1 WLR 401 (‘Flower’s Settlement’).

[64]Ibid 405 (emphasis added).

1. In Flower’s Settlement, the Court acknowledged that the principle applies to personalty as well as real property and may be applied to settlements of trust.  However, Jenkins LJ cautioned that ‘it may well be more difficult, in the case of a settlement, to collect the intention necessary to bring the doctrine of acceleration into play.’[65]

   [65]Ibid.

1. In that context, the principle applies to give effect to the order of succession marked out by the settlement and so as to avoid a failure of the trust and the creation of a resulting trust in favour of the settlor.  Jenkins LJ considered that to activate the doctrine of acceleration there must be something ‘equivalent to the gift of a vested remainder to a person expressed to take effect on the death of the first taker.’[66]

   [66]Ibid 408.

1. In Re Syme,[67] the will left the residue of an estate to four named nieces and nephews of the testator and ‘upon the death of the last survivor’ to the children of the nieces and nephews ‘in equal shares’.  The question arose as to whether the children could only take on the death of the last survivor or whether the words ought be construed as merely showing the order of the limitations through which the estate was to pass,[68] so that the interests of the children could be accelerated by reason of  simultaneous disclaimers made by each of the nieces and nephews.

   [67][1980] VR 109.

   [68]Ibid 114 referring to Lainson v Lainson (1854) 5 De GM & G 754, 756-7; 43 ER 1063, 1064 (‘Lainson’).

1. In considering the doctrine of acceleration, Lush J observed that it was ‘not excluded by words defining the time of distribution by reference to the natural ending of the particular state, for instance, a direction for distribution upon the death of the life tenant,[69] or by a direction that distribution is to be made among persons then living’.[70]  Lush J held that, in the circumstances, acceleration applied and the interests would pass to the children ‘as if all four nieces and nephews were dead.’[71]

   [69]Ibid 116, citing Lainson (1854) 5 De GM & G 754; 43 ER 1063 and Jull v Jacobs (1876) 3 Ch D 703.

   [70]Ibid (citations omitted).

   [71]Ibid.

1. The doctrine of acceleration arose in a different context in Re Wells;  Wells v Begley.[72]  As discussed below, the Trustee relies on this case for the proposition that where there is a substitutionary gift, the second donee takes the same interest that the prior interest holder would have taken had he or she survived the donor.  If the prior interest holder would have taken nothing, so too the second donee will take nothing.

   [72](1930) 30 SR (NSW) 150 (‘Wells’).

1. In Wells, the testator left the farm and some, but not all, of the stock and plant to a daughter (Lily) subject to a legacy of £500 to his other eight children to be paid by Lily in five equal annual instalments after the death of the testator;  and the proceeds of the sale of any residue property were to be distributed amongst his children.

1. The will addressed the circumstance in which one of the children predeceased the testator in the following way:

And I further direct that in case any child of mine shall predecease me but leaving him or her a child or children him or her surviving then such child or if more than one then such children shall take in equal shares the share which his her or their parent as the case may be would have taken under this my will in case such child so predeceasing me had survived me.[73]

[73]Ibid 151 (Long Innes J).

1. One of his daughters (Alice) died before the testator, leaving behind her three children.

1. Before he died, the testator made gifts to two of his daughters of £300 (Mary) and £250 (Annie) respectively.  It was accepted that these payments were to be treated as ademptions or in satisfaction of their entitlement under the will.  The principle is based on a presumed intention that the testator had a definite plan for the distribution of the estate among his children, so that if he subsequently makes a provision inter vivos for one child in the nature of a portion, the presumption arises that it was intended to be a satisfaction or ademption of all or part of the testamentary provision and the subsequent advancement must be brought into ‘hotchpot’, so that the scheme for the distribution of his estate among his children may not be altered.[74]  The presumption arises from the parental relationship between donor and donee.[75]

   [74]Ibid 154.

   [75]Ibid.

1. The issue that arose in Wells was whether the doctrine applied in favour of the children of Alice who took under the will on their mother’s death.  In other words, for the purpose of determining the value of the share of the estate to be gifted to the grandchildren, were the two amounts in ademption to be added to the estate?  The argument against that proposition was that ademption does not apply in favour of a stranger to the parental relationship.

1. Long Innes J held that it did apply.  In a passage relied upon by the Trustee, he said:

The present is not the case of an original, but of a substitutional gift, and I think it must now be regarded as settled that in the case of a substitutional gift, where the substituted donee is directed to take the share which the original donee would have taken had he survived the testator, the doctrine is applied against the substituted donee to the same extent as it would be applied against the original donee.[76]

[76]Ibid 155.

1. That means that where the original donee is subject to the benefit or liability of an ademption, it carries through to the substituted donee.  That is, the substituted donee should take the share which that primary donee would have taken had he or she survived the testator, ‘no more and no less, but the same in all respects, as the original donee would have taken had he or she survived the testator.’[77]

   [77]Ibid 156.

1. A similar issue arose in Re Dougharty;  National Trustees Executors & Agency Co of Australasia Ltd v Brentnall.[78]In that case, the will provided for a life tenancy in favour of the testator’s daughter and, in the event that she died without issue, the estate would pass to the other children of the testator who survived the daughter in equal shares.  The will further declared that in the event that any of the testator’s other children predeceased the daughter, the issue of any such children ‘shall be entitled by way of substitution as tenants in common in equal shares per stirpes if more than one to the share to which the parent of such issue would have been entitled under the preceding trust had such parent survived’ the life tenant.[79]

   [78][1935] VLR 333 (‘Dougharty’).

   [79]Ibid 334 (Mann J).

1. As things transpired, the life tenant died without issue.  Before her death, one of her siblings, John Dougharty, who would have been entitled to take as remainder, also died and his child was substituted into the gift.  Before his death, John had been the executor of the estate and was guilty of breaches of trust and became liable to account to the estate in an amount that remained outstanding.  Had he survived, any amount owing under the will would have been entirely offset by his debt to the estate.  What then of the position of his child who was substituted into the gift?  Was he burdened by his father’s debt to the estate?

1. The argument against the child turned on the words of the declaration which provided that the child would take that to which the parent would have been entitled under the trust.  Mann J rejected that argument on the basis that the child took under the will as an original donee and his entitlement could not be destroyed or affected by anything done by his father after the death of the testator.[80]  His Honour continued:

(n)on 1 September 2014, soon after the dismissal on 22 August 2014 of Edward’s and Nicholas’s application for an extension of time in which to appeal from the order determining the information proceeding, the Trustee took steps to attempt to exclude all of the plaintiffs (among others) as General Beneficiaries of the Trust;

(o)on 1 September 2014 the directors of the Trustee purported to authorise the making of a declaration in one form;

(p)however, on 18 September 2014, the Trustee purported to make a declaration in an altogether different and broader form, that is, that of the 18 September 2014 purported declaration;  (the 18 September 2014 purported declaration was, and is, therefore, unauthorised by any resolution of directors of the Trustee);

(q)the timing of the 18 September 2014 purported declaration was almost certainly attributable to the Trustee’s desire to attempt to avoid an inference ‘that there were improper considerations motivating the Trustee’ because, on 3 October 2013, the Trustee’s Counsel had advised the Trustee that:

As you know, there is a reasonable likelihood that any decision to exclude Stephen and Ian’s spouses and children will sought (sic) to be impugned on the basis that the discretion was not exercised in conformity with the requirements set out in Karger v Paul.  In particular, it might be expected that the excluded beneficiaries would content [sic] that the trustee decided to exclude them only after the two proceedings were commenced.  Even if the directors of the trustee company were to deny this, the coincidence in timing is difficult to escape, and the Court will likely be asked to infer that there were improper motivations motivating the trustee’;

(r)in and about September 2014, the Trustee made no inquiry of any of the plaintiffs as to their needs or circumstances;

(s)the Trustee did not make, and could not have made, any proper inquiry of, or in respect of, the needs or circumstances of any of the unborn objects of the Trust that on 18 September 2014 it purported to exclude;

(t)the Trustee did not make, and could not have made, any proper inquiry of, or in respect of, the needs or circumstances of any of the unnamed objects of the Trust (other than the plaintiffs) that on 18 September 2014 it purported to exclude;

(u)the Trustee has refused to make discovery of documents in these proceedings — despite conceding that it had in its possession documents relevant to the issues in the proceeding of which it could have made discovery, within seven days, if the Court required it to do so;  and

(v)the manner in which the Trustee has pleaded, and conducted, its defence in these proceedings suggests strongly that the Trustee made the 18 September 2014 purported declaration at least partly, if not solely, due to:

(i)Evelyn Danos’s caprice and spite towards Ian Mandie, Stephen Mandie and the plaintiffs;

(ii)conduct of Ian Mandie and Stephen Mandie;

(iii)the Trustee’s perceptions of Ian Mandie’s and Stephen Mandie’s circumstances;  and or

(iv)the plaintiffs’ familial relationships with Ian Mandie and Stephen Mandie.[175]

[175]Citations omitted. Emphasis in original. It should be noted that, on the appeal, when the applicants prepared their PSFASOC, they omitted the words ‘and spite’ from [164(v)(i)] in the proposed particulars to [27].

1. At trial, Senior Counsel for the Trustee made oral submissions on the objections to what were said to be new and unpleaded matters.  Specifically, in relation to [164], the Trustee objected to the proposed amendment on the basis that it included the word ‘spite’, which the Trustee contended introduced a new and particular aspect of bad faith.  Next, it submitted that [164] was directed to Evelyn, which constituted a ‘pivotal change to the focus of the complaint’.[176]  In this respect, the Trustee noted that in earlier iterations of their pleading, the applicants had alleged that the two independent directors, Stock and Lasnitzki, were in the thrall of Evelyn and acted at her direction.  Those allegations had been abandoned.

   [176]The submission of ‘spite’ in [163] was directed at Memart, whereas the submission of ‘spite’ in [164(v)(i)] was directed at Evelyn.

1. The Trustee submitted that the allegation that its directors knowingly acted outside the wishes of David (sub–paragraph (i)) was a new allegation of dishonesty per se.  Finally, it said that sub–paragraph (v) introduced an entirely new case that the litigation had been conducted for an improper purpose, an allegation which it said inevitably cast aspersions on the lawyers for the respondent.  As described by Senior Counsel below, sub–paragraph (v) introduced a new case, in a ‘wounding way, dropped in at the end of a long litany of fragments gathered together in a gallimaufry of otherwise inconsequential propositions.’

Parties’ submissions on the appeal in relation to [164]

1. The applicants submit that [164] sets out facts and inferences drawn from documents that were tendered by consent.  Indeed, many of those documents had been discovered by the respondent.

1. The respondent refers to its submissions at trial and submits that no House v The King error has been established.

Analysis

1. We have already referred to the judge’s ruling on the amendment application above.  In addition, in dealing specifically with [164], it is appropriate to note that in [163] of their closing submissions, the applicants alleged that the respondent did not act honestly and that it was actuated by spite.  No application was made to amend [27] of the pleading to specifically allege these two matters.  In addition, the applicants withdrew the words ‘and spite’ from [164(v)(i)] in relation to Evelyn.

1. We would observe that the test of acting honestly is the same as the test of acting in good faith;  an ‘act which falls short of good faith is done in bad faith.’[177]  Here there was an express allegation that the Trustee had acted in bad faith;  in this context it was in effect an allegation of dishonesty.

   [177]Karger v Paul [1984] VR 162, 164 (McGarvie J). See also Fitzwood Pty Ltd v Unique Goal Pty Ltd(in liq) [2001] FCA 1628, [152] (Finkelstein J); Wilden Pty Ltd v Green (2009) 38 WAR 429, 454–5 [114], 467 [162] (McClure JA); [2009] WASCA 38.

1. Subject to one matter, in our opinion, the judge should have permitted the applicants to rely on [164] of their closing submissions in support of their allegation of improper purpose and any amendment to the pleadings was unnecessary.

1. Each of the matters in [164] contained relevant and admissible facts that were capable of supporting the applicants’ pleaded case under [27]. To reiterate, the applicants pleaded three bases on which it was alleged that the discretion to exclude them was infected by bad faith or dishonesty. Insofar as this was based on improper purpose, the applicants pleaded that the September Declaration was made:

(nn)     to ensure that Evelyn and her family benefited to the exclusion of the applicants;  and

(oo)     in circumstances where the grandchildren had sought information from the Trustee and, it might be inferred, were investigating the Trustee for breach of duty.

1. In our view, in order to make out that case, it was open to the applicants to rely on evidence that showed that Evelyn was a driving force in the administration of the Trust and that she and her family would gain from the exclusion. Those two propositions were hardly controversial. The pleading alleged that the Trustee had made the September Declaration in bad faith for the purpose of benefiting Evelyn. Given that Lasnitzki and Stock had both authorised Lasnitzki to make the September Declaration, it was open to the applicants to adduce evidence as to the nature of the decision-making and to seek to establish Evelyn’s influence in that regard. We consider that the applicants did not require an amendment to the pleadings to make the submissions in [164].

1. The single qualification is that the original formulation of [164] alleged spite on the part of Evelyn.  As mentioned, that allegation was also found in [163] of their closing submissions in relation to the Trustee.  That aspect added a dimension to the attack that meant that the exclusion was motived not just by self-interest but also out of personal animus or malevolence directed to Ian and Stephen and their families.  In the course of argument, the judge raised with the applicants’ counsel that this was a new allegation.  The judge was correct to make that point.

1. However, the correct course was to permit the applicants to rely on the evidence they identified in order to make out their pleaded case.  That pleaded case was confined to the two improper purposes that had already been alleged.

1. We would uphold Ground 5.  It follows that the allegations in [164] (with the changes accepted by the applicants) should be considered in assessing whether the applicants succeed on improper purpose.  That is the subject of Ground 4.

1. Before turning to Ground 4, it is convenient to address Ground 6.

Ground 6 — Should the judge have drawn a Jones v Dunkel inference?

1. The applicants submit that the failure to call the directors of the respondent to give evidence as to the reasons for making the September Declaration meant that the Court should have inferred that their evidence would not have assisted the respondent’s case.[178]

   [178]Jones v Dunkel (1959) 101 CLR 298, 308 (Kitto J), 312 (Menzies J) and 320–1 (Windeyer J); [1959] HCA 8.

1. In Curwen, this Court said:

A discretionary trustee is not obliged to disclose to objects the reasons actuating them in arriving at a decision. … [N]o amount of notice of the appellants’ allegation could require Prudence (as the mind of the trustee and by whom the trustee gave evidence), either in her affidavit or in any additional evidence in chief at the trial, to state her reasons for decision.  As a matter of law, she was entitled not to do so. … No adverse inference of any improper purpose could be drawn from the non-disclosure in her evidence of the trustee’s reasons.[179]

[179](2009) 26 VR 335, 348–9 [25] (Redlich and Bongiorno JJA and Hansen AJA); [2009] VSCA 284 (citations omitted).

1. In our opinion, that principle provides the answer to Ground 6.  We reject Ground 6.

Ground 4 — Should the judge have inferred improper purpose?

1. The applicants submit that the judge erred in not concluding that the September Declaration was made in bad faith and for an improper purpose.

1. The judge accepted that the effect of the September Declaration was that it was likely that the Trust would continue only for the benefit of Evelyn and her family.[180]  However, he noted that the exercise of the power to exclude persons as beneficiaries would necessarily prejudice some family members, to the potential corresponding advantage of others.[181]

   [180]Reasons [160].

   [181]Ibid [161].

1. The judge found no evidence that the Trustee did not give genuine consideration to the circumstances of the applicants or was unaware of their position.[182]  He accepted that it was open to the Trustee to proceed on the basis that the exclusion of Ian and Stephen and their spouses and children was in accordance with the Statement of Wishes, notwithstanding the bequests made to the grandchildren in David’s will.[183]

   [182]Ibid [163].

   [183]Ibid [164].

1. The judge declined to draw an inference from the failure of the directors to give evidence and said that no Jones v Dunkel point arose.[184]

   [184]Ibid [166].

1. In our view, the judge was entirely correct to proceed on the basis that the purpose of the September Declaration was to ensure that the Trust continued for the benefit of Evelyn and her family to the exclusion of the families of Ian and Stephen.  However, the fact that Evelyn and her family would benefit in this way did not necessarily mean that the September Declaration was made for an improper purpose.  As the judge rightly pointed out, the exercise of the power of exclusion necessarily has the potential to prejudice the excluded party.

1. The contention that the September Declaration was made in response to the information proceeding cannot be made out because the declaration was made after that proceeding had been completed, including the refusal of an application for leave to appeal out of time, and the Trustee had received advice to be cautious in respect of any decision affecting the applicants during the currency of any proceeding against the Trustee.

1. In our view, it follows that the judge was correct to reject the pleaded case on the basis of improper purpose and bad faith.

1. Perhaps recognising the weakness of the pleaded case, in their oral submissions in this Court, the applicants focused on the purported effect of the September Declaration on the applicants as takers in default of appointment under cl 5(2).  They submit that the inclusion of the words ‘or otherwise’ in the September Declaration reveals an illegitimate intention to remove the applicants from their position as takers in default in circumstances where the power would only authorise their removal as General Beneficiaries.

1. We have already found that the words ‘or otherwise’ took the September Declaration beyond the power conferred on the Trustee to exclude General Beneficiaries.[185]  However, we are not satisfied that the applicants have established a sufficient basis to infer that the inclusion of those words was a deliberate or knowing breach of power by the Trustee.

   [185]See [237] above.

1. The resolution authorising the Trustee to make the September Declaration did not include those additional words and was confined to the removal of the applicants as General Beneficiaries.  There are a number of possible explanations for the insertion of the words ‘or otherwise’ in the September Declaration, including the following.  There might have been an unthinking repetition of the words or sentiment found in the May Declaration.  The directors of the Trustee may have had a mistaken belief that the applicants could not in substance benefit from their status as takers in default because they could only take that which their fathers could have taken, which was nothing because of the disclaimers.  There may have been the belief, again mistaken, that cl 5(2) confers a defeasible vested right on a General Beneficiary which falls away once the person is excluded from that class.  There may have been a deliberate ploy to impermissibly remove the applicants from the Trust entirely.

1. We are unable to draw, to the requisite level of satisfaction, an inference that the insertion of the two words ‘or otherwise’ was a deliberate misuse of power.

1. The focus of the decision-making process leading to the making of the September Declaration was the exclusion of the applicants as General Beneficiaries.  That was their principal status under the Deed and the status that gave them the potential to participate in appointments from the Fund.  The advice of counsel, which was given on a number of occasions, was targeted at the exclusion of the applicants as General Beneficiaries.  There is no evidence that the residual interests of the grandchildren as takers in default under cl 5(2) were ever expressly considered.  Their status as takers in default is not immediately apparent from the text of the Deed, and requires some knowledge of the doctrine of acceleration and how the words in cl 5(2) may be extended beyond their literal meaning, particularly in respect of Specified Beneficiaries who ‘shall have died before the Vesting Day’.  Further, even if the status of the grandchildren as takers in default was appreciated by Lasnitzki, the content of the interest was unstable and subject to numerous contingencies and it would be surprising if that status would attract a conscious act of bad faith.

1. The applicants’ case is circumstantial.  It is made more difficult by the nature of the discretionary power to exclude and the fact that the Trustee is not required to give reasons for a decision.  As this Court explained in Curwen, no adverse inference of any improper purpose can be drawn from the non-disclosure of the Trustee’s reasons or from the fact that the directors did not give evidence as to their purpose in making the September Declaration.[186]

   [186](2009) 26 VR 335, 348–9 [25] (Redlich and Bongiorno JJA and Hansen AJA); [2009] VSCA 284.

1. At this point, it is relevant to return specifically to the position of the spouses of Ian and Stephen who, as mentioned, are also applicants.  They are not takers in default and the only interest they had under the Deed was as General Beneficiaries.  At least in respect of them the words ‘or otherwise’ in the September Declaration, to reflect their complete exclusion from any interest under the Trust, are accurate.  They simply had no ongoing interests under the Trust once they were excluded from the class of General Beneficiaries.  The fact that the spouses were also expressly referred to in the September Declaration provides a further indication that the Trustee was not thinking of cl 5(2) and the unstable interests it creates when the September Declaration was made.

1. Although the interests of the grandchildren as takers in default under cl 5(2) were the focus of much of the oral argument on the appeal, we are not persuaded that it was a matter that informed the making of the September Declaration.

1. We reject Ground 4.

Ground 7:  Had David Mandie’s sentiment changed from his Statement of Wishes?

1. Under cover of Ground 7, the applicants complain that the judge erred in his finding concerning David’s wishes in relation to Ian and Stephen and their families.  There can be little doubt that the Statement of Wishes was a powerful and emotional expression of disappointment in Ian and Stephen.  It reflects a schism in the family and what might become an irreconcilable parting of the ways.

1. Equally, there was evidence of a close relationship between the grandchildren and their grandfather, some evidence of a harmonious relationship between David and Jane and Amanda, and some less powerful evidence of a rapprochement between David and his two sons.

1. However, in our view, the judge was correct in his conclusion that the Trustee was entitled to take into account the wishes of David and Minnie expressed in the Statement of Wishes.  The weight given to those wishes was a matter for the Trustee.  The judge’s finding in this regard went no further than that the Trustee was entitled to conclude that the exclusion of Ian and Stephen’s families was in accordance with the Statement of Wishes, despite the bequests that David made in his will.[187]  There was no error in that approach.

   [187]Reasons [164].

1. We reject Ground 7.

Ground 8:  Did Memart know that the grandchildren were well provided for?

1. The applicants assert under cover of this ground that the judge erred in finding that it is likely that the respondent knew that Edward, Isabella, Nicholas and Daniella had been well provided for by their parents.

1. There is nothing in this ground.  First, the finding was undoubtedly correct on the evidence.  The lifestyle of the applicants was readily observable and there is no reason to think that Evelyn and the other directors would not have had knowledge of it.  More importantly, the finding is not relevant to the relief originally sought at trial in relation to the May and September Declarations.  In the absence of a finding of improper purpose or bad faith, there was no basis to remove the Trustee.

1. We reject Ground 8.

Conclusion

1. We would grant leave to appeal.  We uphold Grounds 1, 3 and 5.  We reject Grounds 2, 4, 6, 7 and 8.

1. As we would allow the appeal, the grounds in respect of the special costs order the judge made on 12 April 2019 have become academic and we do not address them.

1. In the result, we would not make any order in relation to the May Declaration.  We would allow the appeal and make the declarations we have set out above.[188]

–––

[188]See [8] above.

SCHEDULE OF PARTIES

EDWARD NICHOLAS MANDIE	First applicant
JANE ELIZABETH MANDIE	Second applicant
ISABELLA MANDIE	Third applicant
AMANDA MANDIE	Fourth applicant
NICHOLAS ELLIOTT MANDIE	Fifth applicant
DANIELLA MANDIE	Sixth applicant
and
MEMART NOMINEES PTY LTD (ACN 005 024 617) (as trustee of the David Mandie Family Trust)	Respondent