McNee v Lachlan McNee Family Maintenance Pty Ltd
[2020] VSC 273
•19 May 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY & PROBATE LIST
S CI 2017 03714
| LACHLAN THOMAS McNEE by his litigation guardian William Derek McNee | Plaintiff |
| v | |
| LACHLAN McNEE FAMILY MAINTENANCE PTY LTD (ACN 169 763 044) | First Defendant |
| - and - | |
| NEVE ANEIRA GOULD | Second Defendant |
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JUDGE: | MOORE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 13, 14 & 25 November 2019 |
DATE OF JUDGMENT: | 19 May 2020 |
CASE MAY BE CITED AS: | McNee v Lachlan McNee Family Maintenance Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2020] VSC 273 |
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TRUSTS – Removal of trustee – Whether current trustee should be removed and a new trustee appointed – Where current trustee acted in breach of trust and has a conflict of interest – Court lacks confidence in current trustee to properly administer the trust – Trustee removed – Whether trust deed should be varied to replace current appointor – Where current appointor is guiding mind behind the removed trustee – Court lacks confidence in current appointor to fulfil role under trust deed – Trust deed varied to replace appointor – Trustee Act 1958, ss 48 and s 63A – Miller v Cameron (1936) 54 CLR 572, applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | P Zappia QC B Petrie | Jeremy Johnson & Associates Lawyers |
| For the First Defendant | M McKenzie | Fogarty Oliver & Rothschild |
| For the Second Defendant | S Linden |
HIS HONOUR:
Lachlan McNee is the 12 year old son of William McNee and Neve Gould. He is the primary beneficiary of the Lachlan McNee Family Maintenance Trust. The trust was settled by Mr McNee on 5 June 2014 after the end of his relationship with Ms Gould. The trust fund comprises a residential property in Armadale purchased by Mr McNee in 2014 for $1,670,000.
The trustee of the trust is Lachlan McNee Family Maintenance Pty Ltd. Ms Gould is the sole director and shareholder of that company and therefore its guiding mind. She is also the appointor under the trust deed. The trust deed provides that Lachlan will become the sole appointor when he turns 18.
Ms Gould was Lachlan’s primary carer from birth until 20 October 2016. They lived in the Armadale property from when it was purchased until the end of this period. Following the deterioration of his relationship with his mother, since 20 October 2016, Lachlan has lived elsewhere with Mr McNee. Mr McNee subsequently obtained orders from the Federal Circuit Court that Lachlan live with him as his primary carer on a permanent and full time basis.[1]
[1]Interim orders were made on 19 December 2016 and 22 February 2017. Final consent orders were made on 18 June 2018.
Although Lachlan ceased living with Ms Gould on 20 October 2016, Ms Gould has continued to reside at the Armadale property. The trust deed gives her a conditional right to occupy the property.
Lachlan has brought this proceeding through Mr McNee as his litigation guardian for orders under s 48(1) of the Trustee Act 1958 removing Lachlan McNee Family Maintenance Pty Ltd as trustee of the trust. Although Lachlan initially sought that Mr McNee replace the trustee company as trustee, that claim was abandoned at the commencement of the trial. Lachlan now seeks that an independent third party be appointed in its place. Senior counsel for Lachlan informed the Court that, if the Court was minded to appoint an independent trustee, Mr McNee would give an undertaking to pay the fees and expenses properly incurred by the independent trustee in administering the trust.
Although counsel for the trustee and the Court raised some concerns about the appropriateness of Mr McNee acting as Lachlan’s litigation guardian in the proceeding, no application to remove him as Lachlan’s litigation guardian was made. On the basis of the material before the Court, I did not consider that there was any proper basis to remove Mr McNee as Lachlan’s litigation guardian.[2]
[2]It was identified that Mr McNee might have an interest adverse to Lachlan because Mr McNee was the guarantor of the mortgage granted by the trustee over the Armadale property referred to in [20] below. However, at the commencement of the trial, senior counsel for Lachlan informed the Court that the mortgage had been repaid in full.
The Court’s jurisdiction under s 48(1) of the Trustee Act 1958 to remove and to replace trustees is well established. The issue for determination in this proceeding is whether that jurisdiction should be exercised in the circumstances of this case.
In addressing that issue, I will firstly set out the relevant background facts and then outline the legal principles which govern the Court’s jurisdiction to remove trustees. I will then apply those principles by addressing the nine grounds advanced by Lachlan for the replacement of the trustee, in the course of which I will make any further necessary findings of fact and consider the various submissions advanced by the trustee and Ms Gould.[3] I will then consider Lachlan’s application for orders providing for the variation of the trust deed so that Ms Gould is replaced as the appointor by the independent trustee until Lachlan attains the age of 18 years, at which time he will become the sole appointor.
[3]The trustee and Ms Gould were separately represented by counsel at trial.
Background
Mr McNee and Ms Gould were in a relationship from about May 2006. Lachlan was born on 5 March 2008. They separated in August 2008.
On 20 November 2008, the Magistrates’ Court made consent orders under the Relationships Act 2008 which gave effect to a property settlement reached by Mr McNee and Ms Gould.
After their separation, it was agreed that Ms Gould would be Lachlan’s primary carer. Mr McNee provided ongoing child support and maintenance to Ms Gould. A child support agreement was entered into on 4 September 2010.
The property settlement orders made by the Magistrates’ Court were set aside by orders of the County Court made with the consent of the parties on 28 April 2011. Those orders included the following:
8. On or before twelve (12) months from the date of these orders [Mr McNee] purchase a house in the area of Mitcham, Victoria up to the value of $500,000 or as may be otherwise agreed between [Mr McNee] and [Ms Gould] (“the house”) and pay all stamp duty and costs of the purchase.
9. The house be registered in the name of the Lachlan McNee Family Maintenance Trust.
10. [Ms Gould] have a life interest in the house and the child of the parties, Lachlan Thomas McNee born 5 March 2008 have the remainder.
11. [Ms Gould] pay and be solely liable for all rates, insurances, maintenance, utilities and other expenses of the house.
The orders also noted that ‘[t]he parties have entered into a Trust Deed as agreed between them that gives effect to paragraphs 8 to 10 of these Orders and [Mr McNee] is not to be a beneficiary of that trust’. Despite this note, when the above orders were made in April 2011, Ms Gould and Mr McNee had not in fact entered into any trust deed. Further, Mr McNee did not purchase a house in Mitcham as provided for in the orders.
Mr McNee purchased the property in Armadale in early 2014.
The Lachlan McNee Family Maintenance Trust was established on 5 June 2014 and the title of the property was placed in the name of the first defendant as trustee.
Lachlan is the sole named beneficiary of the trust identified in the trust deed.
Clause 6.3.1 of the trust deed grants Lachlan the right to reside in the Armadale property. Consistent with the intention for Ms Gould to be Lachlan’s primary carer, the trust deed also gives permission, on certain conditions, for Ms Gould to reside at the property. Sub-clauses 6.3.2 and 6.3.3 state:
6.3 Right to occupy
…
6.3.2In addition to the rights of [Lachlan] pursuant to clause 6.3.1, whilst [Ms Gould] is alive and otherwise until the Termination Date, the Trustee shall permit [Ms Gould] to reside in the residential property provided that, during any period of residence, [Ms Gould]:
6.3.2.1maintains the residential property in good repair having regard to the condition of the residential property as at the date of acquisition of the residential property;
6.3.2.2insures the residential property in the name of the Trustee for a sum approved by the Trustee; and
6.3.2.3pays any rates and taxes levied on the residential property.
6.3.3For the avoidance of doubt the rights of [Lachlan] and [Ms Gould] under this clause 6.3 operate contemporaneously such that [Lachlan] and [Ms Gould] will be entitled to reside in the residential property at the same time.
Shortly after the establishment of the trust, on 18 June 2014, the orders made by the County Court on 28 April 2011 were varied by consent as follows:
1. It is noted that:
…
b. the parties have informed the Court that:
i.the parties have complied with their obligations under the orders dated 28 April 2011, except that [Mr McNee] with the consent of [Ms Gould], has not purchased a house in Mitcham or any other suburb as required by order 8;
ii. [Mr McNee] has purchased a house situated at 44 Stuart Street, Armadale Victoria being the property more particularly described in Certificate of Title Volume 9936 Folio 632 (“Property”) for $1,670,000;
iii.the parties agree that the purchase of the Property satisfies [Mr McNee’s] obligation under order 8;
iv.the orders made 28 April 2011 are to continue in force and to the effect except for the variations thereto made by these orders.
2. The proceeding CI-11-01497 is reinstated.
3. Orders 6, 8 and 9 of the orders made by His Honour Judge Anderson on 28 April 2011 are deleted.
4.In lieu of order 8, it is ordered that by 30 June 2014 (or such date as the parties may agree in writing) [Mr McNee] shall settle the purchase of the Property with [Mr McNee] liable to pay all outgoings associated with the purchase, transfer and registration of the Property.
5. In lieu of order 9, it is ordered that the Property shall be registered in the name Lachlan McNee Family Maintenance Pty Ltd (ACN 169 763 044) (or such other entity as the parties may agree in writing) as trustee of the Lachlan McNee Family Maintenance Trust.
…
On 3 June 2016, Ms Gould signed a deed of variation of the trust deed in her capacity as director of the trustee company and as appointor of the trust. The variation deleted cl 6.4 from the trust deed which relevantly prohibited the trustee or appointor from encumbering the capital of the trust fund. Despite this variation, the limitation on the power vested in the trustee pursuant to cl 9.4.11 remained unchanged. Clause 9.4.11 stated (emphasis added):
To borrow
To raise or borrow moneys either alone or jointly with another or others from any person including a firm or company either bearing or free of interest and on the terms and conditions and for the purposes as the Trustee may decide provided that the Trustee must not secure the repayment of any moneys or other indebtedness by mortgage, charge, security or other encumbrance over the whole or any part of the capital of the Trust Fund;
On 7 July 2016, the trustee borrowed $1.54 million from a finance company and granted to the finance company a mortgage and debenture charge against the Armadale property. Ms Gould signed the mortgage and debenture charge on behalf of the trustee company. Mr McNee was guarantor for the loan.
Ms Gould and Mr McNee intended that these borrowed funds be used for the dual purposes of remedying cash flow issues in Mr McNee’s business and to fund renovations on the Armadale property.[4] After the funds were paid by the finance company to the trustee, they were transferred to an account controlled by Mr McNee. The only evidence before the Court is that those funds were not expended. Mr McNee paid the interest on the loan and, shortly before the hearing of the trial, Mr McNee repaid the loan in full.
[4]There was a dispute between the parties about the proportions of the funds to be used for these respective purposes.
Legal principles – removal of trustees
Section 48 of the Trustee Act 1958 provides:
(1)The Court may, whenever it is expedient to appoint a new trustee or new trustees, and it is found inexpedient difficult or impracticable so to do without the assistance of the Court, make an order appointing a new trustee or new trustees either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee.
In particular and without prejudice to the generality of the foregoing position, the Court may make an order appointing a new trustee in substitution for a trustee who is convicted on indictment of any offence, or is a patient within the meaning of the Mental Health Act 2014, or is a bankrupt, or is a corporation which is in liquidation or has been dissolved.
(2) Nothing in the section gives power to appoint an executor or administrator.
Although s 48 refers to the ‘expediency’ of appointing a new trustee, it is well established that the dominant consideration is the welfare of the beneficiaries. The power to remove a trustee is however to be exercised cautiously.[5] The nature of the Court’s jurisdiction to remove a trustee is encapsulated in Dixon J’s seminal statement in Miller v Cameron that:[6]
The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove a trustee the Court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary. A trustee is not to be removed unless circumstances exist which afford ground upon which the jurisdiction may be exercised.
[5]Porteous v Rinehart (1998) 19 WAR 495, 507.
[6]Miller v Cameron (1936) 54 CLR 572, 580–1 (Dixon J).
In Porteous v Rinehart,[7] White J referred to Dixon J’s statement and described ‘expedient’[8] as having the following meaning given by O’Leary J in Re Estate of Roberts:[9]
… ‘conducive to advantage in general, or to a definite purpose; fit, proper, or suitable to the circumstances of the case’ … In the context of appointing a new trustee in substitution for an existing one, I take it to mean then conducive to, or fit or proper or suitable having regard to, ‘the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee’...
[7](1998) 19 WAR 495.
[8]Appearing in a power of appointment in the Trustees Act 1962 (WA) in terms similar to s 48 of the Trustee Act.
[9]Porteous v Rinehart (1998) 19 WAR 495, 507, citing Re Estate of Roberts (1983) 20 NTR 13, 17, referred to with approval by McMillan J in Re Cooper Street Property Trust [2016] VSC 756, [87].
It is not a prerequisite to the exercise of the power to remove a trustee that misconduct on the part of the trustee be demonstrated. A lack of confidence in the trustee’s further administration of the trust may be sufficient to justify their removal.[10]
[10]See Miller v Cameron (1936) 54 CLR 572, 575 (Latham CJ), 582 (Dixon J).
In Northwest Capital Management v Westate Capital Ltd,[11] Edelman J summarised principles relevant to the exercise of an analogous statutory power to appoint a new trustee in substitution for an existing trustee.[12] His Honour identified the following five principles as being relevant to the case before him:[13]
[11](2012) 264 FLR 424.
[12]Trustees Act 1962 (WA) s 77.
[13](2012) 264 FLR 424, 465 [232] (citations omitted).
(1)The meaning of “expedient” is that it would be “advantageous or merely appropriate or suitable to the circumstances of the case”. The expediency of appointing a new trustee is that it is “conducive to, or fit or proper or suitable having regard to, the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee”.
(2)The dominant consideration in the exercise of the power is the welfare of the beneficiaries of the trust, not the imposition of a sanction or punishment upon the trustee as a consequence of misconduct.
(3)The principal element in considering the welfare of the beneficiaries is the safety of the trust estate.
(4)In deciding to remove a trustee, the Court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to the trustee's continued occupation of the office. Such a judgment has been described as “entirely in the discretion (of course a judicial discretion) of the court”, although circumstances must exist which enliven the power. The use of the protean expression “discretion” or “wide discretion” in this area appears to be a reference to the process of judicial evaluation of facts and the determination of whether those facts fall within the requirements of s 77.
(5)A lack of confidence in the trustee's further administration of the Trust is sufficient to justify removal, without the necessity of establishing misconduct. Further, the question of misconduct is not a matter which necessarily carries an implication of fault or deliberate misconduct. It is a term which may be applied to a trustee who has failed to understand what are the obligations properly imposed upon him or her in the administration of the trust. For this reason, Lord Blackburn's remarks in Letterstedt v Broers are commonly cited to describe the Court's
principal duty to see that the trusts are properly executed. This duty is constantly being performed by the substitution of new trustees in the place of original trustees for a variety of reasons in non-contentious cases. And therefore, though it should appear that the charges of misconduct were either not made out, or were greatly exaggerated, so that the trustee was justified in resisting them, and the Court might consider that in awarding costs, yet if satisfied that the continuance of the trustee would prevent the trusts being properly executed, the trustee might be removed.
Grounds for removal of the trustee company
As I have noted, senior counsel for Lachlan advanced nine grounds upon which it was submitted that the trustee should be removed. I will separately consider whether these grounds are established on the evidence and whether, individually, they constitute circumstances upon which I might exercise the jurisdiction to remove a trustee. I will then collectively assess the significance or otherwise of the asserted grounds and consider whether or not, in the circumstances of the case, the jurisdiction should be exercised.
Ground 1 – Friction and hostility
As submitted on behalf of Lachlan, the evidence before the Court establishes that his relationship with Ms Gould has broken down and that their relationship is characterised by friction and hostility. Ms Gould acknowledged in her evidence that her relationship with Lachlan had deteriorated and, at the time of trial, was not good. Lachlan has not lived with his mother for more than three years. It is unnecessary to recount the other evidence in relation to the state of the relationship between Lachlan and Ms Gould.
It was submitted on behalf of Lachlan that the authorities establish that friction, hostility and animosity between a trustee and beneficiary may justify an apprehension on the part of the Court in relation to the ability of a trustee to administer trust property in the best interests of the beneficiary in the future. This submission may be overstated. In Craven-Sands & Ors v Koch & Anor,[14] Bergin J stated that friction and hostility are not of themselves reasons for removal of trustees.[15] However, in the circumstances of the case, her Honour was satisfied that the friction and hostility between trustees and beneficiary had had a cumulative effect on the disintegration of the trustees’ capacity to carry out their duties.
[14][2000] NSWSC 374.
[15]Ibid [209], citing Letterstedt v Broers (1884) 9 App Cas 371, 389.
On the evidence before the Court, I am not satisfied that the deterioration in the relationship between Lachlan and Ms Gould has effectively prevented or interfered with the trustee carrying out its duties, particularly in relation to the trust property. I am not satisfied that the issues which have arisen in relation to the performance by the trustee of its duties, to which I refer to further below, are a product of the state of the relationship between Lachlan and Ms Gould. I also accept that Ms Gould genuinely seeks to restore a constructive and positive relationship with her son.
The difficulties which have arisen in relation to the trust are plainly attributable in part to the very difficult and conflictual relationship which has developed between Ms Gould and Mr McNee. It was submitted that, given Mr McNee’s role as Lachlan’s guardian, the conflict between Mr McNee and Ms Gould was an additional layer of friction between Ms Gould and Lachlan.
All of these conflicts necessarily form part of the broader context in which I will, in due course, consider the exercise of the jurisdiction to remove the trustee. However, given my views about the relationship between Ms Gould and Lachlan and its significance to the removal application, I do not consider that the conflict between Ms Gould and Mr McNee, who is not a beneficiary under the trust, bears upon the friction between Ms Gould and Lachlan so as to transform the latter into a ground which might properly justify the removal of the trustee company.
Ground 2 – Ms Gould’s failure to read and understand trust documents
As stated in Jacobs’ Law of Trusts in Australia,[16] ‘[t]he first duty of trustees is to become thoroughly acquainted with the terms of the trust and all documents, papers and deeds relating to or affecting the trust property as come into their possession and control’.[17]
[16]JD Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia, (LexisNexis, 8th ed, 2016) 336 (citations omitted).
[17]Ibid, citing Hallows v Lloyd (1888) 39 Ch D 686, 691.
It was manifest from Ms Gould’s evidence to the Court that she had not thoroughly acquainted herself with the terms of the trust deed. In fact she had not read it. Her understanding of its obligations was based upon a 15-minute explanation about her roles and responsibilities given to her by a legal practitioner before she signed it. She then gave it to Mr McNee at his request and did not keep a copy of it.
Ms Gould also admitted that she did not read and acquaint herself with the deed of variation dated 3 June 2016 (which she signed) which removed the prohibition on the trustee or appointor from encumbering the capital of the trust fund. She conceded that her written acknowledgement that she had read and understood the variation was false.
It was apparent that Ms Gould did not have a proper understanding of various obligations on the trustee under the trust deed and that her understanding of the trustee’s obligations was erroneous in particular respects. For example, she did not have a proper understanding of the trustee’s responsibility to maintain proper records for the trust. She did not ‘see the point’ in keeping specific records in relation to the trust. Ms Gould also wrongly believed that the trustee had no power to rent out the property.[18] When asked about the trustee’s responsibilities under the trust deed, her evidence was that ‘there wasn’t really that much responsibility to do, apart from vacuuming and some gardening and live in the house’.
[18]Clause 9.4.6 permits the trustee to lease the property and generate rental income.
Ms Gould also was not properly acquainted with documents executed by her and which affected the trust property. In an affidavit filed in the proceeding, Ms Gould deposed that Mr McNee had a ‘$1.5m personal loan against’ the Armadale property. This was incorrect. As has been noted, it was the trustee which, on 7 July 2016, borrowed $1.54 million from a finance company. It is striking that Ms Gould did not understand this essential fact, particularly as it was she who signed the mortgage documentation on behalf of the trustee company in respect of the loan.
It is apparent from these matters that, as the moving mind of the trustee company, Ms Gould has very little understanding about the obligations and duties of a trustee and the meaning and effect of important documents including the security provided by the trustee for the loan advanced in July 2016. I reject the submission advanced on behalf of the trustee that the fact that Ms Gould had not read the trust deed and did not keep a copy of it was not of any moment because ‘[s]he would have no occasion to refer to it…except in circumstances where she’s under attack’. The obligation on a trustee to thoroughly acquaint itself with the terms of the trust deed and related trust documents is foundational. It is clear that the trustee through Ms Gould failed to meet this obligation. It is unsurprising then that Ms Gould laboured under a number of significant misconceptions in purporting to administer the trust as I have noted above. I am satisfied that this ground is made out and may warrant the removal of the trustee.
Ground 3 – Consciously acting in breach of trust
As has been noted, cl 9.4.11 of the trust deed gives power to the trustee to borrow funds provided that it does ‘not secure the repayment of any moneys or other indebtedness by mortgage, charge, security or other encumbrance over the whole or any part of the capital of the Trust Fund’.[19] The trustee clearly breached this limitation on its general powers by mortgaging the Armadale property in July 2016 to secure the loan of $1.54 million.
[19]See [19] above.
It was submitted on behalf of Lachlan that, in engaging in this conduct, Ms Gould was conscious that it constituted a breach of the terms of the trust. The basis for that claim was Ms Gould’s evidence-in-chief that she was ‘anxious to cooperate’ with Mr McNee’s request for funds, but that:
… Mr McNee assured me that he would deposit $80,000.00 into my account for the renovations. I told him repeatedly that I felt nervous about trusting him and that it was a breach of the terms of the Trust and that it was not in Lachlan’s best interest to borrow against his house.
Ms Gould also gave evidence that the loan ‘severely damaged the trust’.
Ms Gould’s evidence was that she was pressured and prevailed upon by Mr McNee into obtaining the loan and granting the security. I consider the evidence in relation to this claim in [82]–[86] below. However, even if that is assumed to be true, the fact that Ms Gould caused the trustee to act in breach of its obligations and to damage the trust because she felt prevailed upon or pressured by Mr McNee to take these actions is itself a ground which may justify the removal of the trustee. It indicates an inability on behalf of the trustee to act independently and a susceptibility to act in the interests of persons who are not beneficiaries of the trust. Having felt pressured by Mr McNee and then mortgaging the only property held by the trust, the trustee very seriously jeopardised the security of the trust property. There was no suggestion that the loan, or the provision of the security advanced in support of it, was taken out for Lachlan’s benefit.
It was also incumbent on the trustee to keep proper books and records relating to the loan. The general responsibility on a trustee to maintain proper records for the trust is reflected in the terms of cl 20 of the trust deed which provided as follows:
RECORDS AND ACCOUNTS
The Trustee shall keep complete and accurate records of all receipts and expenditures on account of the Trust Fund. Promptly after the close of each accounting period the Trustee shall prepare a written accounting report for such period consisting of a balance sheet a statement of receipts and disbursements and a list of assets held at the close of such accounting period and a copy thereof shall be furnished upon request to the Appointor …
It is uncontroversial that, contrary to these duties, the trustee failed to maintain proper records and accounts in relation to the loan of $1.54 million.
The above matters are serious failings by the trustee which may warrant its removal.
Ground 4 – Trustee has preferred the interests of third parties over Lachlan’s interests
This ground for removal also relates to the loan of $1.54 million taken out by the trustee secured by a mortgage over the Armadale property. It was submitted that, in entering into this loan, the trustee preferred the interests of third parties over Lachlan’s interests because the dual purposes of the loan were to meet financial exigencies in Mr McNee’s business and to fund renovations on the Armadale property.
There may be scope to argue about whether the expenditure of funds on renovating the Armadale property was in Lachlan’s interests. It is unnecessary, however, to consider that issue further because no such response is available insofar as the purpose of the loan was to meet financial demands of Mr McNee’s business interests. Even though Ms Gould knew that the loan was in breach of the terms of the trust and was not in Lachlan’s best interest, she agreed to it because she ‘felt sorry for [Mr McNee] because he was being sued and he could have gone broke’. Irrespective of whether one might sympathise with the positon in which Ms Gould found herself in the face of Mr McNee’s request for financial assistance, the fact remains that by acceding to his request, Ms Gould demonstrated a preferment of the interests of a third party over Lachlan’s interests as the sole beneficiary of the trust. This ground for removal is accordingly made out.
Ground 5 – Failure of the trustee to understand that it holds the Armadale property on trust for the beneficiary
It was submitted that the trustee, through Ms Gould, does not grasp the fundamental obligation imposed on trustees, namely, that property is held on trust for beneficiaries and that a trustee is not itself the beneficial owner of the property.
In support of this proposition, Lachlan referred to a number of occasions when Ms Gould considered or proposed dealing with the Armadale property without any regard for Lachlan’s beneficial interest in the property.
(a)In the context of complaints made by Mr McNee about financial difficulties, he and Ms Gould discussed dissolving the trust and ‘splitting the profits’.
(b)Ms Gould had previously suggested to Mr McNee that, when Lachlan was older, they could sell the Armadale property and split the proceeds between them, provided Lachlan had ‘his own townhouse apartment in his own name’.
(c)Ms Gould had previously contemplated giving a half-interest in the Armadale property to Lachlan’s half-sister (a non-beneficiary). She had also contemplated giving a portion of any income derived from leasing the Armadale property to Lachlan’s half-sister.
Considered in isolation, I am reluctant to place too much emphasis on these particular instances. Some of them occurred when Ms Gould was unwell. They also need to be viewed in the context of difficult and at times acrimonious familial and personal relations. Nevertheless, collectively and having regard to my impression from the evidence given by Ms Gould at trial, I have serious doubts that Ms Gould, as the controlling mind of the trustee, has any adequate knowledge or appreciation of the fundamental principle that a trustee holds property on trust for a beneficiary.
Ground 6 – Failure to exercise powers of investment in a manner beneficial to the beneficiary
As stated by Gummow and Hayne JJ in Byrnes v Kendle,[20] ‘[a]s a general proposition, where the trust estate includes land, it is the duty of the trustee to render the land productive by leasing it …’.[21]
[20](2011) 243 CLR 253.
[21]Ibid 277 [67]. See also 291–2 [119] (Heydon and Crennan JJ).
The trust deed gave the trustee power to let the Armadale property.[22] Ms Gould was cognisant of this power.
[22]Clause 9.4.6 of the trust deed gives power to the trustee ‘[t]o lease and let property forming part of the Trust Fund or held by the Trustee pursuant to the provisions of this Deed for such period at such rental and to any persons upon terms and conditions as the Trustee may decide and to accept surrenders from make allowances to and arrangements with a lessee or tenant with or without consideration as the Trustee may think fit;’.
Lachlan ceased residing at the Armadale property in October 2016. Although Ms Gould had contemplated leasing rooms in the property, at no time after Lachlan ceased living at the property has the trustee taken steps to generate income for the trust fund by leasing the Armadale property.
I accept the submissions on behalf of Lachlan that the trustee’s failure to generate revenue for his benefit, by letting the property in whole or in part, constitutes a breach of trust and a further misunderstanding of the trustee’s role.
Ground 7 – Trustee is in a position of inevitable conflict
One manifestation of the duty of undivided loyalty owed by fiduciaries to the persons whom they serve is that a person in a fiduciary position ‘is not allowed to put himself in a position where his interest and duty conflict’.[23] Not all conflicts between interest and duty will result in the removal of executors or trustees; the result will depend upon the facts and circumstances of each particular case.[24]
[23]Bray v Ford [1896] AC 44, 51 (Lord Herschell), cited in Breen v Williams (1996) 186 CLR 71, 108 (Gaudron and McHugh JJ).
[24]As discussed by McMillan J in Denby v Power [2016] VSC 535, [34].
The primary way in which it was submitted that the trustee was in a position of inevitable conflict concerned cl 6.3 of the trust deed.[25] Under that provision, Ms Gould has a right to reside at the Armadale property on certain conditions, including that she maintain it in good repair having regard to its condition as at the date of purchase and that she pay any rates and taxes levied on it. These are obligations owed by Ms Gould personally. However, at the same time, in her capacity as the guiding mind of the trustee, it is also incumbent upon her to ensure that the conditions in cl 6.3 are met to ensure that the trust property is not put at risk.
[25]See [17] above.
There is a dispute between the parties as to whether or not Ms Gould has discharged her obligation to maintain the Armadale property in good repair. It is unnecessary for present purposes to resolve that dispute save to note that Ms Gould has herself made various complaints that the property is ‘decrepit’ and in disrepair. She does not accept that she has failed to maintain the property in good repair and gave evidence that it was in disrepair when it was purchased.
This exposes the fundamental conflict in Ms Gould’s position. As the guiding mind of the trustee, it is incumbent upon her to ensure that the conditions in cl 6.3 are being fulfilled; the very conditions which place obligations on her personally which Lachlan contends she is failing to meet. This creates an untenable position of conflict between Ms Gould’s personal interests and the trustee’s fiduciary duty.
In relation to the rates on the Armadale property, despite the obligation in sub-cl 6.3.2.3, Ms Gould accepted that she had not paid all of the rates and that at least some of the rates had been paid by Mr McNee. Her evidence was that Mr McNee assumed responsibility for these liabilities. Again, Ms Gould is fundamentally conflicted between her obligation as the guiding mind of the trustee to ensure compliance with the conditions in cl 6.3 and the fact that she has not paid all of the rates on the property.
I accept the submissions on behalf of Lachlan that, in circumstances where Lachlan no longer resides at the Armadale property, his interests are not protected by Ms Gould being in control of the trust because of the conflict between her personal interests and her obligations, as the guiding mind of the trustee, to ensure compliance with the conditions in cl 6.3. The trustee is in an inevitable position of conflict which may justify its removal.
Ground 8 – Ms Gould’s mental capacity to administer the trust
It was submitted on behalf of Lachlan that there is a real question over Ms Gould’s mental capacity to administer the trust. Lachlan relied upon Ms Gould’s evidence that she had a history of alcohol and substance abuse; that she regularly attends meetings of alcoholics anonymous; that she had been in and required psychiatric care; and that she had been on antidepressants.
Ms Gould acknowledged that these problems had led her to behave in erratic ways, particularly in her communications with Mr McNee in relation to the trust property. In opening, counsel for the trustee acknowledged that Ms Gould had been unwell for a period of time and probably was not then able to properly manage the trust. Given her history, it was submitted on behalf of Lachlan that it was a matter of great concern that there was no professional independent advice confirming that Ms Gould had permanently overcome her problems such that the Court can be ‘absolutely confident’ that she will not suffer a relapse.
Counsel for the trustee and counsel for Ms Gould referred to Ms Gould’s frank acknowledgment of her past personal and health difficulties, but emphasised that, since mid-2017, she had regained good health. The issues which had affected her capacity to manage the trust were in the past. There was no current impediment to her capacity to properly act as the controlling mind of the trustee company. With suitable professional assistance, Ms Gould was able to look after the affairs of the trust.
In a report written in May 2017, Dr Silvestro, a psychologist and family consultant, expressed the view that there was a likelihood that Ms Gould may relapse if her pattern of behaviour associated with mental health or substance abuse was not adequately addressed. She also referred to Ms Gould’s understanding of her mental health issues as being limited or underplayed.
There is no evidence that, in the two years since Dr Silvestro’s report, Ms Gould has suffered any relapse in relation to her past behaviours associated with substance abuse and poor mental health. There is therefore no satisfactory evidentiary basis to suggest that Ms Gould currently lacks the mental capacity to administer the trust. Neither am I able to infer on the evidence before me that there is a likelihood that she will lose her capacity in the future. Accordingly, this ground for the trustee removal is not made out.
Ground 9 – No reason advanced as to why an independent trustee should not be appointed
It was submitted on behalf of Lachlan that Ms Gould had not offered any reason why an independent trustee should not be appointed. It was also submitted that there is no suggestion that an independent trustee would act in a manner contrary to any right or interest that Ms Gould has under the trust deed. If the independent trustee at any time purported to act in a manner inconsistent with her rights, she would be able to immediately approach the Court for relief.
These submissions do not establish any ground for removing the trustee company as trustee of the trust. However, together with related submissions about the proposal advanced on behalf of the trustee company that an independent co-director be appointed, I will consider them below when assessing whether the jurisdiction to remove a trustee should be exercised in the circumstances of the case.
Should the Court exercise its discretion to remove the first defendant as trustee?
The above discussion makes clear that circumstances exist upon which the Court’s jurisdiction to remove trustees might be exercised. The submission on behalf of the trustee that there is no conduct on the part of Ms Gould which provides a proper basis for removal is rejected. The question is whether, in the circumstances of the case, this jurisdiction should be exercised.
Considered in isolation, the matters referred to in relation to grounds 2, 3 and 7 would each present, for the reasons I have outlined, a compelling case for the removal of the trustee. Looked at collectively, those grounds together with the other grounds which have been made out establish what I consider to be an overwhelming prima facie case for the trustee’s removal. In the following paragraphs I will address the remaining submissions advanced on behalf of the trustee and Ms Gould to determine whether the discretion to remove the trustee should be exercised.
A general submission was advanced on behalf of the trustee company that Ms Gould was intending to renew her relationship with Lachlan and that Lachlan’s ‘best interests’ are that ‘he and his mother have a safe, secure and comfortable home in which she can offer him care and support as a young lad’ and that this would be best achieved by permitting Ms Gould to remain the guiding mind of the trustee.
The submission is unhelpful. Not only does it overlook the fact that Lachlan has not lived with Ms Gould since October 2016, it is not the task of this Court to determine which living arrangements are in Lachlan’s best interests. That matter has been addressed by orders made by the Federal Circuit Court.
Rather than acceding to the application for removal, counsel for the trustee invited me to appoint an independent co-trustee to administer the trust together with the existing trustee. The proposal advanced appeared to contemplate that a co-director be appointed to the trustee company. This proposal was supported by counsel for Ms Gould who submitted that Ms Gould was now well placed to ensure that the trustee properly performed its functions, particularly if she was assisted by a co-director. It was submitted that this would enable Ms Gould to have access to experienced and independent advice in undertaking her directorship of the trustee. It would also mean that, where Ms Gould’s personal interests in any way gave rise to a conflict of interest, she could refer to a co-director.
Although this proposal has a superficial attraction, upon examination it is an inadequate response to Ms Gould’s failures which otherwise justify the removal of the trustee. As counsel for Ms Gould frankly acknowledged, Ms Gould has not played any effective role in the administration of the trust to date. I am not persuaded that the appointment of a co-director would remedy her failures so as to allow her to effectively and appropriately participate in the administration of the trust. Moreover, the existence of two controlling minds of the trustee would give rise to the possibility of disagreement and conflict in the administration of what counsel for the trustee and Ms Gould described as a simple and straightforward trust. The trust ought to be able to be effectively administered by a single trustee. The appointment of a co-director would also likely result in the trust incurring a co-director’s fees and expenses; the trust will not be out-of-pocket in relation to such costs if Lachlan’s application for removal is granted because of the undertaking which Mr McNee proposes to make.[26]
[26]As I have noted, senior counsel for Lachlan informed the Court that, if the Court appointed an independent trustee, Mr McNee would give an undertaking to pay the fees and expenses properly incurred by the independent trustee in administering the trust.
In relation to Ms Gould’s obligations to maintain the Armadale property and to pay rates and insurance, it was submitted by the trustee and Ms Gould that Ms Gould had arranged for all the rates and charges to be paid and had kept the house in good order. It was submitted that, having regard to the condition of the property at the time of acquisition, Ms Gould has maintained it in good repair and that, whether Ms Gould or Mr McNee had paid the rates and insurance, they were up to date. It was submitted that there was insufficient evidence for the Court to be satisfied that Ms Gould had breached her obligation to maintain the property in good repair.
This submission misses the point. It fails to engage with the way in which the case for the trustee’s removal based on Ms Gould’s obligations to maintain the Armadale property and to pay rates and insurance was put; that, because of her personal interests under the trust and her duties as the controlling mind of the trustee, Ms Gould is fundamentally conflicted. For the reasons I have already indicated, this is a compelling ground for the removal of the trustee. The submissions advanced by the trustee and Ms Gould do not materially bear upon my consideration of that issue.
The trustee submitted that the effect of the orders made by the County Court[27] is that Ms Gould has a life interest in the Armadale property, being a ‘higher and better’ interest than a mere right of occupancy. It was also submitted that Ms Gould’s conditional right to occupy the Armadale property pursuant to cl 6.3.2 of the trust deed, whether it was classified as a bare right of occupancy, a simple right of residence or a life interest, was a substantive and valuable right. As a consequence, Ms Gould was also a beneficiary under the trust, although Lachlan was clearly the primary beneficiary. Clause 6.3.2 of the trust deed was intended to give Ms Gould the life interest to which she was entitled pursuant to the orders previously made by the County Court. It was submitted that Ms Gould’s interest under the trust was an important matter which must be respected by any trustee appointed to administer the trust and which should bear upon the exercise by the Court of the discretion to remove a trustee.
[27]See [12] above.
Counsel for Ms Gould adopted a slightly different approach submitting that, although his client had a life interest in the Armadale property pursuant to the orders made by the County Court, she was not a beneficiary under the trust. He submitted that the variations made to the original County Court orders on 18 June 2014 did not disturb Ms Gould’s life interest and that the Armadale property was substituted as being the property the subject of the trust. Counsel submitted that any trustee of the trust would need to administer the trust having regard to Ms Gould’s life interest.
These submissions invite the Court to determine whether Ms Gould holds, and at all relevant times held, an interest in the Armadale property beyond that expressly provided for by cl 6.3.2 of the trust deed. For the following reasons, it is both inappropriate and unnecessary for the Court to determine that matter in the present proceeding.
No declaration or other relief has been sought by Ms Gould in this proceeding as to what her rights are under the trust deed, including any claim that she has entitlements beyond the rights explicitly conferred by the trust deed. Neither has any claim for rectification been advanced to the extent that it is submitted that Ms Gould has an interest beyond cl 6.3.2 of the trust deed. Claims of this type would require the nature of the asserted interest in the trust property to be specifically articulated and established by evidence. Given that the trustee and Ms Gould rely upon the orders of the County Court as establishing her asserted life interest in the property, it is also presumably contended that that interest arose from an agreement between Ms Gould and Mr McNee, or some representation by Mr McNee. Mr McNee would need to be a party in his own right to any proceeding in which such a claim was brought and given proper notice of any such allegations. For these reasons, it would be inappropriate to determine in this proceeding Ms Gould’s claim to have an interest beyond that expressly provided for by cl 6.3.2 of the trust deed.
It is also unnecessary to do so in any event. The only claim made in this proceeding is that the trustee be removed and replaced by an independent trustee.[28] That relief is sought irrespective of the specific nature of Ms Gould’s interest in the trust property. It is uncontroversial that Lachlan is, at least, the primary beneficiary of the trust with a beneficial interest in the trust property, which interest is to be protected, preserved and administered by the trustee. The question of whether the trustee should be removed and a new trustee appointed has no bearing on the determination of what interest Ms Gould may or may not have in the property. Equally, because Lachlan has an indisputable interest in the property which, in the circumstances at hand, clearly requires protection, the question of what interest Ms Gould may or may not have in the property has little, if any, bearing on whether or not an independent trustee should be appointed.
[28]And consequential relief concerning the replacement of the appointor and the vesting of the trust property in the independent trustee.
Pursuant to cl 6.3.2 of the trust deed, Ms Gould has a right to occupy the Armadale property for her lifetime, subject to two qualifications: (1) that the conditions set out in sub-cl 6.3.2 are met; and (2) that the trust is not terminated by Lachlan when he turns 18 and assumes control of it. Any trustee of the trust would need to administer the trust having regard to this right. Ms Gould would be entitled to seek relief in this Court in the event that this did not occur. Ms Gould’s personal interest in occupying the Armadale property will therefore be protected in the event that the trustee is removed and replaced by a new trustee.
In considering the exercise of the discretion to remove a trustee, counsel for the trustee submitted that the Court should take into account that Ms Gould had relied on Mr McNee and been ‘led astray’ by him. Counsel went so far as to assert that Mr McNee was responsible ‘for all the difficulties that [Ms Gould] has had in managing her life and this house and her son’. It is no part of the Court’s task in this proceeding to seek to rule upon the cause of the various difficulties Ms Gould has experienced in her life in recent years.
Counsel was on stronger ground in submitting that Mr McNee was the moving force behind the establishment of the trust in that he proposed it, funded the purchase of the Armadale property and selected the property. All Ms Gould did was sign that which was placed in front of her. These submissions were relied on to explain Ms Gould’s limited understanding about the trust and, in particular, her conduct in executing the deed of variation of the trust deed without reading it and then granting a mortgage over the property for a loan, which funds were provided, in part, to meet Mr McNee’s business interests. It was submitted that Ms Gould did this because she was prevailed upon by Mr McNee. He allegedly did this by telling Ms Gould that, if those funds were not provided, his business interests would collapse with the consequence that Lachlan would no longer be able to continue to attend his private school and Mr McNee would no longer be able to continue to fund the house with its related expenses and outgoings.
Although Ms Gould did give evidence to this effect, it was not put to Mr McNee in cross-examination that he had pressured her or prevailed upon her at all, or in the above respects in relation to the above loan. This absence is significant because Ms Gould did not depose to the above matters in her affidavit filed before trial. In his affidavit filed before trial, Mr McNee denied Ms Gould’s general and unparticularised allegation that he had pressured her into obtaining the loan by mortgaging the property. The absence of any cross-examination of Mr McNee on the above point limits the weight I give to Mr Gould’s evidence referred to above.
Nevertheless, I accept that it is more likely than not that the obtaining of the loan of $1.54 million secured by a mortgage over the property occurred at Mr McNee’s initiative and because Ms Gould acceded to Mr McNee’s wishes. In addition to Ms Gould’s evidence referred to above, that finding is consistent with the fact that Mr McNee was, in general terms, the moving force behind the trust arrangements and was familiar with financing arrangements generally (as compared to Ms Gould’s lack of experience in relation to financial matters). It is also supported by Mr McNee’s evidence that one of the purposes of the loan was to address some ‘business challenges and some cash flow issues’; the fact that, shortly before the loan was obtained, Mr McNee was made jointly liable to pay the sum of $3.175 million in an unrelated civil proceeding; and the fact that, once the loan was advanced, the funds were transferred from the trustee’s bank account to Mr McNee and held by him in one of his business bank accounts.
I take these matters into account in exercising my discretion about whether to remove the trustee. They go to explain, at least in part, Ms Gould’s lack of involvement in and understanding of the trust, as well as her conduct in causing the trustee to mortgage the property to provide funding for Mr McNee’s business needs.
However, ultimately, I consider these matters to be of limited significance in considering the exercise of the discretion to remove the trustee. An understanding of the reasons for Ms Gould’s failure to properly administer the trust does not thereby excuse those failures. In focusing on Lachlan’s welfare, the Court’s principal concern is with the safety of the trust estate. In this case, despite the relatively simple nature of the trust, the security of the trust’s single asset was seriously jeopardised because of Ms Gould’s failure to properly administer the trust including by submitting to Mr McNee’s wish to mortgage the trust property as security for a loan to be used, in part, for his personal benefit.
I am also unmoved by the submission that, because Mr McNee is no longer apparently involved with Ms Gould in relation to managing the trust, the Court should have confidence in Ms Gould’s capacity to properly administer the trust into the future. Any such confidence is undermined by the highly conflictual nature of the relationship between Mr McNee and Ms Gould, the prospect that they will in any event continue to have dealings in their capacity as Lachlan’s parents and the fact that, as I have noted, Ms Gould has little understanding about the fiduciary obligations owed by a trustee to beneficiaries such as Lachlan.
Counsel for Ms Gould challenged Mr McNee’s evidence that, after the Armadale property was mortgaged in 2016, the funds provided to him by the trustee remained in accounts which he controlled. It was submitted that this evidence should be rejected because it was inherently implausible that Mr McNee would leave funds sitting in a bank account while paying interest on a loan and in circumstances where the loan was not repaid for three years and only shortly before trial. It was submitted that this went to his credibility and his motivation for seeking the removal of the trustee.
This submission raises the broader issue of the relevance of various criticisms made of Mr McNee, his credibility and his motivations. There are aspects of Mr McNee’s conduct in this matter which are deserving of serious criticism. In particular, having settled the trust for the benefit of his son with a trustee solely controlled by Ms Gould with no experience in financial matters, Mr McNee’s behaviour in later persuading Ms Gould to mortgage the trust property to secure funds to be used in part to meet his own business needs is conduct which is properly the subject of censure. His evidence about that matter also raises concerns. In an affidavit filed with the Court before trial, Mr McNee expressly denied Ms Gould’s claim that the loan was obtained for his own personal benefit and deposed that ‘[a]s a consequence of Ms Gould’s constant requests to have the Property renovated, I agreed in principle to a loan being taken out by the Trustee and secured against the Property to fund the renovation works’. However, after Mr McNee clarified these statements at the commencement of his evidence, it would appear that between $500,000–$900,000 of the loan was in fact intended to meet his ‘cash flow issues’.
These concerns about Mr McNee’s conduct and aspects of his evidence have however, limited relevance to the Court’s present task. Other than in respect of the mortgage granted over the Armadale property in 2016 which I have addressed above, they do not have any direct bearing on the grounds for removal of the trustee advanced by Lachlan. Contrary to the submission on behalf of Ms Gould, it is Lachlan and not Mr McNee who has brought this application for removal of the trustee.[29] And perhaps most significantly, the claim for Mr McNee to replace the trustee company as trustee of the trust has been abandoned. There is therefore no occasion for the Court to consider Mr McNee’s suitability to act in place of the trustee.
Conclusion
[29]The issues relating to the appropriateness of Mr McNee acting as Lachlan’s litigation guardian are referred to in [6] above.
It is apparent from the above discussion that the submissions advanced on behalf of Ms Gould and the trustee do not materially alter the strength of the case for the removal of the trustee which I have found is otherwise made out by the grounds for removal which I have found to be established.
Many of the submissions advanced on behalf of Ms Gould and the trustee unduly focused on Ms Gould’s personal interests as a person with a conditional right to occupy the Armadale property. However, the dominant consideration in the exercise of the Court’s jurisdiction to remove trustees is the welfare of beneficiaries. Whether or not Ms Gould is in fact a beneficiary, it is accepted by all parties that the primary beneficiary is Lachlan. Ms Gould’s failure to properly administer the trust in the ways I have identified has jeopardised the safety of the trust estate held for his benefit. Her failure to understand the nature of the obligations imposed upon the trustee in the administration of the trust undermines any confidence I might otherwise have in the capacity of the trustee to further administer the trust. For these reasons I consider that the trustee should be removed.
In reaching this conclusion, I am also influenced by the fact that a key element of the conception upon which the trust was established – that Ms Gould would live with Lachlan as his primary carer – has been removed. Further, as I have explained, the appointment of an independent trustee will not prejudice Ms Gould’s conditional right of occupancy of the property under cl 6.3.2 of the trust deed. Instead, it will avoid the inevitable conflicts between Ms Gould’s personal interests under the trust deed and her duties as the controlling mind of the trustee.
Counsel for the trustee and Ms Gould submitted that the Armadale property was ‘settled land’ within the meaning of the Settled Land Act 1958 with the consequence that two trustees were required to be appointed. It was submitted that this was a matter which should bear upon the exercise by the Court of its discretion as to whether or not to remove the trustee and if so, who to appoint in its place.
It is unnecessary to consider this issue because, as I further explain below, I have determined that the appropriate course is to remove the trustee and to provide for the appointment of a new independent trustee which is an incorporated entity.
Section 94 is the only section of the Settled Land Act which stipulates the number of trustees required in a particular situation concerning a ‘settlement’ to which the Act applies. It states:
(1)Notwithstanding anything in this Act, capital money arising under this Act shall not be paid to fewer than two persons as trustees of a settlement, unless the trustee is a trustee company or unless the settlement authorizes the receipt of such money by one such trustee.
(2) Subject as aforesaid and to section twenty the provisions of this Act referring to the trustees of a settlement shall apply to the surviving or continuing trustees or trustee of the settlement for the time being.
It is apparent from the emphasised part of ss (1) as well as authority that the requirement for a plurality of trustees does not apply in the case of a trustee company.[30] Accordingly, even if the Settled Land Act applies to the Armadale property, given my decision to provide for the appointment of an incorporated entity in place of the trustee as further explained below, it is unnecessary to further consider the matters raised on behalf of Ms Gould and the trustee in relation that Act.
[30]Re Sheehan’s Settlement [1923] VLR 568; Re Field’s Settlements [1925] VLR 143.
Subject to the matters dealt with in paragraph [113] below, it will be appropriate for orders to be made removing the trustee company as the trustee of the trust.
Should an independent trustee be appointed?
In addition to an order removing the trustee company as trustee of the trust with immediate effect, Lachlan seeks an order appointing an independent third party, to be nominated by the President of the Law Institute of Victoria, to act as trustee of the Trust. In submissions filed with the Court, Lachlan indicated that there was no impediment to the Court making an order in the above terms conditional upon the replacement trustee being an incorporated entity.
As with the removal of a trustee, the dominant consideration in appointing a trustee is the welfare of the beneficiaries. In reviewing some of the principal authorities since Re Tempest,[31] Brereton J in Hancock v Rinehart summarised the following three ‘general guidelines’ or ‘rules of practice’ which inform the Court in appointing a new trustee.[32]
[31](1866) LR 1 Ch App 485, 487–488.
[32]Hancock v Rinehart [2015] NSWSC 646.
(a) First, ‘the wishes of the persons by whom the trust was created, if expressed or implicit in the trust instrument’.[33]
(b) Secondly, ‘a trustee should not be appointed with a view to promoting the interests of some of the beneficiaries in opposition either to the wishes of the settlor or the interests of the other beneficiaries’.[34]
(c) Thirdly, ‘regard should be had to whether the appointment would promote or impede the execution of the trust’.[35] Brereton J referred to the statement in Ford and Lee, Principles of the Law of Trusts that ‘it would appear that … the court may wish to ascertain the acceptability of the proposed trustee to the beneficiaries of the trust; for it may well be that their relationship will bear upon the efficiency with which the trust can be carried out’.[36]
[33]Ibid [122].
[34]Ibid [123].
[35]Ibid [124].
[36]Ibid, citing Ford & Lee, Principles of the Law of Trusts, [8290].
Applying these principles, the fact of central significance in this matter is that the appointment of an independent trustee is the relief sought by Lachlan as the primary beneficiary under the trust. Given that the existing trustee is incorporated and in light of Lachlan’s acceptance that the Court could make an order for the appointment of a new trustee being conditional on that trustee being incorporated, subject to the matters referred to in paragraph [113]-[114], it will be appropriate for orders to be made that an independent incorporated entity, nominated by the President of the Law Institute of Victoria, be appointed to act as trustee of the trust.
Appointor
As I have noted earlier, the appointor under the trust deed is Ms Gould. Lachlan seeks orders pursuant to s 63A of the Trustee Act 1958 varying the trust deed so that Ms Gould is replaced as the appointor by the independent trustee until Lachlan attains the age of 18 years, at which time he will become the sole appointor.
Section 63A(1) of the Trustee Act 1958 provides:
(1) Where property, whether real or personal, is held on trusts arising, whether before or after the commencement of this Act, under any will settlement or other disposition, the Court may if it thinks fit by order approve on behalf of –
(a)any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts who by reason of minority or other incapacity is incapable of assenting; or
(b)any person (whether ascertained or not) who become entitled, directly or indirectly, to an interest under the trusts as being at a future date or on the happening of a future event a person of any specified description or a member of any specified class of persons, so however that this paragraph shall not include any person who would be of that description, or a member of that class (as the case may be) if the said date had fallen or the said event had happened at the date of the application to the Court; or
(c)any person unborn; or
(d)any person in respect of any discretionary interest of his under protective trusts where the interest of the principal beneficiary has not failed or determined –
any arrangement (by whomsoever proposed and whether or not there is any other person beneficially interested who is capable of assenting thereto) varying or revoking all or any of the trusts, or enlarging the powers of the trustees or managing or administering any of the property subject to the trusts:
Provided that except by virtue of paragraph (d) of this subsection the Court shall not approve an arrangement on behalf of any person unless the carrying out thereof would be for the benefit of that person.
Section 63A replicates s 1(1) of the Variation of Trusts Act 1958 (UK). As submitted on behalf of Lachlan, s 63A, like the UK legislation, was passed in response to the decision in Chapman v Chapman,[37] where the House of Lords rejected the contention that a court has inherent jurisdiction to approve variations to a trust on behalf of minor, unborn and unascertained beneficiaries merely on the ground that the variation is for their benefit.[38] The remedial legislation, it has been said, overcomes this limitation by enabling the court to give approval to an arrangement on behalf of persons who are unable by their incapacity to give such approval. The court in effect supplies the capacity which the beneficiary lacks.[39]
[37][1954] AC 429.
[38]See the Second Reading of the Bill in the English House of Commons, 6 December 1957, Hansard, vol 579, col 768–9, where Mr F. Crowther explains the purpose of the legislation; see the Second Reading Speech for the Trustee (Variation of Trust) Act 1962, per the Hon R J Hamer, cited in WE Pickering Nominees Pty Ltd v Pickering [2016] VSC 71, [43].
[39]See Re Holmden’s Settlement Trusts [1968] AC 685, 710H-711A (Lord Guest).
It was not in controversy that s 63A of the Trustee Act 1958 is a source of power for an order providing for the variation of the trust deed pursuant to which Ms Gould would be replaced by a new independent trustee as the appointor. It has been observed that the discretion conferred on the Court by the above provisions is framed in the widest possible language.[40] The word ‘arrangement’ appearing in s 63A is ‘deliberately used in the widest possible sense so as to cover any proposal which any person may put forward for varying or revoking the trusts’.[41] As stated by Ashley J in Re Keysborough Blue Danube Soccer Club, s 63A ‘embraces both administrative matters and variations in the beneficial interests’.[42] In circumstances where, as in the present case, the trust instrument already contains an express power of appointment,[43] I am satisfied that s 63A of the Trustee Act 1958 is a source of power for the order sought by Lachlan.
[40]Re Steed’s Will Trusts [1960] Ch 407, 420–1 (Lord Evershed MR).
[41]Ibid 419.
[42][2003] VSC 119, [34] (citations omitted).
[43]Cf W E Pickering Nominees Pty Ltd v Pickering [2016] VSC 71 where McMillian J found that s 63A did not confer power on the Court to ‘grant’ a general power of appointment in circumstances where the trust instrument did not make any provision for an appointor.
Counsel for the trustee acknowledged that, if an independent trustee was appointed, it would be inappropriate for Ms Gould to be able to replace the trustee in the event that there was a vacancy in the position. It was therefore accepted that some amendments to the trust deed would be required in relation to the current identification of Ms Gould as appointor. However, it was submitted to be preferable to consider those amendments after the Court’s determination about whether the trustee should be removed. Counsel submitted that, because of her claimed life interest, Ms Gould should continue to be a person whose agreement is required in relation to any proposed variations in the trust deed.
Ms Gould opposed the order sought by Lachlan, primarily on the basis that it would not be appropriate for the trustee and appointor to be the same person because it is the appointor’s role to act as a check on the trustee’s exercise of power. Reference was made to cl 22.1 of the trust deed, pursuant to which the trustee may only vary the trust deed with the consent of the appointor. The requirement for consent would self-evidently be removed if the trustee and appointor were the same person. It was also submitted that Ms Gould should remain as appointor because the current role is limited by the terms of the trust deed in that the appointor is unable to remove the trustee or appoint a new trustee unless there is a vacancy.
Contrary to the submissions on behalf of the trustee, having decided to replace the trustee with an independent trustee, there is no proper reason why the determination of the identity of the appointor should be deferred to a later time. Further, analogously with my consideration of the submissions advanced by the trustee in opposition to the removal of the trustee on the basis of Ms Gould’s asserted life interest in the Armadale property, I also do not consider that that claim properly bears upon the question of whether or not she should continue in the position of appointor.
Given Ms Gould’s serious failings in the administration of the trust, I do not consider that it is in Lachlan’s best interests for her to continue as appointor. Although the trust deed places restrictions on the role of appointor, it was common ground that, under the terms of the trust, in the event that Ms Gould remained in the role, she would have power to appoint a trustee of her choosing if the newly appointed independent trustee were to vacate office for whatever reason. In that particular scenario, Ms Gould would be in a position to potentially defeat the purpose of an order replacing the trustee with an independent trustee.
Furthermore, pursuant to cl 22.1 of the trust deed, the trustee’s power of amendment is subject to the appointor’s consent. Given the findings I have made about Ms Gould’s administration of the trust, I do not have confidence in the manner in which Ms Gould might approach any issues relating to the possible amendment of the trust deed which might be raised by the independent trustee in the future.
Contrary to the submissions made by Ms Gould, I also do not accept that, in the context of this trust, it would be inappropriate for the trustee and appointor to be the same person. Such a view is at odds with the settlor’s intention in settling a trust with a trustee whose controlling mind is also the appointor.
For these reasons, subject to the matters referred to below, it will be appropriate for orders to be made varying the trust deed so that Ms Gould is replaced as the appointor by the independent trustee until Lachlan attains the age of 18 years, at which time he will become the sole appointor.
Disposition
As the independent trustee which will replace the first defendant as trustee and appointor is to be nominated by the President of the Law Institute of Victoria, the parties need to give consideration to the timing and coordination of orders giving effect to these reasons for judgment. The parties are to confer about the terms of orders giving effect to these reasons for judgment and to submit same within 14 days. Draft orders should also address the undertaking proposed to be made by Mr McNee referred to in [5] above, any appropriate ancillary orders concerning the vesting of the property of the trust in the newly appointed trustee and the transfer of that property into the name of the trustee and any orders in respect of costs.
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