Montevento Holdings Pty Ltd & Anor v Scaffidi & Anor

[2012] HCATrans 261

[2012] HCATrans 261

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth   No P22 of 2012

B e t w e e n -

MONTEVENTO HOLDINGS PTY LTD

First Appellant

EUGENIO SCAFFIDI

Second Appellant

and

GIUSEPPE DIEGO SCAFFIDI

First Respondent

MARIA SCAFFIDI BY GUARDIAN AD LITEM THE PUBLIC TRUSTEE

Second Respondent

FRENCH CJ
HAYNE J
CRENNAN J
BELL J
GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 12 OCTOBER 2012, AT 10.00 AM

Copyright in the High Court of Australia

____________________

MS K.A. VERNON:   May it please your Honours, I appear for the appellants, together with my learned friend, MR A.S. MEYSNER.  (instructed by Butcher Paull & Calder)

MS P.E. CAHILL, SC:   May it please the Court, I appear for the first respondent with my learned friend, MS C.J. GARDE.  (instructed by Oldfield Legal)

FRENCH CJ:   I note the submitting appearance for the second respondent.  Yes, Ms Vernon.

MS VERNON:   Nothing in life is certain except death and taxes.  There is ambiguity surrounding what is the precise wording of that well-known quotation, and there is in fact controversy amongst historians as to who the original author of the quotation actually is, often famously attributed to Mark Twain.  In fact, consensus favours Benjamin Franklin in 1789 as being the actual author of the quote, but there is reference to very similar wording in the writings of Daniel Defoe as early as 1726.

FRENCH CJ:   This is a very pleasant distraction from the trust deed.

MS VERNON:   It is, your Honour.  There is no ambiguity about the meaning of that particular quotation.  It is fatalistic and it is sardonic and it draws as it does on the actual inevitably of death to highlight the difficulties of avoiding the burden of taxes both in life and in death.  The drafters of the Scaffidi family trust deed undoubtedly knew this expression all too well.  There is no ambiguity, however, in either the language or the intention of the clause that brings this matter before the Court today, which is clause 11.03 of the Scaffidi family trust deed.

What I would like to do for the Court today is to draw first your attention to some pertinent clauses in the Scaffidi family trust deed and then otherwise address the matters that are in the outline of oral submissions, which ought to have been provided to the Court this morning, in accordance with the rules. 

Starting with the trust deed something needs to be said about the Scaffidi family trust.  The design of most family trusts like this particular one is to alienate assets from their individual owners, to split the income between a number of beneficiaries, most of whom are members of the family concerned and for the family members to still maintain control over the family’s assets.  It is of course ‑ ‑ ‑

HAYNE J:   Does this trust have any unusual feature, Ms Vernon?  I do not think it does, does it?

MS VERNON:   Not that I have been able to discover, your Honour.  In many respects it seems to be ‑ ‑ ‑

HAYNE J:   I think we are all reasonably familiar with trusts of this kind and it comes down, does it not, to the meaning of 11.03?

MS VERNON:   It does come down to that meaning, your Honour.  Specifically though, as some trustees do, this trustee does not confer on any of the beneficiaries a vested interest in the capital or the income of the trust, and importantly none of the beneficiaries in this trust has a right or an entitlement to any capital or income, unless and until the trustee exercises its power to make a distribution in the particular beneficiary’s favour.  In this particular case it can be said then that the beneficiaries, like the beneficiaries of many family trusts, have no more than a right of the due administration of the trust and cannot require the trustee to exercise its discretion in any particular way.

Since your Honours are familiar with discretionary family trusts, the only clauses that I would commend to your Honours’ review would be clauses 8.0.01 which appears at appeal book 37, clause 8.02 which appears at appeal book 38 and clauses 9.01 to 9.02 which appears at appeal book 39 to 40.

These are part of the broad discretionary powers that enable the trustee in its absolute discretion to preference one beneficiary over the others in the distribution of income and capital both before and as at the date of termination.  In relation to clause 10, and specifically clauses 10.02.20 and 10.02.28, which appear respectively at appeal book page 48 and 50 to 51, your Honours will find there the ability of the trustee in its absolute discretion to exercise is powers and discretions without reference to the beneficiaries and particularly to enable the trustee in this case to act notwithstanding any conflict of interest that might arise between the trustee’s position and the interests of any director or member of a corporate trustee in the exercise of those powers and including an opportunity for this trustee to benefit itself by the powers that appear in clause 10.03 appearing at appeal book 51 to 52.

There are, however, some safeguards built into this trust and they appear in clause 15 which is at appeal book 62.  In relation to the first point I wish to make before the Court, namely, that the construction is limited by the language of clause 11.03, if we start with clause 11 of the trust deed – that is found at appeal book 53 and it is the most significant of the clauses that will be under consideration for the purposes of this appeal ‑ ‑ ‑

FRENCH CJ:   Everything turns on this, does it not, because for the respondent to maintain the judgment below it really seems to be necessary to find in 11.03 some kind of penumbral prohibition which cannot be found in the words themselves.

MS VERNON:   That is correct, your Honour, and what we say is that the majority in the court below created an artificial obstacle which was contrary to the express words of the trust deed by their interpretation of clause 0.3 because it is already established in this clause that a trustee can be a corporation and in relation to clause 11.03 the significant words are “individual” before “Appointor” and “that” before the words “individual” in the second part of the particular clause.  In other words, for the individual appointor, so long as they are a beneficiary, it is that individual that shall not be eligible to be appointed as a trustee. 

We say, within the legislative framework that existed in 1977 when this trust deed was created, the legislative framework specifically involved fiscal considerations that would have seen any holder of a general power of appointment subject to adverse tax consequences in terms of death duty and estate legislation, all of which is referred to in our outline of written submissions.  

HAYNE J:   But before you get to that, you go to the instrument.  You find at appeal book 53, the second line of text “individual or corporation”.  You find the expression “natural individual” at about line 40.  You find elsewhere, see for example page 54, a distinction between “being an individual” and “being a company” strung throughout the document.  Does your case come to any more than that?

MS VERNON:   What we say, your Honour, is that the use of the words “individual” cannot actually be underestimated.  There is true the case that, as your Honour pointed out, there is reference at least in one occasion in this trust deed to the word “natural” before the word “individual”.  But we say that is probably a little bit of drafter’s fluff that has ended up in this particular deed because otherwise consistently there is a distinction between individual and corporation such that, for example, when one looks at the clauses for the appointor and the guardian there are provisions that say where the guardian is an individual or a company where the appointor is an individual or a company.

HAYNE J:   That is appeal book 61?

MS VERNON:   Yes, that is correct.  So the distinction is maintained.  Whilst there may be some drafter’s flourish that occurs occasionally and produces some anomaly such as natural individual, if there could ever be such a thing as a natural individual, we say that in the circumstances drafters in 1977 were perhaps not as adept as drafters of today who work with plain English and are very careful to ensure there is never any difference whatsoever in the use of terminology in commercial documents.  But in this particular case ‑ ‑ ‑

HAYNE J:   You have a very optimistic view of drafting.

MS VERNON:   Perhaps I do, your Honour, and I will perhaps continue to cling to that.  But certainly in relation to the Scaffidi family trust deed we say that any particular reference that, for example, the first respondent has made to some kind of differences in syntax and expressions throughout the deed, they are largely consistent.  An individual has to mean something.  It is only by reference to that legislative framework that you get a proper meaning for the word “individual”, because it is only if the general power of appointment ends up in the hands of the individual that the individual will suffer the consequences of the adverse tax legislation.

So in those circumstances we say the drafters of this deed were keenly aware of what expert legal writers of the day, such as TW Magney was writing about in the article we have cited to you, Comparative Analysis of Estate Planning Vehicles, that he was looking at the fact that there was a belief.  Whether it was right or wrong and whether we now, with the benefit of hindsight, look back and say well actually it probably might not have been a general power of appointment ‑ ‑ ‑

FRENCH CJ:   What do you say though to the respondent’s submission that – I am looking from 6.31 through to 6.33 on page 9 of the submissions – that one can accept that that was a reason for or explains the prohibition on the individual appointor, being appointed as trustee, but is not inconsistent with another purpose, namely that set out in 6.31?

MS VERNON:   Does your Honour I think refer to 6.32, the keeping of the independence that appears in 6.32?

FRENCH CJ:   The independence, yes.

MS VERNON:   In relation to this, it seems it would be our submission that what has occurred with regards to the independence between the trustee and the appointor is actually a misnomer, because the appointor has no power to direct the trustee how it will perform its duties.  There is not a need for clause 0.3 to have a purpose that is directed towards preservation of independence between appointor and trustee.  It would make more sense if it preserved an independence between beneficiary who wishes to be trustee and beneficiary an appointor.  But in this instance the reference that the first respondent makes to the need to preserve the independence between trustee and appointor is not served by clause 11.03.

We say in this circumstance that is because there is a fundamental position presented by the first respondent to the effect that clause 11.03 is actually about how the trustee performs its duties.  In actual fact the heading to clause 11 is that it is about the “Office of Trustee:  Appointment and Termination”.         The rights, duties and liabilities of the trustee are found in fact in clause 11 and no part of clause 11.03 is directed to the control of what the trustee does, whether it is an individual trustee or a corporate trustee, as we say, the deed entitles Montevento to be the trustee under those particular provisions. 

We also say that because clause 11.03 contemplates a corporation being a trustee, the absence of any disqualification upon a beneficiary from being a director, shareholder or controller of the trustee is itself as significant as an indication that no such prohibition was either intended or in fact created.

FRENCH CJ:   Ms Vernon, I might just stop you there.  We might just hear from the respondent.  The point is a very narrow one.  Yes.

MS CAHILL:   May it please the Court, we say that the sentence in clause 11.03 as a whole must be construed, not the individual words in isolation.  When the sentence as a whole is construed in terms of the confined issue that is called for determination here today, there is a particular emphasis, in our submissions, on the phrase “as a” in contradistinction to the word “individual”.

We recognise, of course, that there is a degree of imprecision and inconsistency in the linguistic considerations of the trust deed as a whole, and that then limits the extent to which purely linguistic considerations can be considered for the purpose of construing the document, and in particular ‑ ‑ ‑

HAYNE J:   What is the inconsistency to which you are alluding?

MS CAHILL:   I have identified just the linguistic imprecision, your Honour, in the sense that we have identified in our outline where we have natural individuals, sole trustees, single trustees.  The language is not carefully consistent, and so something may be drawn from that in terms of the extent to which one relies purely on linguistic considerations. 

Nevertheless, the deed was drawn by lawyers.  It is to that extent worded with a degree of care, and there is something that can be drawn from the linguistic considerations, in particular in clause 11, when one considers the phrasing “as a” in clause 11.03 in contradistinction to the balance of the clause.  If I can take your Honours to appeal book page 53, your Honours will see that in the balance of clause 11, the language is generally relevantly different.  In clause 11.03 at 53, an individual:

shall not be eligible to be appointed as a Trustee.

Immediately above it, in 11.02.03, there is the language of appointing –

a new Trustee or Trustees in the place of any Trustee who resigns –

This was not with reference to that clause, but the point of linguistic consideration made by his Honour Justice of Appeal Murphy at paragraph 161 of the Court of Appeal decision, appeal book page 192.

Your Honours will see, going down the page of appeal book 53 at clause 11.05 – a point we made in our written outline – in respect of alternate trustees, it is an appointment of a person “to be” the trustee, much more readily connoting appointment to the position or the office.

When we go over the page to 11.06, this is important in our respectful submission, there is a description of the office of a trustee.  Again, we say that is in contradistinction to the language of “as a”.  It is a much narrower focus linguistically distinguishing between the appointment to the office, the position, or the role, on one hand versus the description of appointing a person to act in the manner of a trustee which is what clause 11.03, in our submission, comfortably extends to.  It goes on, though, clause 11.07:

Any person becoming a Trustee –

again, in contradistinction to 11.03, and that is made clear in 11.07 when one reads on to the fourth line where a discussion begins about the “office of the new Trustee”.  Clause 11.08:

Any person who is one of the persons who are the Trustee[s] –

So what we say in essence is, looking at those linguistic considerations, there is a clear differentiation between the language of clause 11.03 and the language of the balance of the clause to distinguish between the office or position of trustee on the one hand and someone who separately acts as a trustee or in the manner of the trustee in accordance with the ordinary definition.

FRENCH CJ:   You are construing 11.03 to preclude an appointor beneficiary from appointing as trustee a company controlled by that appointor, as sole director. 

MS CAHILL:   In the circumstances of this case, yes. 

FRENCH CJ:   How do you – there must be a way of writing 11.03 which reflects that construction.  What is it equivalent to?  What is the linguistic equivalent in your submission?

MS CAHILL:   If your Honour is putting to me how could it have been better drafted because we ‑ ‑ ‑

FRENCH CJ:   No, what are you saying it means?  I use the term a penumbral prohibition, is this some kind of shadow cast by 11.03 or is it something in the language?

MS CAHILL:   It is a person who exercises the rights, powers and obligations of the – as a trustee, of the position of a trustee but who is not in that role, irrespective of whether they occupy that role.  

FRENCH CJ:   Yes, alright.

MS CAHILL:   May I just finish off on that point about clause 11.  The point about the language referring in the subsequent clauses – subclauses of clause 11 to the office of a trustee is relevant in the context of considering the reasoning of Justice of Appeal Buss in the court below at paragraph 94, appeal book page 179.  At that page, paragraph 94, his Honour was considering specifically the construction of the words “as a” in clause 11.03. 

His Honour considered that that was concerned with the appointment to the specified capacity, that is, the office.  We simply say that when one comes back to the linguistic considerations, the fact that the drafters have separated out and differentiated the office that, in fact, that “as a” must necessarily have a much broader meaning than that.

HAYNE J:   But it must be read with “appoint” or in this case “appointed”, must it not?

MS CAHILL:   Yes.  The whole phrase must be read.  We certainly accept that.  What we do say, it was the error of Justice of Appeal Buss’s approach below – and the same point can be made about the appellant’s argument before your Honours today – is that it focuses unduly on the word “individual” and seeks to isolate that out without regard to either the sentence as a whole, the balance of the instrument or the purposes and objects of the transaction as is disclosed in the instrument.

We say that the instrument does speak clearly about purpose and object.  It is self‑evident that there are fiduciary duties that arise from the trust structure that is evident in the document – fiduciary duties that the trustee has to the beneficiaries in administering the trust, and it is quite clear that the trust deed seeks to provide a degree of oversight of the trustee’s function to ensure that the administration of the trust is equitable and that conflicts of interest are to some extent avoided.  There is both a guardian and an appointor of the trust.

The guardian oversees the trustee’s exercise of powers in admitting people to the class of beneficiaries, the distribution of income, the distribution of corpus either before or after the termination date.  The oversight of the guardian of the trustee’s functions in how the trustee distributes income and corpus and how the trustee might decide to admit beneficiaries, we say evidence is at least two purposes.  One is to ensure equity between beneficiaries, and the second is to avoid conflicts of interests in circumstances where this trust deed – except in the circumstances of clause 11.03, of course – permits a trustee to also hold the position of a beneficiary.  So the importance of avoiding conflicts of interest is live.

The position of the specified members, the two specified members, which is the first respondent and the second appellant, of course, is protected via several clauses, 15.02, 801.02, 804, 503 and what is evident there is that those shares, as between them, cannot be impinged upon or detracted from and they need to be treated equally as between themselves, the degree of even‑handedness that Justice of Appeal Murphy mentioned in his reasons with Justice of Appeal Hall in the court below.

The role of the appointor, in and of itself, of course, provides oversight in the exercise of the trustee’s function.  In the abstract, it provides a level of control over the trustee insofar as he or she is susceptible to being removed and replaced.  The trust deed does not prevent any individual appointor from being appointed as a trustee except where they are also a beneficiary.  That is clearly the effect of clause 11.03.

What we say is when one construes clause 11.03 against the background of the evident purpose and object within the trust instrument itself to ensure the due administration equitably for the benefit of the beneficiaries, to avoid conflicts of interest, then the scope of clause 11.03 becomes plain and the natural and ordinary meaning of the words “as a” in contradistinction to the wording of the balance of clause 11 also becomes plain. 

That is to keep the functions of the appointor and the trustee separate where the appointor is a beneficiary so as to avoid or guard against the consequences of conflicts of interest which would inevitably arise in this situation.  That is particularly important where the trust deed also provides for circumstances.

FRENCH CJ:   There are other remedies for that sort of problem, are there not?

MS CAHILL:   Yes.  That does not mean that it is inappropriate for a trust deed to provide for those consequences and to deal with them within the body of the trust deed.  It becomes important particularly where in this trust deed there is provision for the guardian to, in effect, be removed and for the oversight to then be left, in effect, to the position of the appointor.  That is the effect of clauses 15.04.01 and 15.04.02, which appear at appeal book pages 62 to 63.

So we say that if the objective intention then discerned, as to the purpose and object of the trust, is to keep the functions separate between appointor, the beneficiary and trustee to avoid or guard against the consequences of a conflict of interest, then the plain meaning of the restriction upon eligibility of the appointor as a trustee extends to a corporate trustee exclusively controlled or owned by an individual appointor, and exclusively exercising the functions of the trustee through that individual appointor.

Your Honours, we say that the appellant’s approach to the construction of clause 11.03 is flawed for two main reasons.  The first is that the approach, in our respectful submission, rests impermissibly on seeking to ascertain what the parties meant to say in clause 11.03 and why they meant to say it, rather than correctly seeking to ascertain the meaning of the language. 

This is evident, in our submission, from Justice of Appeal Buss’s reasons at paragraph 96, page 179, adopted by my learned friend at paragraph 6.18 of her written submissions.  What his Honour says there at paragraph 96 after commenting upon the construction which he prefers not producing an “absurd, unreasonable or unjust” outcome, his Honour then goes on to say:

Indeed, it produces an outcome that is highly likely to have been intended.

We say that that is the impermissible approach to construction if one looks at not what the parties either subjectively or objectively intended to say or the results they intended to achieve.  One rather looks at the language and simply asks oneself “what does it mean?”

That is the manifestation of intention with which the task of construction of a contract is concerned.  The second is that, as your Honour the Chief Justice raised with my learned friend a moment ago, the approach to construction of the appellants focuses on only one part of the context, which is the revenue legislative framework that existed at the time that the trust deed was made and either ignores or subordinates the other context, which is also important, the evident purpose and object of the trust deed, evidenced within the confines of the instrument as a whole as I have just described.

We say that in any event if one were to pursue the approach, which we respectfully submit is impermissible, and ask what was likely to have been intended by the drafters or the parties to this deed at the time of formation.  We say that that intention and the intention ascribed by the appellants to them actually supports our construction and not theirs.  We say this for two reasons. 

First of all, when one looks to the argument that the parties were concerned with whether or not it might be arguable that there was a general power of appointment, or something approaching a general power of appointment in circumstances where an individual appointor also was a beneficiary and the trustee, the point that is made by his Honour Justice of Appeal Buss at page 173, paragraph 71, referring to Mr Magney’s article. 

When one reads the article, one notes that the more likely and probable scenario that would have been concerning drafters of trust deeds at the time – we see this most particularly in the last two quoted lines on the page – is where a trustee was also a beneficiary, not an appointor, but just the coincidence of the individual trustee and beneficiary and the possibility that that might give rise to a general of appointment.  That, of course, was the effective position statutorily in New South Wales in the ‑ ‑ ‑

FRENCH CJ:   I think the problem you have is that the appellant seemed to have the text on its – you are calling it its ordinary and natural meaning – on its side and you have got to put some sort of gloss on it, do you not to ‑ ‑ ‑

MS CAHILL:   We respectfully disagree, your Honour.  We say that the language is with us, not with the appellants, because of the way in which clause 11.03 is expressed so differently from the balance of the clause, clause 11.  The way in which it distinguishes clause 11 as a whole, I mean here, between the office of a trustee and someone who is appointed as a trustee and whilst the drafting may not be elegant, whilst it could have been better, it is, nevertheless a point of difference that we say, when one has regard to the purpose in object disclosed in the instrument and that is a necessary context to assist in the construction, leads to the natural and ordinary meaning for which we contend.

HAYNE J:   In this respect, do you support the reasons of the majority as expressed in paragraph 165 of their reasons at appeal book 193?

MS CAHILL:   Yes, we do, your Honour.

HAYNE J:   Can you step me through it and explain the reasoning to me because I do not understand it.

MS CAHILL:   Yes, your Honour.  What we say is and this perhaps harks back to question that his Honour the Chief Justice asked of me a short time ago, what is it in words that the clause extends to and it is where the individual may exclusively exercise the powers and rights exercisable otherwise by that office that gives rise to the preclusion in clause 11.03.  That is what the ineligibility is directed towards. 

One cannot, as an individual appointor who is also a beneficiary, be a trustee or act as a trustee be appointed in a manner that would permit them to exercise exclusively the rights and powers of that office.  Inevitably, that must be so in relation to a company that is a single director and shareholder company and who must act through that individual appointor. 

HAYNE J:   What I do not follow in paragraph 165 is the step that is taken between lines 10 and 20 identified at line 11, “such a person may appoint himself to the position” described.  It goes then to the proposition:

assigning a meaning to the word ‘Trustee’ which it cannot reasonably bear –

and the third step seems to be to amplify the proposition “cannot reasonably bear” by the clause in that it treats the office of trustee as entirely separate from the powers and rights exercisable by the office holder.  What I do not understand is how you read clause 11.03 as dealing with anything more than appointment to the office of trustee.  You emphasise as a trustee, I think, the phrase “as a” but read as a whole is not 11.03 dealing only with appointment to the office identified in the trust instrument as the office of trustee?

MS CAHILL:   Well, we respectfully say no, your Honour, and the reason is this.

HAYNE J:   Is that the linchpin of your argument?

MS CAHILL:   Does your Honour mean paragraph 165?

HAYNE J:   No, is the linchpin of your argument that you have to assign some wider notion to appointment as a trustee than appointment to the office of?

MS CAHILL:   Yes, and we say that that is done comfortably reading the balance of clause 11 which when it chooses to refer to the office does so, and it does not in clause 11.03 and we say it does not for a reason, a reason that is consistent with the evidence purposes and object of the trust instrument, as I have already submitted.  We respectfully do not agree that clause 11 is limited only to achieving the object of when someone is appointed or when not.  Clause 11.03 is clearly directed towards achieving those objects of avoiding conflict of interest and providing a degree of oversight in relation to the exercise of the trustee’s functions.

HAYNE J:   That is to say it goes wider than and its purpose is different from what the subject matter is dealt with in 11.02.  At 11.02 “the Appointor may . . . appoint any additional . . . appoint a new Trustee”.

MS CAHILL:   Yes.

HAYNE J:   So, 11.03 has some larger different work to do than regulate the class of persons who may be the subject of 11.02.

MS CAHILL:  That is so, your Honour.  That would be so on either construction.  It clearly does some different work, whichever construction your Honour is to accept.  The point, if I might briefly return to it is, if one puts aside the linguistic considerations and looks at the underlying intention and purpose advanced by my learned friend for the appellants, were that were that the intention one would have seen a different or at least an additional and more focussed expression of the intention by precluding from eligibility to the appointment of trustee an individual who was also a beneficiary.  That was the far more likely scenario at the time that this trust deed was made that would amount to something approaching a general power of appointment, something amounting to an interest in property.

Can I also say this, that that underlying intention – if that is the way one were to approach the task of construction – were it taken to its logical conclusion on the authorities would again support our construction than it would the appellant’s, and I say that for this reason, and without obliging the Court to go to the authority itself, one can see at page 175 of the appeal book ‑ ‑ ‑

FRENCH CJ:   Page 175?

MS CAHILL:   Page 175 in, again, Justice of Appeal Buss’s reasons at paragraph 78.  This is where his Honour was looking at the 1993 decision of his Honour Justice Owen in the Supreme Court of Western Australia, R & I Bank v Anchorage Investments, and that case of course concerned whether or not there had been a breach of a Mareva injunction, and ultimately it was resolved on the basis that the terms of the order had been too uncertain to attribute any intentional breach to the party that was subject to it.  But what was being discussed here, and it was Justice of Appeal Buss who was actually the counsel at the time advancing the argument before his Honour, was whether the bundle of powers that the individual Lombardo had could arguably amount to a general power of appointment.

There was a corporate trustee here, Anchorage Investments.  It was controlled by Mr Lombardo.  That is uncontroversial.  He was the appointor.  His Honour accepted the argument, by way of obiter, the arguability of the proposition that these bundle of powers could, in combination, amount to a general power.  But your Honours will see in the middle of this quoted passage, his Honour focuses on the position “once Lombardo had in fact become the trustee”.  So you have once again this foregrounding of the trustee/beneficiary coincidence, rather than the appointor/beneficiary.  His Honour says –

Once Lombardo had become trustee, or in any event through his ability to control the actions of Anchorage –

So what is being contemplated there is that the general power of appointment could be attributed even in circumstances where through the corporate vehicle, the individual behind the alter ego, effectively is the trustee.

CRENNAN J:   But I think as the Chief Justice pointed out before, obviously remedies can be sought in relation to any breach of trust which occurs in those circumstances.

MS CAHILL:   Yes, your Honour, but as we say, that does not detract from the entitlement of parties to a trust deed to seek to address those matters via the trust deed itself.  We see that in the way in which the guardian, for example, is imposed over the trustee’s functions in very fundamental respects, admitting beneficiaries to certain classes, dealing with the income or the corpus of the trust either before or after the termination date, terminating the trust – all of these powers can only be exercised with the consent of the guardian.

FRENCH CJ:   We are not really concerned though, are we, with whether absent such a prohibition, there would be a general power of appointment?  This case was decided in 1993, the deed was drafted in 1977.  It is really offered as a rationale for the narrower view of the prohibition that is advanced by the appellant.

MS CAHILL:   Absolutely, and as your Honour says it is not necessarily ‑ ‑ ‑

FRENCH CJ:   Maybe a risk management exercise.

MS CAHILL:   Indeed.  That is how his Honour Justice of Appeal Buss put it, that it was something that the drafters may have been keen to ensure would not arise as an argument in the future.  Can I just say, finally, your Honours, that it is put against us by the appellants that clause 11.03 does not preclude a corporate appointor appointing itself trustee when it is also a beneficiary and that, therefore, this evidence is the intention of the parties in drawing clause 11.03 in different terms that it detracts from the intention – the evident intention that, we say, the language manifests. 

In our respectful submission, that again impermissibly approaches the task of construction by seeking to ascertain what the parties meant to say, not what the language in its plain and ordinary meaning says.  We can speculate as to why corporate appointors were not subject to the same restrictions upon eligibility to appointment of the position of the trustee.  It may have been oversight.  It may have been intentional. 

Perhaps it was thought that in an era where there were only – companies were not single person companies, that a corporate appointor might not have had the same concentration of power in the one person and there was not as great a risk.  But that speculation is irrelevant, we say, to the task of construction when approached correctly.  The focus is properly on the language and what that means and, we say, that it is plain in its application to an individual, a natural person appointor.

HAYNE J:   May I just make sure I understand the argument.  It is, I think, best I understand it, captured in this way.  You point to the use in clause 11.03 of the phrase “appointed as a Trustee”.  You submit that the words “as a” are used to distinguish between control over the exercise of the trustee’s powers and appointment to the office of trustee.  So far so good?

MS CAHILL:   Yes.

HAYNE J:   And it follows, as I understand the argument, so you would submit, that the class of persons excluded from appointment by 11.03 to the office of trustee is to be identified by reference to what natural persons would control the exercise of the trustee’s powers, duties and discretions.  Does that capture the argument or have I misstated it?

MS CAHILL:   For the word “control” I would substitute the words “exclusively exercise through the corporate trustee the powers and rights of the office holder”.  That may be a distinction with difference, your Honour, what I just – I just would need to think about that.

HAYNE J:   No, I am anxious that I understand the argument.  Do I sufficiently capture it?

MS CAHILL:   Yes, thank you, your Honour.

FRENCH CJ:   Looking for a linguistic alternative which reflects the construction you want to put on 11.03, is it met with the alternative that reads as follows:

If, and so long as any individual Appointor is a Beneficiary that individual shall not be eligible to –

exercise the powers of the trustee?

MS CAHILL:   Yes that would achieve it.  I say that, your Honour, and then immediately query whether we would then be back before your Honour having exact – well, ultimately back before your Honour having exactly the same argument.

FRENCH CJ:   I just wanted to see how one turns your submission into a means of, as it were, reading the text.

MS CAHILL:   Yes, and it is the difference between the fact and the form, of course, that is the point, and whether the expression of the language that your Honour has just put to me nevertheless still raises the question of whether one is talking about the form or the fact of the exercise of the powers ‑ ‑ ‑

FRENCH CJ:   Your argument is that the appointor should not be able, directly or indirectly through a corporate vehicle, to exercise the powers of the trustee.

MS CAHILL:   In fact, yes.  Thank you.

FRENCH CJ:   Yes all right, thank you.  Yes, Ms Vernon.

MS VERNON:   Thank you, your Honour.  The point that your Honour the Chief Justice has just made about looking for a linguistic alternative for clause 11.03 is a matter of considerable interest.  If the clause were to read as your Honour had just highlighted, but the last words of it would be “shall not be eligible to exercise the powers of a trustee”, we would say that goes a considerably long way further than the very short and brief words that are contained in clause 11.03. 

That would be where the first respondent would stray into the territory, with all due respect, of trying to ascertain what the parties meant to say, rather than what they did say.  Because what they did say is pretty straightforward.  It is simply that if and so long as an individual appointor remains a beneficiary that individual shall not be eligible for appointment as a trustee.

This is after all a small family trust.  Family trusts are inherently uneven.  The first respondent proceeds on the basis that somehow what underlies all of this in the majority’s reasoning is two propositions:  first of all, that there is some intent, purpose and object based on even‑handedness in the treatment of the beneficiaries of the trust.  The trust deed itself expressly expels any notion that there will be any even‑handedness in the treatment of beneficiaries, at least by a trustee.  The second thing that underlies it is some kind of lip service being paid to something that is said to be the general law’s most salutary rule.

We see that in paragraph 165 of the judgment of the majority at page 193, harking back to what appears in the signature paragraph of the majority’s judgment at 158, which starts at page 191 and goes over to 192.  Paragraph 158 ends by saying that, well, although this general law’s most salutary rule does not get precise expression in clause 11.03, nonetheless it somehow does so in a way which serves to promote the performance by the trustee of its core obligations under the trust. 

Yet, clause 11.03 does not appear in that part of the trust deed that is about how the trustee discharges the functions of its office.  So there is a melding of what appears in clause 12 with clause 11 if the first respondent’s argument is to be correct.  In regards to the operation of the general law’s most salutary rule, as we say in our brief outline of oral argument, we even doubt that there is the general law’s most salutary rule in operation here.

What does it actually mean?  Because, in this case clause 11.03, we say, expressly, by its very simple words, excludes the operation of the salutary rule that is that an appointor shall not appoint himself or herself to the office of trustee.  But, in a small family trust people want to centralise control.  That is why it was often the case in days gone by the head of the family held all those respective positions.  Who would want the assets of the family taken outside the level of control of the family?  What is wrong with having a trustee, an appointor and a beneficiary who all perform the different functions that the trust deed allocates to them?

The problem that underlies the majority’s argument and the first respondent’s argument is they seem to proceed on the assumption that the mere appointment of Montevento, the first appellant, as corporate trustee would mean that it cannot do its job properly.  To make that argument right, it has to go back to this idea that there is some purpose and object of preventing a conflict of interest, but, that cannot be the case. 

The actual trust deed itself allows the trustee to have an extreme conflict of interest that would not be permitted otherwise.  So in that regard, what we say here is, there certainly cannot be any allowance of some general principle, equitable or otherwise, that would override the express words of the trust deed, and to take a view that “as a” has a greater meaning, we say, is to put an impermissible gloss on the language of clause 11.03.

His Honour Justice Heenan at first instance was not prepared to do that because, as he clearly said, if it had been intended to do that the precise words would have been and could have been used, but they were not.  Now, it is the case that we have to look back and say, well, if it is a case of dealing with and giving expression to that general law’s most salutary rule, well, the very fact that clause 11.03 contemplates that an appointor might be eligible to be appointed to the office of trustee, it then goes on to limit who will be eligible for that appointment.  In that regard, it then just dispenses with the general law’s most salutary rule.

Then you come back to this idea that the majority raised when they coined the expression “even-handedness” in the treatment of the beneficiaries as somehow being a part of the purpose of clause 11.03 and saying as the majority did at the commencement of paragraph 158 of their reasons, this clause was:

intended to serve at least three related purposes.

This is a really simple clause intended to serve only one purpose.  Limit the eligibility for appointment as a trustee.  That is nothing more than an appointment to the office of trustee, not appointment to someone who will then discharge the functions because those functions are taken care of both at ordinary law principles and in the trust deed.  It does not go further than that, which makes it quite a discrete point but an important one, given the proliferation of these trust deeds as what we know as a tax avoidance device.

FRENCH CJ:   Well, you are not applying for special leave now.

MS VERNON:   No, I understand the point, your Honour.  But in terms of where that lies, this drafting is just not that complicated, and to take the expression and to take the first respondent and therefore the majority’s argument at its highest is to say, well, on the weighty shoulders of three letters we come up with at least three intended purposes rather than the most obvious one.  The one that Court of Appeal Justice Buss set out in his decision in the minority that quite simply, there was a legislative framework that existed and this was a clause designed to ameliorate the effects of that particular legislative framework at the time.  One does not need to go further than that. 

It is not a matter of looking at what was meant to be said.  It is a matter of looking at what was said.  What was said led him to start with the relevant legislation and led him to find, particularly in the writings of the article of Mr Magney, some important things where particular, if your Honours take the time to look at this upon reflection at your own luxury, particular page 239 and also page 245 to 246 where reference is made to the learned author’s actual advocacy towards appointing a corporate trustee to do exactly this.  Where there will be a positing of control in an appointor who also is a trustee who also happens to be a beneficiary.  In that regard, it is said that:

The appointor would hold the whole of the issued capital in the trustee company, which holding would give him the ability to appoint and remove directors of the company.  As I have already stated I can see no reason why the appointor should not himself be a director of the company which would give him the advantage of being aware of all matters being considered by the trustee.

Then, so it goes on, and specifically at paragraph (4) on page 239:

The suggestion has been made that in the circumstances I have outlined above the appointor could himself be considered to be a trustee and hence to have the various discretions vested in him personally, including the power to appoint capital and income of the

trust.  The High Court has shown no enthusiasm for lifting the corporate veil—see Gorton’s case and Windeyer, J., in Casuarina v. F.C.T. . . . —and so long as a company continues to be regarded as a legal entity completely separate from its members and officers, I do not see how the revenue authorities could look behind the company structure ‑ ‑ ‑

FRENCH CJ:   We seem to be moving a bit beyond reply here I think.

MS VERNON:   We certainly are, your Honour.  In terms of the propositions that are set out in our outline, I do not think I need to trouble the members of the Court with going through those.  Sequentially they are set out, I have probably covered some of them and some of them have come to light in my learned friend’s argument.

HAYNE J:   I do remember Chief Justice Barwick saying to counsel who wanted to go back over arguments from which he was stopped, putting that it was unwise to go back into the lion’s den to recover one’s hat.

MS VERNON:   Indeed, and I would be the last person, on today of all days, to wish to re‑enter the lion’s den, your Honour.  Unless the Court has any specific questions for me, I otherwise adopt our written submissions and written reply.

FRENCH CJ:   Thank you, Ms Vernon.  The Court will adjourn briefly to consider what course it should take.

AT 11.00 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.04 AM

FRENCH CJ:   The Court will reserve its decision.  The Court adjourns to 10.15 on Tuesday, 6 November.

AT 11.04 AM THE MATTER WAS ADJOURNED