Owies v JJE Nominees Pty Ltd

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2021 0067

PAUL ANDREW OWIES	First Applicant
and
DEBORAH OWIES	Second Applicant
v
JJE NOMINEES PTY LTD (ACN 004 856 366) (IN ITS CAPACITY AS THE TRUSTEE FOR THE OWIES FAMILY TRUST)	Respondent

---

JUDGES:	KYROU, NIALL and WALKER JJA
WHERE HELD:	Melbourne
DATE OF HEARING:	18 May 2022
DATE OF JUDGMENT:	20 July 2022
MEDIUM NEUTRAL CITATION:	[2022] VSCA 142
JUDGMENT APPEALED FROM:	[2020] VSC 716 (Moore J)

---

TRUSTS – Family trust – Whether trustee had sufficient knowledge of applicants’ circumstances to exercise its discretion to distribute income of trust – Whether judge erred in finding trustee exercised its discretion upon real and genuine consideration in certain years – Whether decision of trustee void or voidable – Wareham v Marsella (2022) 61 VR 262; [2020] VSCA 92 discussed – Pitt v Holt [2013] 2 AC 108; [2013] UKSC 26 applied – Leave to appeal granted – Appeal allowed.

TRUSTS – Removal of trustee – Whether trustee should be removed following breach of trust – Conflict between trustee and two of three remaining beneficiaries – Where judge erred in finding trustee exercised discretion upon real and genuine consideration – Miller v Cameron (1936) 54 CLR 572; [1936] HCA 13 applied – Order for removal of trustee.

---

Counsel
Applicants:		Dr KP Hanscombe QC with Mr AP Dickenson
Respondent:		Mr J Evans QC with Ms RG Morison
Solicitors
Applicants:	KCL Law
Respondent:	Tisher Liner FC Law

KYROU JA
NIALL JA
WALKER JA:

Introduction

The late Dr John and Dr Eva Owies had three children: Michael, Deborah and Paul.[1] Each of the five members of the Owies family were objects or beneficiaries of a family trust (‘the trust’), settled by Deed in 1970 (‘the trust deed’) and in respect of which JJE Nominees Pty Ltd (‘the trustee’) is the trustee. Amongst other things, the trust deed, in conventional form for a family trust of its era, conferred discretionary powers on the trustee for the distribution of the net income of the trust in each ‘accounting period’.[2] In default of an appointment of income or a resolution to accumulate, the trust deed provided that the net income would be held on trust for each of the children in equal shares. The assets of the trust, and the income derived from them, are substantial, with an estimated value in the order of $23 million and an annual income in the hundreds of thousands of dollars.
[1]Without any disrespect to the parties, first names are used because of the common surname.
[2]Defined to mean ‘the period from the date hereof to the next ensuing thirtieth day of June and thereafter each period of twelve months ending on the thirtieth day of June in each year until the thirtieth day of June next preceding the Vesting Day and the succeeding period terminating on the Vesting Day.’
In each of the financial years ending 30 June from 2011 to 2019, the trustee distributed all of the net income. With one exception, the pattern revealed by the distributions showed that 40 percent of the income went to each of John and Michael, and the remaining 20 percent to Eva. The exception was in 2019, when 100 percent of the income was distributed to John. In none of the years was a distribution of income made to Paul or Deborah. In April 2019, a distribution of capital, in the form of a residential unit in which Deborah lived (‘the South Yarra apartment’), was distributed to Deborah.
Deborah and Paul commenced a proceeding in the Trial Division against the trustee, to which Michael was later joined at his instigation, seeking various remedies in relation to the administration of the trust. First, they challenged some purported variations to the trust deed that altered the identity of the guardian and appointor under the deed. Second, they sought declarations that there had been no distributions of income under the trust deed, with the aim of establishing that the income was therefore held on a fixed trust reflecting the trust deed’s default position in the event of a failure to distribute income for an accounting period. Third, they sought declarations that, if there had been distributions, the trustee had failed to give real and genuine consideration to the objects under the trust, with the consequence that the distributions were made in breach of trust. Ultimately, the pleading covered the years 2010 to 2019. Amongst other things, Deborah and Paul also sought the removal of the trustee on the basis of the alleged breaches they pleaded, and a declaration that the appointment of Neville Sampson as a director was void.
The parties had mixed success.
(a)The judge accepted a limitation defence pleaded by the trustee that meant that the income years in issue were confined to the years 2015 to 2019 inclusive.[3]
(b)The judge held that the purported variations to the trust deed were invalid. He also held that Mr Sampson’s purported appointment as a director, on 14 December 2017, was defective, but he did not make a declaration to that effect. Neither of those findings have been challenged in this Court.
(c)The judge held that there were distributions in each of the relevant years. That finding was not challenged in this Court.
(d)The judge held that the trustee had failed to give proper consideration to the position of Paul and Deborah in 2015 and 2016 and to the position of Deborah in 2018. He rejected this ground in respect of 2017 and 2019 in relation to both plaintiffs and 2018 in relation to Paul.
[3]Re Owies Family Trust [2020] VSC 716, [199]–[202] (‘Reasons’).
An issue then arose as to what relief should follow from the findings in respect of 2015, 2016 and 2018. The plaintiffs sought an order setting aside the distributions for 2015, 2016 and 2018 and an order that the trustee pay them the amount which they claimed was held on trust in default of appointment of income. The judge determined that the plaintiffs had not pleaded a claim for compensation or payment based on the no real and genuine consideration ground and refused leave to amend the pleading.[4] Consequent upon his refusal to allow the amendment, the judge refused that relief. There is no application for leave to appeal from the refusal to permit an amendment to the relief claimed in the proceeding. In the result, the judge made declarations for each of the three years that the resolution with respect to the distribution of income was held to have been made without any real and genuine consideration by the trustee of whether a distribution should be made to Paul or Deborah. The declaration with respect to 2018 was confined to a failure to give real and genuine consideration to the position of Deborah.
[4]Re Owies Family Trust (No 3) [2021] VSC 114. An order for payment had been sought in respect of the ‘no distributions’ claims, but those claims had failed. The ‘no real and genuine consideration’ claims were advanced in the alternative to the ‘no distribution’ claims, and did not include orders avoiding the resolutions allegedly made without real and genuine consideration. Nor had the applicants opened or closed their case on the basis that they sought such orders in relation to the ‘no real and genuine consideration’ claims: [41]–[42].
The judge declined to remove the trustee.

The application for leave to appeal

Deborah and Paul seek leave to appeal on 11 proposed grounds. They can be grouped into four issues, as follows.
In respect of 2017, the applicants contend that the judge erred in concluding that the trustee had given real and genuine consideration to the position of the applicants and that the trustee had sufficient information as to the applicants’ circumstances so as to be able to give them real and genuine consideration in making its decision regarding the trust income.[5]
[5]Proposed grounds 1 and 2.
The applicants make the same complaint about 2019, which is the second issue.[6] In addition, the applicants contend that the distribution to John in 2019, by which 100 percent of the income went to him, was so ‘grotesque’ as to show that the trustee’s discretion had miscarried.[7]
[6]Proposed grounds 3, 4, 5.
[7]Proposed ground 6.
The third issue concerns the appropriate relief where a court finds, as the judge did in the present case, that there had been a failure by the trustee to give real and genuine consideration to the position of a potential beneficiary. The applicants submit that in respect of the three years where the judge found a breach of duty, and on the assumption they succeed in this Court in relation to 2017 and 2019, then in respect of all five years, the appropriate relief is to set aside the distributions on the basis that they are void or invalid. In that event, they seek an order that the trustee pay them the relevant amounts reflecting a one third share of the net income for each year in respect of which there is found to be a failure to give real and genuine consideration.[8]
[8]Proposed grounds 9 and 10.
The final issue concerns whether the judge erred in refusing to remove the trustee. The applicants submit that the judge was wrong not to remove the trustee and had made an error of the kind identified in House v The King.[9] They seek an order from this Court removing the trustee and an order appointing an independent professional trustee in its place.[10]
[9](1936) 55 CLR 499; [1936] HCA 40.
[10]Proposed ground 11.
Proposed grounds 7 and 8 are concerned with whether the judge was wrong to conclude that the trustee had not given reasons for its decision and whether the judge erred in holding that the only criterion for the exercise of the discretion was the wishes of the guardian. It is convenient to address these proposed grounds as part of the first two issues.

Summary of conclusions

We have concluded as follows:
(a)grounds 1 to 5 are made out: the trustee had not given real and genuine consideration to the position of the applicants for 2017 and 2019 and the judge erred in concluding that it had done so;
(b)in light of our conclusions in relation to grounds 3, 4 and 5, it is not necessary to resolve ground 6 (concerning whether the 2019 distribution was so grotesque as to reveal that the trustee had breached its duty);
(c)grounds 7 and 8 are not made out: the trustee did not give reasons for its decision, and the judge did not err in so concluding or in his treatment of the requirement that the trustee consider the wishes of the guardian;
(d)grounds 9 and 10 are not made out: the breach of trust in failing to give real and genuine consideration to the exercise of the power rendered the distributions made to John, Eva and Michael voidable rather than void, but no order was sought that those distributions be set aside, and no challenge was made on the appeal to the judge’s decision to refuse leave to amend the pleading to seek such relief; and
(e)ground 11 is made out: the trustee ought to be removed, and the judge erred in concluding otherwise.

The trustee and the trust deed

The trustee was registered in Victoria on 30 November 1970. The trust was established by a deed of settlement dated that same day.
Until 30 July 2019, one of the two shares in the trustee was held by Eva and the other held by John. On 30 July 2019, the share held by John was transferred to Michael.
John and Eva were directors of the trustee from its registration until their deaths in 2020 and 2018 respectively.
Paul and Michael were appointed as directors of the trustee on 23 June 1998. They were both removed as directors on 30 March 2013. In the period that they held office as directors, neither Paul or Michael took any part in the management of the trust and did not actually act as directors.
Mr Sampson, who had been John and Eva’s solicitor for many years, was purportedly appointed as a director of the trustee in December 2017. The judge held that appointment to be invalid. However, both parties accepted that Mr Sampson is currently a director of the trustee, by reason of a resolution dated 10 March 2020.[11]
[11]The parties did not agree whether the resolution dated 10 March 2020 ratified the earlier, defective appointment, or whether it appointed Mr Sampson as a director from 10 March 2020. It is not necessary for us to resolve that question.
Michael was appointed a director of the trustee on 20 November 2019.
Clause 1 of the trust deed contains various definitions, including the following:
(1)The ‘Primary Beneficiaries’ mean the person or persons named and described or defined as such in the Schedule;
(2)The ‘General Beneficiaries’ mean the Primary Beneficiaries the brothers and sisters spouses and children of the Primary Beneficiaries the spouses children and grandchildren of such brothers sisters and children and such additional persons (if any) as are named and described or defined in the Schedule as additions to the class of General Beneficiaries and ‘Beneficiary’ means any of the General Beneficiaries;
…
(4)‘the Trust Fund’ means the said settled sum being a sum paid or to be paid by the Settlor to the Trustees upon the execution hereof all moneys investments and property paid or transferred to and accepted by the Trustees as additions to the Trust Fund the accumulations of income hereinafter directed or empowered to be made all accretions to the Trust Fund and the investments and property from time to time representing the said money investments property accumulations and accretions or any part or parts thereof respectively;
…
The schedule to the trust deed defines the primary beneficiaries as the children of John and Eva, with John and Eva being listed as additional members of the class of general beneficiaries.
Clause 3 of the trust deed deals with the annual income of the trust and provides:
(i)The Trustees shall in each accounting period until the Vesting Day pay apply or set aside the whole or such part (if any) as they shall think fit of the net income of the Trust Fund of that accounting period for such charitable purposes and/or to or for the benefit of or for all or such one or more exclusive of the others or other of the General Beneficiaries living from time to time in such proportions and in such manner as the Trustees in their absolute discretion and without being bound to assign any reason therefor (but after considering the wishes of the Guardian) shall think fit;
(ii)the Trustees shall hold so much of the income of the Trust Fund as the Trustees shall not pay apply or set aside pursuant to the powers contained in paragraph (i) of this Clause in trust for the persons successively described in paragraphs (a) (b) and (c) of Clause 4 hereof as though each date on which such income becomes subject to the Trusts hereof were the Vesting Day specified in the Schedule;
(iii)notwithstanding anything contained in paragraphs (i) and (ii) of this Clause the Trustees may determine in their absolute discretion before the expiration of any accounting period prior to the Vesting Day to accumulate all or any part of the income arisen or arising during such period and such accumulation shall be dealt with as an accretion to the Trust Fund;
…
Clause 4 deals with the vesting of the trust. The vesting day is 30 June 2050. Clause 4 provides:
As from the Vesting Day the Trustees shall stand possessed of the Trust Fund and the income thereof in trust for such charitable purposes and/or for such of the General Beneficiaries for such interests and in such proportions and for one to the exclusion of the other or others as the Trustees may with the consent of the Guardian by instrument in writing revocable or irrevocable before the Vesting Day appoint PROVIDED ALWAYS that the Trustees shall not without such consent revoke any revocable appointment AND PROVIDED FURTHER that if there is no Guardian alive the Trustees shall have no such power of appointment and in default of and subject to any such appointment in trust –
(a)for such of the Primary Beneficiaries as shall be living on the Vesting Day and attain the age of twenty-one years as tenants-in-common in equal shares absolutely PROVIDED ALWAYS that the children (if any) who shall be living on the Vesting Day of any Primary Beneficiary who dies before the Vesting Day (and the descendants of any of such children or the children of such children who dies before the Vesting Day) shall take as tenants-in-common a share calculated per stirpes which such deceased Primary Beneficiary would have received had he or she survived to the Vesting Day;
(b)if in the events which happen or if for any reason whatsoever any part or parts of the Trust Fund shall not be effectively or validly disposed of by the trusts declared by this Deed or by any Deed from time to time in force varying altering or adding to such trusts the Trustees shall stand possessed of such part or parts of the Trust Fund as aforesaid for the statutory next of kin (excluding the Settlor) who are according to law next of kin of the Guardian first named in the Schedule who are living when the same falls or fall into possession as tenants-in-common in equal shares absolutely and if there shall be no such next of kin upon trust for such charitable purposes as the Trustees may determine any resulting trust to the Settlor being hereby expressly negatived;
…
Clause 17 relevantly provides that, subject to any express provision to the contrary, ‘every discretion vested in the Trustees shall be absolute and uncontrolled and every power vested in them shall be exercisable at their absolute and uncontrolled discretion’.
Clause 22 gives power to the appointor to remove the trustee and appoint additional trustees as follows:
The Appointor and if there is no Appointor living the legal personal representatives of the last surviving Appointor shall be entitled by instrument in writing at any time and from time to time –
(a) in his her or their absolute discretion to remove any Trustee hereunder or of the Trust Fund;
(b) to appoint any additional Trustee or Trustees hereunder or of the Trust Fund;
…

The judge’s reasons

By the time of trial, both John and Eva had died. An affidavit of John was admitted into evidence. Michael, Paul, Deborah, Mr Sampson and the trustee’s accountant, Daniel Dexter, gave evidence in the trial.

Variations to the trust deed

Although not the subject of a proposed ground in this Court, it is convenient to refer to the various variations to the trust deed that the judge held were invalid.
As already noted, the discretionary power to appoint income in each accounting period is expressed in unconstrained terms, but is subject to the express requirement that the trustee first consider the wishes of the guardian. To that extent, the guardian has an influence in the exercise of the power. Further, by cl 22 of the trust deed, the appointor has significant control over the trust through the power, expressed as an ‘absolute discretion’, to remove the trustee. Under the trust deed, John was appointed as both the guardian and appointor. On his death, Eva would assume each office.
There were three purported variations to the deed addressing the identity of the guardian and appointor: in 2002, 2010 and 2017. On the assumption that each was a valid alteration, the judge described their effect as follows:
(a)the effect of the 2002 variation was that John and Eva were appointed to each role jointly and in the event of the death of either of them, the survivor, together with Paul and Michael, and then Paul and Michael together in the event of the death of both John and Eva;[12]
(b)the effect of the 2010 variation was that John and Eva would no longer jointly be guardian and appointor and instead John would be both guardian and appointor with Eva holding those positions after his death, and then Michael holding them after the death of both Eva and John;[13]
(c)the effect of the 2017 variation was to appoint Michael as guardian and appointor (and after his death, his legal personal representative) instead of those positions being held by John and then, after his death, Eva, and then Michael after the death of both John and Eva.[14]
[12]Reasons, [20].
[13]Ibid [23].
[14]Ibid [25].

Although the variations were held to be invalid and those findings are not challenged, the judge’s findings as to the impetus for the 2010 variation is relevant. The judge noted that the 2010 variation was prepared by Mr Sampson at Eva’s request. Eva provided instructions in relation to it at a meeting with Mr Sampson on 16 April 2010. Michael also attended the meeting. Mr Sampson’s evidence, accepted by the judge, was that Eva said that Deborah had ‘cut herself off’ and that Eva’s instructions were that Deborah was not to have any involvement in decision-making with the trust.[15] Eva’s instructions were also that Paul was to be removed as a ‘successor’ guardian and appointor because she was unhappy with some of his business dealings and that he ‘had big ideas’. She instructed that Michael was to remain as the only ‘successor’ guardian and appointor. The judge noted this was consistent with John’s evidence that he intended that Michael would become the person with the power to control who would be the trustee of the trust when he and Eva passed away.
[15]Ibid [130].
The judge held that each purported variation was invalid on the basis that the trust deed did not give a power to the trustee to amend the description of the persons identified as guardian and appointor.[16] A number of other alternative challenges to the variations were rejected by the judge and, save for one matter, it is not necessary to refer to them. The 2017 variation was signed by John and Mr Sampson on 15 December 2017. Mr Sampson signed in his purported capacity as a director of the trustee. Mr Sampson had, on the previous day, been appointed as a director by a resolution made by John and by Michael as attorney for Eva. The judge held that Michael was not registered as a member in respect of Eva’s share in the trustee and therefore could not vote on her behalf to appoint Mr Sampson. For that reason, Mr Sampson was not validly appointed as a director.[17]

Distribution of trust income

[16]Ibid [92].

[17]Ibid [152]–[153].

At trial, the first ground of attack on the annual distribution of trust income was that the trustee had not made a resolution in each year. Largely, that attack was made on the basis of an absence of records. The judge rejected that challenge. In doing so, he accepted the evidence of Mr Dexter, the trustee’s accountant and tax adviser, who gave evidence that in each year as 30 June approached, he would speak with Eva who provided instructions as to the distributions, and that she would usually tell Mr Dexter the percentage distributions to be recorded in the minute of income distribution. The judge accepted that the trustee had resolved to distribute the income in each year as reflected in the financial statements. In part, that conclusion relied on the prima facie presumption in s 1305 of the Corporations Act 2001 (Cth).[18]

Real and genuine consideration ground

[18]Ibid [195].

The judge commenced this part of his reasons by recording that during the relevant period, the trustee did not make any enquiry of either Paul or Deborah as to any need they may have for a distribution of income. He noted that it was the trustee’s case that in the relevant years the trustee was informed about Paul and Deborah’s circumstances through the knowledge which the directors of the trustee had, which knowledge was imputed to the trustee.

Paul’s circumstances

Paul graduated from university in 1983 and worked in the finance industry in Australia and overseas. He returned to Melbourne in 1993 and then moved to New South Wales in September 2013 to operate a food business.
Paul was financially independent from his parents and established a business in 1994, without financial assistance from John and Eva. In 2007, his parents gave him $100,000 to pay legal expenses connected with a divorce and, in 2008, Eva gave him around $100,000 for ‘looking after the family’.
Between 1993 and 2013, Paul visited his parents for lunch on most Saturdays and occasionally saw his father on a Tuesday or Wednesday. Paul’s evidence was that he had a close relationship with both John and Eva until 2010, a good relationship with John until 2013 and a ‘somewhat distant relationship’ with Eva between 2010 and 2013, but one in which he remained in contact with her. John’s evidence was that their relationship was ‘reasonable’.
When he visited John and Eva, Paul spoke to them generally about what was going on in his life. He gave evidence that the period between 2010 and 2013, when he was looking to purchase a business, was a ‘difficult time’. He stated that John and Eva were ‘very aware of exactly what I was doing because I’m very open that way’.
Paul said that he had discussed the trust with his father and had told him that he wanted to know more about the trust and its structure. In early 2013, Paul’s request for a copy of the trust deed and his enquiries about the assets of the trust went unanswered. This prompted him to write a letter on 13 March 2013 addressed to ‘The Trustees of The Owies Family Trust’ under the subject ‘The Owies Family Trust and other serious issues’. The judge summarised the letter as follows:
In the letter, Paul referred to his repeated attempts to have family meetings to discuss ‘administrative issues’ of the trust ‘and other associated family matters’ and the refusal of family members, other than Deborah, to hold any such discussions. He had therefore decided to put in writing his concerns about what he described as ‘alleged serious breaches by the trustees of trust duties’. By this, he was mainly referring to what he described in his evidence as ‘transparency and silence’. Paul gave the trustee the following three alternative courses of action.
(a) That he be appointed as trustee of the trust. He referred to John having ‘informally admitted’ on 10 March 2013 that Michael had been made a trustee of the trust about a year before. Paul stated that Michael was not a fit and proper person to hold office as director or trustee of the trust because he ‘has engaged in conspiracy and has seriously breached administrative trust duties’. He detailed various serious allegations against Michael. Paul also expressed his ‘serious concerns’ that Eva has been involved ‘in conspiracy and various serious breaches of administrative trust duties’ and therefore must resign as trustee of the trust and/or as a director of the trustee company.
(b) That he ‘apply to the courts of Victoria’ for, amongst other things: Eva and Michael ‘to be removed as trustee of The Owies Family Trust for alleged conspiracy and serious breaches of trustee responsibilities’; for Michael to be criminally prosecuted; and for him to be appointed as trustee of the trust.
(c) That a financial settlement be reached between him and the ‘trustees’ providing for compensation for Michael’s alleged ‘criminal activity’ and ‘[l]oss of future financial benefits from The Owies Family Trust’.[19]
[19]Ibid [214].
Mr Sampson responded by letter dated 3 April 2013 on his firm’s letterhead, identifying his clients as ‘your parents’. On their behalf, he denied the allegations and informed Paul that on 30 March 2013, he and Michael had been removed as directors of the trustee at a meeting of shareholders and that John and Eva continued as directors of the company. Until this time, Paul had been unaware that he was a director of the trustee.
Paul had no contact with his parents between January 2014 and October 2016.
On 22 October 2016, Paul sent his parents a letter with some updates on his life and telling them he was chief executive officer of Wallaby Foods. We note that later in his reasons, the judge did not accept that any meaningful insight on Paul’s circumstances could be gleaned from this letter.[20]
[20]Ibid [321].
On 30 November 2016, Paul met with his father who was then living in an aged care facility, ‘Arcare’. John had moved to Arcare in May 2015. John told Paul that Eva had suffered a heart attack and Paul visited his mother that day.
On 9 December 2016, Paul’s solicitors sent a letter to Michael requesting specific information in relation to John and Eva and that he be provided with a copy of the trust deed and the accounts of the trust. That request was refused in a letter from Mr Sampson on behalf of John and Eva dated 10 January 2017. The trust documents including the trust deed were not provided to Paul until November 2017.
Paul met with Eva at her home on 20 January 2017 for about an hour and a half. They spoke about what Paul had been doing and family matters. They did not speak about the trust.
Paul did not see Eva again until about July 2017, after he discovered that she had suffered a stroke on 24 January 2017 and had moved into Arcare. When he visited Eva at that time, she was unable to speak. Paul was unsure if he was able to communicate with her.

Deborah’s circumstances

The judge summarised Deborah’s circumstances in the following way:
Deborah has had numerous medical conditions and as a consequence has been unwell for much of her adult life.
In about 1980, while she was still a medical student at university, Deborah was diagnosed with lupus. In about 1990, she was diagnosed with Crohn’s disease, which was disabling until she commenced a new treatment in about 2000. The lupus and Crohn’s disease have generally been managed since that time.
In 2011, Deborah had a knee replacement after which she developed various complications which required ongoing management. In 2012, she developed problems with her spine which ultimately resulted in her having to undergo spinal surgery. In 2013, she was diagnosed with rheumatoid arthritis, as a result of which she underwent surgery to her left hand and had a left foot reconstruction in 2014. The treatment she receives for her arthritis prevents Deborah from working full-time.
In 2017, Deborah suffered hypertension and in 2019 she underwent a revision of her left knee replacement. Deborah also has multiple skin malignancies caused by the medication she takes. Before October 2019, she took 18 medications on a daily basis to treat her various medical conditions.
In October 2019, Deborah was diagnosed with primary liver cancer and drug-induced hepatitis. On 20 November 2019, she had half of her liver removed.
Deborah also suffers from developmental trauma. She saw a psychiatrist twice a week from 1989 until 2006 and was then treated by an analyst three times a week for the following nine years. She currently attends her analyst once a week.
Deborah is a medical doctor and works as a consultant. In about 1994, after she was diagnosed with Crohn’s disease, Deborah decided to work part-time, because she could not manage full-time work. It would appear that she has not since returned to full-time work, other than perhaps for short periods. She currently has three jobs with very limited numbers of hours per week. She also maintains a private practice in which she sees two or three patients on Saturday mornings.
Between 2013 and 2017, Deborah’s taxable income was in the range of between $39,000 and $44,000 per annum. It was less in previous years.
Over the last 13 years, Deborah’s medical expenses have exceeded $20,000 per annum. I accept her evidence that, given her modest income and her substantial medical expenses, as well as the cost of her psychotherapeutic treatment, she has had little disposable income over the last 13 years.
Deborah has lived in the same apartment in Rockley Road, South Yarra (the South Yarra apartment) since 1984 when she was 26 years of age. The apartment is owned by the trustee which purchased it shortly before Deborah moved into it.
Deborah paid rent on the apartment of $55 per week from when she moved into the South Yarra apartment until 2006. In that year, Eva agreed to Deborah’s request that she no longer pay rent because of increased expenses she was to incur for her analyst. Deborah has not since paid rent on the South Yarra apartment.
Deborah was estranged from Eva from 1986 until 1998. During that time, Deborah chose not to have face-to-face contact with her mother, although she still sent Eva birthday cards and presents. They also occasionally spoke on the telephone including about Deborah’s health, her work and the effect her health was having on her income.
Deborah reconnected with Eva in 1998 after Eva was diagnosed with breast cancer. After that time, there were still periods when Eva and Deborah would not see each other for a year or two (although they would communicate in person or by phone at least once a year during which they would discuss Deborah’s health). However, Deborah and Eva also had periods of reconnection (being in 2006, 2009, 2011 and 2012), when they saw each other every week or fortnight. In those periods, they discussed Deborah’s health and that she was only working part-time.
In 2006 and 2009, Deborah asked Eva whether she would be willing to contribute to the cost of the psychotherapeutic assistance she was receiving. Eva declined Deborah’s request. These were the only occasions when Deborah asked Eva for assistance for payment of her medical expenses, including for psychotherapy.
In about 2009, Eva offered to buy Deborah a new car. Deborah declined the offer, but accepted $6,000 from Eva, being half the cost of the second hand car Deborah was in the process of purchasing.
In 2010, Deborah received a gift of $240,000 from her friend and her friend’s husband. Deborah may have mentioned to Eva in 2012 that a good friend had given her some money, although she could not recall whether she told Eva of the amount. Deborah has used these funds sparingly to meet her expenses which exceed her income. She still has about $120,000 of the gift which she has not spent. Since receiving the gift, Deborah did not make any requests of John or Eva for payments of money.
In 2011, Eva wrote Deborah a card while she was in hospital and gave her $5,000 which Deborah used to pay for her analyst.
In 2013, Eva paid for venetian blinds at the South Yarra apartment to be replaced. Deborah wrote Eva a letter to say that the blinds had arrived and to tell ‘her a bit about my medical problems and the tulips in Tasmania’ where she had done a locum to earn some extra money.
Deborah was also estranged from John from 1994 until about 2012, during which time Deborah decided not to have any contact with him. They had lunch together a few times in 2012 and Deborah saw John in hospital in 2013. They did not have contact again until 2017 when John was at Arcare. Deborah was concerned about Michael’s apparent control over Eva’s diet and saw John at Arcare about three times.
In May 2004, Deborah wrote to John telling him, in relation to the South Yarra apartment, that the kitchen sink was leaking and in need of repair. In his letter in response dated 29 May 2004, John stated that the problem was ‘most neglectful’ on Deborah’s part and that, ‘[u]nder these negligent circumstances, kindly have that fixed up as soon as possible’, stating that ‘the repair is wholly your responsibility’. Deborah attended to the repair of the pipes.
On 15 April 2019, the trustee resolved to make a capital distribution to Deborah of the South Yarra apartment. The following day the trustee offered to transfer the apartment to Deborah. Photographs of the apartment which were in evidence show it to be in need of various repairs. It is valued at between $720,000 – $760,000.
Deborah, through her solicitors, accepted the above offer in a letter dated 25 June 2019. Deborah sought confirmation that the costs associated with the transfer would be paid by the trust and noted that she would obtain a condition report to document the required repairs to the property to bring it to a ‘habitable state’. Deborah’s solicitors also stated that, by accepting the distribution, Deborah did not concede any rights in relation to the current proceeding, or in relation to any family provision claim, and requested a confirmation from the trustee that the trustee would not deal with any other asset of the trust pending resolution of this proceeding.
In his evidence, Mr Sampson characterised the letter of 25 June 2019 as a ‘bad-tempered, ungracious response’ which ‘grumbled’ about the condition of the South Yarra apartment.
As at the trial of this proceeding, the South Yarra apartment had not yet been transferred to Deborah. Mr Sampson gave evidence that the new PEXA process and associated stamp duty requirements are onerous and has resulted in a much slower process. He did however accept that this process should have been commenced earlier. Mr Sampson rejected the proposition that the lengthy period between the offer of the apartment and its acceptance was an attempt to put pressure on Deborah. He gave evidence that he was still waiting for a condition report and a statutory declaration from Deborah in relation to the stamp duty exemption to complete the transfer. Mr Sampson stated that any challenge to his directorship of the trustee company could result in further delay.[21]

The distributions

[21]Ibid [224]–[247].

As already noted, for each of the financial years in and between 2011 and 2018 inclusive, the trustee distributed the trust’s income in the following proportions: 40 percent to John; 40 percent to Michael; and 20 percent to Eva. Mr Dexter’s evidence was that Eva generally received a lower percentage of the trust’s income because she had ‘significant other income including a large share portfolio in her own name pursuant to which she received income’.[22]
[22]Ibid [259].
The resolution for 2018 was made at Arcare where both John and Eva were then living. Mr Sampson also participated in his purported role as director. The minutes record a distribution that reflected the ratios that had been adopted in previous years. It was also determined that the rent on the South Yarra apartment and another of the trust’s properties were to remain unaltered for the 2017–18 and 2018–19 financial years. The minutes were drafted by Mr Sampson and signed by John.
As at the end of the 2018 financial year, Eva and John both had substantial loan accounts in the trust. Eva’s loan account contained $4,568,742.25, while John’s contained $3,837,636.82.
On 17 June 2019, the trustee made an income resolution which distributed the whole of the trust’s income for the financial year ending 30 June 2019 of nearly $1 million to John. By this time, Eva had died and John was living at Arcare. He had limited needs and had very substantial assets personally available to him, including the abovementioned loan account worth several million dollars.
About a week before it made the 2019 income resolution, the trustee was notified that Deborah intended to make an application under Part IV of the Administration and Probate Act 1958 for further provision from Eva’s estate, which was valued at approximately $9.8 million.
The 2019 income resolution included a statement that John and Michael ‘to any and all extent necessary confirm their agreement to the above resolution’, which was signed by John and Michael.[23] Mr Sampson drafted the resolution. Michael had been appointed the guardian of the trust pursuant to the 2017 variation. Mr Sampson’s evidence was that the meeting went for no more than 15 minutes.

The judge’s conclusions on the real and genuine consideration ground

[23]Ibid [258].

After setting out the parties’ competing submissions and the applicable principles in conspicuous detail, the judge arrived at his conclusions on the real and genuine consideration ground.
He commenced by noting three general matters. First, the relevant issue had to be assessed for each year individually as at the end of each accounting period, but recognising that there may be issues common to more than one year. Second, in order to assess whether the trustee gave real and genuine consideration to the objects in each year it was necessary to appreciate the information that was available to it at that time, and without the distortion of information acquired subsequently. The judge observed that this was not a straightforward matter given that the knowledge which the trustee had at any particular time was the sum of the knowledge which it previously accrued. Third, to the extent the trustee had knowledge, it was through the knowledge held by John and Eva and which was gained in the context of a complex family relationship, where relations were strained and there were significant periods of estrangement. The judge allowed for the possibility that information could be imparted to John and Eva indirectly.

The judge concluded that the trustee ‘through John and Eva’ was well informed about Paul in 2013 and 2014.[24] The judge referred to Paul’s evidence as to regular contact and that John and Eva ‘were very aware of exactly what I was doing because I’m very open that way’.[25] The judge then noted the two and half year gap in contact until October 2016, and a resumption of regular contact, with some 10 visits between October 2016 and May 2018. In relation to 2019, the judge said that although there was no evidence of contact between Paul and his parents, the trustee had information about Paul’s circumstances (and various complaints) from the contents of the Originating Motion, supporting affidavits and Statement of Claim which were served on it soon after 29 November 2018.
[24]Ibid [320].
[25]Ibid [319].
In relation to Deborah, the judge noted the periods of rapprochement between Deborah and her mother in 2006, 2009, 2011 and 2012 but also observed that the relationship was complex and characterised by lengthy periods of estrangement. The judge concluded, based on some sporadic contact between Deborah and her mother in which Deborah told Eva about her medical problems and that she was working in Tasmania to earn some extra money, that the trustee was generally informed about Deborah’s circumstances in 2013.[26]
[26]Ibid [326].
The judge reached the same conclusion in relation to 2014, based on the temporal proximity of the earlier communications and the regular communications between Paul, John and Eva until September 2013 in a period when Paul and Deborah maintained a good relationship. The judge found that it was more likely than not that Paul would have conveyed at least some information about Deborah’s circumstances to Eva and/or John.
As his Honour had done in respect of Paul, the judge found no evidence that the trustee received information about Deborah in 2015 and 2016.[27] He considered that the trustee had ‘some information’ about Deborah in 2017, finding that such information would likely have come from Deborah herself from one of her visits to see John in Arcare in 2017 and also indirectly through Paul who also visited John a number of times in this period. The judge said that the trustee had no information about Deborah in 2018. In respect of 2019, he said that the trustee received information about Deborah’s circumstances (and various complaints) from the Originating Motion, supporting affidavits and the Statement of Claim which were served on it after 29 November 2018.[28]
[27]Ibid [329].
[28]Ibid [332].
Having set out the information to which the trustee had access in relation to each of Paul and Deborah, the judge next noted that there was little evidence as to the trustee’s reasons for the distributions that it had made. In doing so, the judge rejected a submission from the applicants that the trustee had disclosed its reasons and that therefore the Court could assess their adequacy.[29] The applicants had relied on Michael’s hearsay evidence that Eva had told him that she was of the view that Deborah was a ‘spendthrift’ and would not properly manage any money distributed to her from the trust. Second, Eva told Mr Sampson that Deborah had ‘cut herself off’ from the family. Third, in relation to the trust’s income distribution in 2019, Mr Sampson’s evidence was that the reason all of the trust’s income for that year was distributed to John was because John wanted it.[30] The judge was not persuaded that this evidence recorded the trustee’s reasons, as the evidence attributed to Eva related to 2010 and that which related to 2019 mischaracterised the evidence given by Mr Sampson as to what had happened in 2019.
[29]Relying on Karger v Paul [1984] VR 161,165–6 (McGarvie J) (‘Karger’).
[30]Reasons, [269].
Based on these findings, the judge concluded that the trustee did not take an informed view of whether or not to exercise the discretion in 2015 and 2016 in respect of Paul and Deborah and in 2018 in relation to Deborah only. He said that it was striking that there was no evidence that the trustee received any information at all about either of Paul or Deborah’s circumstances in 2015 or 2016 (or Deborah’s circumstances in 2018), particularly given that the trustee knew there were only three other potential objects of the exercise of the trustee’s discretion. The judge said that although the trustee, through John and Eva, held knowledge about Paul and Deborah’s circumstances at earlier periods, those circumstances could not be assumed to be unchanging and the absence of any enquiries of Paul or Deborah supported his conclusion.[31]
[31] Ibid [339], [341].
The judge said that given the failure to give due consideration to the position of Paul and Deborah in its decision as to whether to make a distribution, it was unnecessary for him to determine whether, as the applicants had submitted, the 2018 resolution was ‘grotesquely unreasonable’.[32] However, he said that he would not have upheld that submission with respect of either 2018 or 2019. He accepted that given their living arrangements in Arcare, advanced age and very large loan accounts with the trustee, neither John nor Eva had a need for the distributions (which were loaned back to the trustee), but concluded that the absence of need did not prove, without more, that the discretion miscarried. He said:
The apparent appeal of this analysis lies in the disjuncture between John and Eva’s needs and the resources available to meet them. However, in circumstances where the trustee’s discretion to distribute income was limited only by the requirement to consider the wishes of the Guardian (about which there was no evidence), the adoption of a needs-based analysis is, without more, insufficient to properly ground an inference that the discretion miscarried. Further, it is not merely an unreasonable result which may be evidence of a miscarriage of duty, but one which is grotesquely unreasonable. In the context of the relevantly absolute and unfettered nature of the trustee’s discretion under sub-cl 3(i) and where Deborah received the benefit of living at the South Yarra apartment rent-free for many years, I do not consider that the result of the exercise of the trustee’s discretion in 2018 can be so characterised.
Although the result of the trust’s income distribution in 2019 on its face appears to be more unreasonable than the distribution in 2018, I am unwilling to infer that the trustee failed to exercise its discretion upon real and genuine consideration of Deborah and/or Paul’s circumstances. There are two matters of principal significance. First, as I have noted, the trustee was on notice of Paul and Deborah’s circumstances by the service on it of the originating motion and supporting affidavits in this proceeding. Secondly, two months before the trustee made the income resolution for 2019, it resolved to make a capital distribution to Deborah of the South Yarra apartment which was worth $720,000. Mindful that it is not the task of the Court to examine the wisdom of the trustee’s exercise of discretion, including the appropriateness and sufficiency of its enquiries or information, these matters, together with the breadth of the trustee’s discretion under sub-cl 3(i), lead me to conclude that Paul and Deborah have not discharged the onus on them of establishing that the exercise of the discretion in 2019 miscarried.[33]

Application to remove the trustee

[32]Ibid [342].

[33]Ibid [344]–[345] (emphasis in original).

The judge referred to the applicable principles by reference to a number of well-known authorities.[34] He noted that a trustee may be removed where a breach of trust or neglect of duty[35] or a lack or impartiality[36] demonstrates that the trustee is unfit to continue, and that the power of removal is informed by the best interests of the beneficiaries.[37]
[34]Monty Financial Services Ltd v Delmo [1996] 1 VR 65 (‘Monty’); Miller v Cameron (1936) 54 CLR 572; [1936] HCA 13 (‘Miller’).
[35]Monty [1996] 1 VR 65, 81 (Ashley J).
[36]Nicholls v Louisville Investments Pty Ltd (1991) 10 ACSR 723, 728 (Needham J) (‘Nicholls’).
[37]Miller (1936) 54 CLR 572; [1936] HCA 13.
Before the judge, the applicants relied on the trustee’s failure to give them due consideration, together with a number of incidents or events that they submitted demonstrated a lack of impartiality and inability to fairly and properly consider their interests. As already noted, the judge found a failure to give due consideration in three of the relevant years. It is convenient to refer to the factual and other matters relied on by the applicants to support the order for removal of the trustee.

Invalid variations to the trust deed.

The applicants submitted that Mr Sampson was the author of the variations which the judge found had been made in breach of the trust deed and this reflected on his ability and competence to properly administer the trust.

The transfer of the South Yarra apartment to Deborah

Deborah lived in an apartment in South Yarra that was trust property. She paid rent until 2006 but stopped paying with Eva’s agreement due to the cost of paying for her medical expenses. The evidence disclosed that the apartment was in a state of disrepair, and in 2004 this had led to some caustic correspondence from John who told Deborah that she had been most neglectful. On 15 April 2019, the trustee resolved to make a capital distribution to Deborah of the apartment then worth around $720,000 to $760,000. The conveyance did not proceed quickly. The distribution was couched in terms that apparently required Deborah to accept it. Her solicitors wrote seeking confirmation that the trustee would pay for the conveyance of the apartment and bring the property into a ‘habitable state’. Mr Sampson regarded this letter as ‘grumbling, bad-tempered and ungracious’.[38]

The relationship between Michael and his siblings

[38]Reasons, [246]–[247], [364(a)], [386].

Although not particularly close, Paul and Deborah had a good relationship between 2010 and when Paul left Melbourne in September 2013. They spoke, to a limited extent, about Deborah’s life, including her ill health, her financial position, her part-time work and residence in the South Yarra apartment. They did not generally speak about ‘business matters’. They maintained a reasonable relationship after 2013.
In 2002, Deborah ceased her relationship with Michael after he told her that he had purchased a property in the same street as the South Yarra apartment in which she lived. Her evidence was that she was ‘terribly upset by this because at the time [she] was a bit frightened of Michael because of things that had happened in the past’. They resumed their relationship a ‘few years’ later. Deborah discussed her health with Michael and the fact that she worked part-time.[39]
[39]Ibid [250].
Since 2012, the contact between Michael and Deborah was limited to when John was in hospital in 2013 and when Eva was in Arcare in 2017.
On 5 December 2019, Deborah had returned home from hospital after undergoing surgery to remove part of her liver. Her evidence was that she received several silent phone calls which made her feel anxious. Michael’s evidence was that he telephoned Deborah once and did not speak when she answered the phone. He denied making more than one call. He gave evidence that he called Deborah because he had been told that she was in hospital which he did not believe to be true. Although he did not intend to be threatening in making the call and rejected the proposition that he was hostile towards Deborah, Michael accepted in his evidence that he could see how his call might be interpreted as threatening.[40] Paul and Deborah submitted that Michael’s evidence, including his demeanour, which established that he made a silent phone call to Deborah after her release from hospital, gave no confidence that, as a director of the trustee, he would give appropriate consideration to Deborah’s circumstances and approach his task impartially in the future.
[40]Ibid [364(b)].
Paul and Michael had a reasonable relationship until about March or April 2010, meeting regularly for coffee. They have, however, had very little contact since March or April 2010, when Michael told Paul that he could not see or speak to him again.

Difficulty in accessing trust documents

Paul requested a copy of the trust deed and accounts for the trust in December 2016. This request was initially refused in a letter from Mr Sampson and ultimately not satisfied until November 2017.[41] Mr Sampson said that he knew of the beneficiary’s entitlement to be provided with a copy of the trust deed and accounts but he followed Eva’s instructions to refuse to comply with the request. Eva was not then a director of the trustee.

The proposal to alter the trust deed

[41]Ibid [221], [364(c)].

On 14 December 2017, Mr Sampson prepared a document setting out his proposal in relation to the trust that would have cemented Michael’s position. The proposal was prepared on Mr Sampson’s own initiative and was provided to John and Eva. It was as follows:
Proposal for the Owies Family Trust.
Control of the trust rests with the appointor and guardian of the trust.
The trust deed (as amended) appoints as appointor and guardian:
1.       Dr John Owies
2.       Upon his death Dr Eva Owies
3.       Upon the death of both John and Eva then Michael Benjamin Owies
The appointor has control because he or she may remove the trustee (JJE Nominees) and appoint a new trustee.
At present Dr John Owies has capacity, and is in effective control of the trust.
However, I propose (and this has the approval of [named barrister]) that the trust deed be amended to appoint Michael as appointor and guardian now.
The reason is that if Dr John Owies in the future loses decision making capacity there will be a vacuum in who can control the trust. Further, if Dr John Owies dies it may be difficult for Dr Eva Owies to carry out this function, and if her affairs in the future are handled by someone else they may seek control of the trust.
Dr Eva Owies told me before her stroke that she trusts Michael 110%, and he is the only one to divide family assets fairly.
If that is the view of you both then I recommend this proposal.
This would put Michael in control of the trust, but you both have significant loan accounts which are your own personal property. You could demand repayment of the loans at any time if you felt the trust was not being managed in a manner of which you approved. You also have significant assets outside the trust, being a joint freehold property, and Eva’s share portfolio.
I have not discussed this proposal with Michael, and I would be pleased if you did not discuss it with him before you make a decision. The reason is that I do not want Michael to have any influence on your decision. I do not want the other family members to allege there was any undue influence by Michael. If he doesn’t know of the proposal he can have no influence at all.
Regards,
Neville Sampson.

The judge’s decision on removal

Based on the matters advanced by the applicants, the judge expressed reservations about the suitability of the trustee continuing in office, but concluded that they were ‘not of such a degree and character to cause me to lose confidence in the trustee’s future administration of the trust having regard to the interests of the beneficiaries, the security of the trust property, the proper execution of the trust and the faithful and sound exercise of the powers conferred on the trustee.’[42]
[42]Ibid [376] (emphasis in original).
It is plain from his reasons that the judge’s assessment of the suitability of the trustee was forward looking. In that respect, an important aspect of the judge’s reasoning on this issue was that the trustee was controlled by its directors and that the natural persons who were in control when a number of the issues arose, namely John and Eva, were no longer alive.
The judge noted that Michael was not involved in the variations to the trust deed. Mr Sampson was involved but the judge found that in relation to these matters, he acted in good faith on matters that were not free from complexity.[43]
[43]Ibid [378]–[379].
In relation to the breaches of trust, constituted by a failure to give due consideration to the interests of the applicants, the judge noted that these related to 2015, 2016 and 2018, and that with the passing of John and Eva ‘it is the breach in 2018 that is of particular significance.’[44] He found that Mr Sampson was involved that year and this was a matter which weighed in favour of the trustee’s removal. However, he said that the significance of that matter was diluted by the fact that there had been no breach of duty established for 2019. On that score, the judge said:
The significance of this failure on the question of removal is however diminished by two factors. First, my rejection of the claim that the trustee failed to give real and genuine consideration to Paul and Deborah in determining income distributions in 2019 indicates that the trustee’s failure in 2018 has not continued into the period of Michael and Mr Sampson’s directorships. Secondly, it is of particular significance that, in April 2019 when Mr Sampson purported to act as a director of the trustee together with John, the trustee resolved to make a capital distribution of the South Yarra apartment to Deborah. In light of this fact, there is no proper basis to find that there is a real risk or likelihood that the trustee will not make further discretionary distributions of capital or income to Deborah.[45]
[44]Ibid [380].
[45]Ibid [381].
The judge also regarded the capital distribution of the South Yarra apartment to Deborah as significant. He added that he found many of the complaints made by Paul and Deborah about Michael and Mr Sampson’s claimed lack of impartiality were not supported by the evidence, of minor significance or overstated.[46]
[46]Ibid [382].
The weight to be attached to any failure to provide trust documents to Paul was, in the judge’s mind, diminished by the fact that they had occurred before Michael and Mr Sampson had commenced acting as directors and that the cause of the refusal was the instructions given by Eva which, the judge thought, reflected adversely on her rather than on Mr Sampson’s views about the duties of a trustee.
The judge concluded:
Although some criticisms can properly be levelled at Mr Sampson about his approach to and discharge of his duties as a director of the trustee, their significance on the question of removal should not be overstated, particularly as I do not accept that his evidence disclosed fundamental misunderstandings on his behalf about the duties of trustees. In particular, Paul and Deborah’s reliance upon a statement by Mr Sampson that ‘control of the trust assets rests with the appointor and guardian’ is taken out of context and ignores Mr Sampson’s evidence on this topic in cross-examination.
I do, however, accept that, viewed in isolation, some of the specific complaints advanced by Paul and Deborah in support of the claimed lack of impartiality do provide a proper basis for concern about the capacity of Michael and Mr Sampson to discharge their duties impartially. Mr Sampson’s characterisation of Deborah’s solicitor’s acceptance of the transfer of the South Yarra apartment as being ‘grumbling’, bad-tempered and ungracious, does not speak of a moderate and detached attitude by a trustee towards a beneficiary. Similarly, his refusal for the trust to pay Deborah’s legal costs for the conveyance of the apartment which he considered could be as little as $500 might be said to confirm a lack of impartiality on his behalf. In relation to Michael, his conduct in making at least one silent phone call to Deborah after her release from hospital is conduct which, looked at in isolation, is not fitting of a person charged with administering a trust for the benefit of persons including Deborah and does legitimately give rise to a concern about his capacity to impartially discharge his office as a director of the trustee.[47]
[47]Ibid [385]–[386] (citations omitted).

On that basis, no order was made removing the trustee.

The real and genuine consideration grounds: issues 1 and 2

The applicable principles on the duty to give real and genuine consideration

The trust deed provides a power to distribute the net income in each accounting period. The terms of the trust deed make it plain that the discretion is broad, with cl 17 describing the discretion as ‘absolute and uncontrolled’. Despite the breadth of the language used, it may be accepted that the discretionary power is not without bounds.
A trustee in the exercise of its fiduciary discretions is under constraints that do not apply to adult individuals disposing of their own property.[48] In Scott v National Trust for Places of Historic Interest or Natural Beauty,[49] Robert Walker J said:
Certain points are clear beyond argument. Trustees must act in good faith, responsibly and reasonably. They must inform themselves, before making a decision, of matters which are relevant to the decision. These matters may not be limited to simple matters of fact but will, on occasion (indeed, quite often) include taking advice from appropriate experts, whether the experts are lawyers, accountants, actuaries, surveyors, scientists or whomsoever.[50]
[48]Pitt v Holt [2013] 2 AC 108, [10]; [2013] UKSC 26 (Lord Walker) (‘Pitt’).
[49][1998] 2 All ER 705.
[50]Ibid 717.
The constraints that are imposed on trustees also find reflection in the principles that the courts must apply in reviewing decisions of trustees, especially those that are broadly cast discretionary decisions. Those principles involve a very high degree of restraint, lest the court be seen to substitute its own decisions for those properly left to the trustee.
As will appear, some of the authorities in this area employ language that is similar to that employed in public law: relevant considerations,[51] proper and genuine consideration,[52] and whether a decision is valid, void or voidable.[53] However, the similarities are superficial: the premise on which legislation is enacted[54] and public law decisions are to be made[55] does not find any ready analogy with deeds of settlement. The relevant power is private in nature and the relief equitable, based on equitable doctrine. Judicial restraint however, remains a hallmark of both areas of law.
[51]Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24; [1986] HCA 40.
[52]Khan v Minister for Immigration and Ethnic Affairs [1987] FCA 713. See also Bondelmonte v Bondelmonte (2017) 259 CLR 662, 672 [29], 675 [43] (Kiefel, Bell, Keane, Nettle and Gordon JJ); [2017] HCA 8; Minister for Immigration and Citizenship v SZJSS (2010) 243 CLR 164; [2010] HCA 48.
[53]Cf jurisdictional error in public law: Craig v South Australia (1995) 184 CLR 163; [1995] HCA 58; Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28.
[54]Coco v The Queen (1994) 179 CLR 427; [1994] HCA 15.
[55]Minister for Immigration and Citizenship v Li (2013) 249 CLR 332; [2013] HCA 18.
In Karger, McGarvie J said:
In my opinion the effect of the authorities is that, with one exception, the exercise of a discretion in these terms will not be examined or reviewed by the courts so long as the essential component parts of the exercise of the particular discretion are present. Those essential component parts are present if the discretion is exercised by the trustees in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred. The exception is that the validity of the trustees’ reasons will be examined and reviewed if the trustees choose to state their reasons for their exercise of discretion.[56]
[56][1984] VR 161, 163–4.
In giving some content to the obligation to give real and genuine consideration, McGarvie J observed that there must be ‘the exercise of an active discretion’ and a trustee must consider whether or not to exercise the power.[57] He observed that the obligation to exercise a discretion on real and genuine consideration could also be expressed in terms of whether the trustee had acted irresponsibly, capriciously or wantonly.
[57]Ibid 164.
In Attorney-General (Cth) v Breckler,[58] the High Court adopted the following summary of principle:
Where a trustee exercises a discretion, it may be impugned on a number of different bases such as that it was exercised in bad faith, arbitrarily, capriciously, wantonly, irresponsibly, mischievously or irrelevantly to any sensible expectation of the settlor, or without giving a real or genuine consideration to the exercise of the discretion. The exercise of a discretion by trustees cannot of course be impugned upon the basis that their decision was unfair or unreasonable or unwise. Where a discretion is expressed to be absolute it may be that bad faith needs to be shown. The soundness of the exercise of a discretion can be examined where reasons have been given, but the test is not fairness or reasonableness.[59]
[58](1999) 197 CLR 83; [1999] HCA 28 (‘Breckler’).
[59]Ibid 99–100 [7] (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ) (citations omitted).
In Wareham v Marsella,[60] this Court accepted the above summary from Breckler as authoritative. However, the Court rejected a submission, based on the penultimate sentence, that, in the context of an absolute and unfettered discretion, a failure to give real and genuine consideration to a relevant matter will not impugn the exercise of power in the absence of a finding of bad faith. The Court noted that the submission was flatly inconsistent with Karger.[61]
[60](2020) 61 VR 262; [2020] VSCA 92 (‘Wareham’).
[61]Ibid 288 [91] (Tate, McLeish and Hargrave JJA).
Wareham provides an illustration of a failure to give real and genuine consideration by a trustee. In that case, the trustee misapprehended the identity of a beneficiary and proceeded on an incorrect basis that had the effect of excluding a potential beneficiary from consideration for the payment of a death benefit.
The Court explained that the application of the ground in a given case requires consideration of three matters. First, what are the relevant matters that must be considered? Second, what standard of review should the Court adopt in assessing whether there has been non-compliance with the obligation? Third, what is the consequence of a failure by the trustee to give real and genuine consideration?
In explaining the breadth of a trustee’s discretion, the Court noted:
Of course, the tests for impugning a trustee’s discretion are to be applied in every case by reference to the nature, scope and purpose of the discretion in issue, properly construed. Where that discretion is absolute and unfettered, the trustee’s latitude to act is plainly broader and the task of the party seeking to displace the exercise of discretion is correspondingly more difficult. In particular, it will be more difficult to establish that the outcome of the exercise of the discretion was so unreasonable as to found an inference that it was not done in good faith, upon a real and genuine consideration, and in accordance with the purpose for which the discretion was conferred.[62]
[62]Ibid 289 [95] (Tate, McLeish and Hargrave JJA).
The nature of the trust and the terms in which the power is expressed will be important in determining the matters to which the trustee must have regard in the exercise of a power. For example, whether the principles expressed in Karger apply to superannuation funds was considered by the High Court in Finch v Telstra Super Pty Ltd.[63] The High Court did not resolve the competing arguments, noting that in superannuation funds, unlike in the typical trust established by settlement, the number of potential member beneficiaries might be large; the trustee is often professional and expert; the powers of distribution are often not discretionary but based on meeting stipulated criteria; and there is a statutory overlay of responsibilities and duties imposed on trustees. However, in language that appears to cover a broad range of discretionary trustee powers, the High Court said:
There is no doubt that under Karger v Paul principles, particularly as they have been applied to superannuation funds, the decision of a trustee may be reviewable for want of ‘properly informed consideration’. If the consideration is not properly informed, it is not genuine. The duty of trustees properly to inform themselves is more intense in superannuation trusts in the form of the Deed than in trusts of the Karger v Paul type.[64]
[63](2010) 242 CLR 254; [2010] HCA 36.
[64]Ibid 280 [66] (French CJ, Gummow, Heydon, Crennan and Bell JJ) (citations omitted).
That passage establishes that the obligation of a trustee to be properly informed is universal, although the extent of the obligation will be dependent on the particular circumstances, including the nature of the trust.
In giving content to the obligation on a trustee to inform itself, the size and scale of the trust, the nature of the relationships that may subsist, and the purpose of the power will all be relevant. It is to be observed that trustees of a trust by settlement are often volunteers or at least not professional entities with specialist expertise. It has long been appreciated that too heavy a burden would discourage people from taking the office of trustee. In part, this concern underpins the principle that a trustee is not required to give reasons for its decision:
The settlement gave the absolute discretion to appoint to the trustees and not to the courts. So long as the trustees exercise this power with the consent of persons called appointors under the settlement and exercise it bona fide with no improper motive, their exercise of the power cannot be challenged in the courts — and their reasons for acting as they did are, accordingly, immaterial. This is one of the grounds for the rule that trustees are not obliged to disclose to beneficiaries their reasons for exercising a discretionary power. Another ground for this rule is that it would not be for the good of the beneficiaries as a whole, and yet another that it might make the lives of trustees intolerable should such an obligation rest upon them … Nothing would be more likely to embitter family feelings and the relationship between the trustees and members of the family, were trustees obliged to state their reasons for the exercise of the powers entrusted to them. It might indeed well be difficult to persuade any persons to act as trustees were a duty to disclose their reasons, with all the embarrassment, arguments and quarrels that might ensue, added to their present not inconsiderable burdens.[65]
[65]Re Londonderry’s Settlement [1965] Ch 918, 936–7 (Salmon LJ) (citations omitted).
In the case of some trusts, the number of potential objects might be very large and a requirement to undertake a detailed analysis of the identity and needs of each would be unworkable. Having considered whether or not to exercise the power and understood the range of objects that might benefit, the trustee is required to give adequate consideration as to how to exercise the power.
In Re Hay’s Settlement Trusts,[66] Megarry VC said:
The trustee must not simply proceed to exercise the power in favour of such of the objects as happen to be at hand or claim his attention. He must first consider what persons or classes of persons are objects of the power within the definition in the settlement or will. In doing this, there is no need to compile a complete list of the objects, or even to make an accurate assessment of the number of them: what is needed is an appreciation of the width of the field, and thus whether a selection is to be made merely from a dozen or, instead, from thousands or millions. … Only when the trustee has applied his mind to the ‘size of the problem’ should he then consider in individual cases whether, in relation to other possible claimants, a particular grant is appropriate. In doing this, no doubt he should not prefer the undeserving to the deserving; but he is not required to make an exact calculation whether, as between deserving claimants, A is more deserving than B.[67]
[66][1981] 3 All ER 786.
[67]Ibid 793 (citations omitted).
Although the validity of the outcome of an exercise of power is not to be assessed by notions of fairness or reasonableness, the process must be one in which the trustee is able to exercise the power in a manner that is just, in the sense of it not being arbitrary or capricious, and it must accord with the purpose of the trust. Often that will require ensuring that the trustee is adequately informed so as to put itself in a position to properly exercise the power. As Callaway JA said in Telstra Super Pty Ltd v Flegeltaub,[68] ‘one cannot ordinarily decide a question of fact in good faith and give it real and genuine consideration without conducting some investigation and in some cases that will entail making an inquiry of a person who is willing to provide information and is in the best position to do so. It is not a matter of natural justice but bona fide inquiry and genuine decision making.’[69]
[68](2000) 2 VR 276; [2000] VSCA 180.
[69]Ibid 285 [30] (citations omitted).
Further, where there is a discretionary power, the trustee must turn its mind to whether to exercise the power and, in each case, the discretion must be exercised as and when it arises. A trustee may not divest itself of the continuing responsibility of consideration by adopting a universal rule or by acting under the dictates of another.[70]

The parties’ submissions on the real and genuine consideration issue

[70]I Hardingham and R Baxt, Discretionary Trusts (Butterworths, 2^nd ed, 1984) 97 [504].

The applicants submit that the trustee had an ‘active discretion’ to distribute income that required it to give real and genuine consideration to the interests of the beneficiaries.
In relation to 2017, the applicants submit that the judge was wrong to hold that the trustee had obtained adequate information about the circumstances then prevailing in relation to them. They submit that neither direct nor indirect evidence supported the judge’s finding that the trustee had sufficient information in 2017 as to their circumstances so as to carry out its duties. The trustee made no enquiry of either of them as to any need each might have for a distribution of income from the trust in any relevant year, including 2017.
In relation to Paul, they submit that the judge was wrong to infer that the trustee would have gained information as a result of the contact between John and Paul between October 2016 and May 2018 and between Eva and Paul on 20 January 2017. They submit that this inference was not available as John gave no evidence about the contents of his conversations with Paul, Paul said he had spoken to his father about the business but not its performance or profitability, and Paul gave no evidence about discussing his circumstances with Eva in January 2017.
In relation to Deborah, the applicants note that the primary judge found that there was no evidence that the trustee received any information about her circumstances in 2017, but found it was more likely than not that the trustee obtained at least some information about her circumstances from one of her visits to John in 2017 and indirectly through Paul. They submit there was no evidence that Paul had any information about Deborah’s circumstances in 2017. Paul was not cross-examined on the point and Michael gave evidence that John ‘didn’t make any enquiries about Debbie. He left that to mum’.
In relation to 2019, the judge found that there was no evidence of any contact or communications between Paul and John, then the sole director of the trustee, and the trustee had made no enquiries of Paul or Deborah in 2019 as to any need they might have for a distribution of income from the trust. As to the finding of the judge that the trustee was on notice of Paul and Deborah’s circumstances from the service of the documents filed in the proceeding, the applicants submit:
(a)the only information in the Originating Motion and in Paul’s affidavit, both filed on 29 November 2018, about the applicants’ circumstances was their addresses;
(b)there was no such information in the Statement of Claim filed on 1 April 2019; and
(c)Paul and Deborah’s witness statements were not filed until 16 August 2019.
The applicants submit that the judge ought to have found that the 2019 discretion miscarried on the basis that the distribution was ‘grotesque’ in the following circumstances:
(a)Deborah’s taxable income between 2013 and 2017 was between $39,000 and $44,000;
(b)for 13 years Deborah’s medical expenses had exceeded $20,000 per annum;
(c)Deborah had had little disposable income over the previous 13 years;
(d)the trustee had made no enquiries of Deborah in 2019 as to her need for a distribution of trust income; and
(e)the resolution to transfer the apartment made no material difference to Deborah’s income circumstances.
In relation to 2017, the respondent submits that the judge was correct to find that the familial connection between the parties enabled various indirect ways for the trustee to obtain information about Paul and Deborah. Further, it submits that the applicants’ submissions ignore the burden of proof, which they bore, and the unavailability of John and Eva, the only directors of the trust at the time of the 2017 income resolution.
In regards to 2019, the respondent notes that the trustee had knowledge of Deborah’s circumstances as demonstrated by the capital distribution to her of the South Yarra apartment and that it had received her application under Part IV of the Administration and Probate Act. In relation to Paul, the respondent submits it had knowledge of his circumstances generally from the preceding years.

Decision on the real and genuine consideration issue

It is apparent from the judge’s reasons that, given the breadth of the discretion and the limits on the proper role of the Court in supervising such powers, the judge was mindful not to be distracted by the outcome in each year. The judge accepted, however, that the trustee was required to have sufficient information about the objects of the power in order to exercise the power in good faith.
The most important factor in the judge’s reasoning that explains why he found a breach in 2015, 2016 and 2018, but not in the other years, was the lack of opportunity for the trustee to obtain information about Paul and Deborah. Where the judge was satisfied that there had been contact, he was not persuaded that the trustee ignored or failed to give real and genuine consideration to Paul and Deborah. In adopting that reasoning, the judge disavowed reliance on the outcome.
With great respect to the judge, we are persuaded that he took an unduly narrow view of the evidence and the structure of the trust deed as a whole. This led him into error in relation to both applicants for 2017 and 2019.
In considering the nature of the power to distribute annual income, the starting point must be the nature and purpose of the trust having regard to the terms of the trust deed. The trust deed is by settlement, and as the preamble records, the settlor settled the sum ‘being desirous of making provision for the Primary Beneficiaries and the General Beneficiaries’.
Given its terms, it would have been expected that the class of general beneficiaries would not be particularly large and would continue to revolve around the three Owies children. An obvious, but unstated, premise on which the trustee would be expected to discharge its duties is that it would generally be informed about the differing circumstances, needs and desires of each beneficiary as an incident of the familial bonds that underpin the trust and explain its purpose. It is not to be supposed that, when those familial bonds become strained or broken, the purpose of the trust to provide for the family as a whole would change or that the trustee would be relieved of the obligation to properly inform itself.

The power in cl 3 to distribute annual income to the general beneficiaries is cast in the broad terms of ‘an absolute discretion’, a matter confirmed by the general provision of cl 17 that makes it plain that the trustee’s powers are ‘absolute and uncontrolled’. Nevertheless, even such broadly expressed powers must be exercised in good faith and taking into account the purpose of the trust.
In looking at the nature and purpose of the power to distribute income, it is also relevant that the trust deed provides, in default of appointment of income, and assuming they are living, that the three children hold the income pursuant to an express trust in equal shares. The intention that the primary beneficiaries take any non-applied or accumulated income in the same manner as will occur with respect to the whole fund on vesting, reinforces the general default structure of the trust deed as one providing for the benefit of the children in equal shares. That does not mean that the trust deed does not contemplate unequal distributions across the beneficiaries, an outcome made possible by the width of the discretionary powers. However, the exercise of all of the powers has to take into account the purpose of the trust and the default position just described.
In this context, whether the trustee exercised its powers genuinely and after proper consideration of the power, the opportunity to impart information to the trustee, although clearly a salient feature, was only one factor. In assessing whether the trustee genuinely discharged its duty, the following are significant.
First, the trustee made no enquiries of Paul and Deborah. Even assuming that some relevant information passed between Paul and Deborah and their parents when they met, and that the parents’ information is imputed to the trustee, there was no direct evidence that the information found its way into the deliberations of the trustee. Whether adequate information had been imparted during these encounters must be doubted, given the long history of strained relations between Paul and Deborah and their parents, and given that, on any view, there was not a free flow of information across the years. It was not reasonable for a trustee to rely on the fickle nature of those relationships as the source of the information it needed to discharge its important powers under the trust deed.
We also accept the applicants’ submission that the contact between Paul and his parents between October 2016 and May 2018, such as it was, provided an insufficient basis to infer, as the judge did, that the trustee was informed about Paul’s circumstances.[71] The exiguous nature of the evidence as to the substance of the conversations provides an inadequate basis to draw the necessary inference. The nature of the trustee’s power is not an exact counterpart to the interest of a parent. The purpose of the trust was to provide for the primary beneficiaries in an even handed, impartial way, in a fashion that is more constrained than the whims, passions and strong feelings, both favourable and adverse, that can underpin a parent/child relationship.
[71]Reasons, [322]–[323].
For similar reasons, the fact that John may have received some information about Deborah’s circumstances in 2017 (having received none in the preceding two years)[72] provided no footing for a proper exercise of the discretion. That is particularly so given that the circumstances of her health and financial position were somewhat fraught. As the judge correctly recognised, the circumstances of Paul and Deborah could not be assumed to be unchanging.[73]
[72]Ibid [329].
[73]Ibid [339].
Further, the finding made by the judge in respect of 2019, that the trustee was also informed about the circumstances of Paul and Deborah by the service of the Originating Motion, affidavits and Statement of Claim[74] was wrong, as the respondent properly conceded. Those documents did not contain any relevant information as at 30 June 2019.[75]
[74]Ibid [324], [332], [345].
[75]The Originating Motion and Statement of Claim did not contain any relevant information as to the circumstances of Paul and Deborah and the witness statements were not served until August 2019.
We are conscious that it was the applicants who bore the onus of establishing a want of due consideration and that the trustee was under no obligation to give reasons. Similarly, any gaps in the evidence could not be filled by a Jones v Dunkel[76] inference in circumstances where the trustee was under no obligation to give reasons, and both Paul and Deborah were parties to the relevant conversations and did not give evidence about what was or was not discussed in them. However, as the trustee did not make any enquiry of either Paul or Deborah, on the basis of the evidence before the judge, the inescapable inference is that the trustee was not informed to an extent that enabled it to make a genuine decision.
[76](1959) 101 CLR 298; [1959] HCA 8.
Second, the income was substantial in each year. Despite variations in the amount, the payout ratio was strikingly uniform: 40:40:20 (with the exception of 2019, to which we return later). There was no obvious reason why the trustee would favour Michael, John and Eva in this way. Certainly, it could not be explained by need. The distributions that were made to John and Eva were, it seems, made as a matter of course and lent back to the trust. They had very substantial loan accounts with the trustee. The fund was not short of assets or income. On the other hand, Deborah, and to a lesser extent Paul, had a demonstrable need for income.
Deborah’s health and financial situation were parlous. Although need was not a qualifying factor for a distribution, the purpose of the trust was to make provision for the beneficiaries in the context of a family settlement. Deborah had strong claims to a favourable exercise of the discretion. That does not mean that a distribution had to be made to her; but the failure to do so, and the repetition of the same formula in each year up to and including 2018, strongly points to a lack of due consideration of her position.
Third, the evidence showed an elision between the interests of John and Eva and the best interests of the beneficiaries under the trust. As the applicants submitted below, Mr Sampson’s evidence was that, if the appointor was changed, John and Eva ‘were the ones at risk if they hand over their effective ultimate control of their trust to someone else’.[77] Plainly, as guardian and appointor, John (and in the event of his death, Eva) had an important role in the administration of the trust beyond their roles as directors of the trustee. The trustee was required to consider the wishes of the guardian in making a decision to distribute income and the appointor had the power to remove the trustee. However, the trustee was required to exercise an independent mind, and the interests of John and Eva did not correspond to the best interests of the beneficiaries.
[77]Reasons, [365] (emphasis in original).
It appears from the evidence as a whole that Eva had a major influence on the decisions of the trustee and that she held strong views about her three children. Mr Sampson’s proposal of 14 December 2017 is redolent of the cast of mind shared by John and Eva. That placed the continuing administration of the trust in the hands of John and Eva without any independent processes of the trustee.
Fourth, there was a history of antipathy between Eva and Paul, and Eva and Deborah, that found reflection in the dealings with the trust. When Paul made enquiries about the trust and sought a copy of the trust deed, he was met with resistance. Eva spoke of Deborah being cut off from the family.
Fifth, we would infer from the outcome of the 2018 distributions that the trustee had, by that time, reached a policy of distributions with a settled ratio that was inconsistent with a continuing obligation to consider the distribution of income for each accounting period. In 2019 that pattern altered but not in a way that pointed to any real and genuine consideration of Paul or Deborah. The judge was correct to view each year separately but, in our respectful view, that came at the cost of understating the overall picture discernible from the pattern of distributions as a whole.
The failure to give real and genuine consideration to Paul and Deborah is made more obvious by the extreme nature of the distribution that was made in 2019. Although the parties’ submissions were framed by reference to the term ‘grotesquely unreasonable’, a term of uncertain provenance,[78] that is not a term of art. The use of the strident language merely serves to emphasise that the decision is so aberrant that it provides a basis to infer that the exercise of the discretion has miscarried, as contemplated in Wareham.[79]
[78]The term appears to have originated in J D Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia (LexisNexis Butterworths, 8^th ed, 2016) 327 [16–08], which stated that ‘a grotesquely unreasonable result may be evidence of a miscarriage of duty’, and gave as a reference Re Lofthouse (1885) 29 Ch D 921, 930. That case did not use the phrase ‘grotesquely unreasonable’. Both Jacobs’ Law of Trusts and Lofthouse were discussed in Wareham (2020) 61 VR 262, 283–4 [72], and the Court concluded that there was no reason to doubt the correctness of the proposition in Jacobs’ Law of Trusts.
[79](2020) 61 VR 262, 289 [95] (Tate, McLeish and Hargrave JJA).
The decision in 2019, after Eva’s death, to appoint 100 percent of the income to John is remarkable. He was by then aged 96, was in full time residential care, and had no need for the income. He had loan accounts with the trust for millions of dollars, generated from earlier distributions to him. The 2019 distribution was all the more remarkable, given the default position in cl 3 of the trust deed that required, in the event of a failure to apply or accumulate, the income to be held on trust in favour of the primary beneficiaries in equal shares.
The judge accepted that the 2019 distribution appeared, on its face, to be more unreasonable than the 2018 distribution, but held that it was saved by two principal matters: the fact that the trustee was on notice of Paul and Deborah’s circumstances by reason of the service of the Originating Motion and affidavits and because of the distribution of capital to Deborah in the form of the South Yarra apartment. As already noted, the first is factually incorrect. The second, while a relevant matter, does not explain the remarkable distribution of income to John in 2019. The distribution of capital made to Deborah in April 2019 provides a slim foundation to find that in the future Deborah would be considered for a distribution of income given that there had been no distributions of income to her over an extended period of time despite obvious need.[80]
[80]Cf Reasons, [381].
In our view, the distribution in 2019 is so extreme and without any evident justification that it provides an additional factor that demonstrates that the trustee exercised its discretion under cl 3 without real and genuine consideration of the position of Paul and Deborah.
Taken as a whole, we are satisfied that the trustee did not give real and genuine consideration to the position of Paul and Deborah in any of the relevant years. As already noted, that conclusion accords with that of the judge for 2015, 2016 and 2018 (in relation to Deborah only). We would go further than the judge and uphold the challenge for 2017 and 2019 for Deborah and Paul.
We note that no ground of appeal contends that the trustee failed to give real and genuine consideration to the position of Paul in 2018.
It remains to deal with two specific submissions made by the applicants. The first is that under cover of proposed ground 7, the applicants submit that the trustee in fact had given reasons for its decision and therefore the Court was able to determine whether the reasons justified the decision.[81] We reject this proposed ground. The trustee did not give reasons for its decision. Indeed, when, in the course of his evidence, it appeared that Mr Sampson might explain the reasoning of the trustee, objection was taken and, as the judge noted in his reasons, Mr Sampson ‘elected’ not to give evidence on the topic.[82] No objection was taken to that course either at trial or in this Court.
[81]Karger [1984] VR 161, 166 (McGarvie J).
[82]Reasons, [334].
The applicants attempt to craft a set of reasons from disparate pieces of evidence, such as Michael’s evidence that his mother told him that Deborah was a spendthrift and that she could not properly manage money distributed to her, and Mr Sampson’s evidence of various conversations with John and Eva, cannot be accepted. That said, we do accept that the evidence provides some relevant background to the family relationships. Ultimately, the trustee chose not to explain its reasons, leaving the stark pattern of distributions to speak for itself.
The last point involves a submission[83] that the judge held that the only relevant criterion for the exercise of the discretion was the wishes of the guardian. The applicants rely on the observation of the judge that ‘the trustee’s discretion to distribute income was limited only by the requirement to consider the wishes of the Guardian’.[84] It is plain from the judge’s reasons that he was talking about express constraints on the power in the context of noting that the trustee had a very broad discretion. The judge’s analysis leaves no doubt that he was aware of the constraints imposed on the trustee, including the need to give genuine consideration to the exercise of its powers. There is nothing in this point.
[83]Under proposed ground 8.
[84]Reasons, [344].
We would uphold proposed grounds 1 to 5, but reject proposed grounds 7 and 8. In light of our conclusions on grounds 3, 4 and 5, it is not necessary to decide ground 6.

The claim for payment of the amount distributed in breach of trust: issue 3

The parties’ submissions on recovery of the distributions

The applicants seek orders that the trustee pay them one third of the annual income for each of those years in which the Court finds that there was a breach of trust because of a failure to give real and genuine consideration to the exercise of the power of distribution. In short, the applicants submit that the payments were made without proper consideration, therefore in breach of trust, with the consequence that no valid distributions were made and consequently the applicants are takers in default of appointment of income.
They submit that cl 3 of the trust deed operates where there has been a valid distribution, but that in the absence of a valid distribution the default clause (cl 3(ii)) applies.
They rely on Wareham (both at first instance and on appeal) as authority for the proposition that the appropriate remedy is to set aside the distributions and order payment pursuant to the express trust in default.
The respondent submits that the failure to give real and genuine consideration, in circumstances where a distribution is otherwise made within power, is voidable and whether it should be set aside depends on the defences that may be raised and the discretion of the Court. The respondent relies on Pitt v Holt[85] in support of its submissions on this issue.

Decision concerning recovery of distributions

[85][2013] 2 AC 108; [2013] UKSC 26.

For the reasons that follow, the claim for payment must fail. In summary, that is because the failure to give real and genuine consideration to the exercise of the discretionary power, in circumstances where a distribution was in fact made to objects that fell within the terms of the trust, did not render the distributions void. Rather, in the events that happened, the distributions were voidable, but no order was sought that they be set aside. The application to amend the pleading to seek that relief was refused and there is no challenge to the refusal to permit the amendment.
In Pitt, the Supreme Court of the United Kingdom considered the circumstances in which a disposition of property or income by a trustee will be set aside. In doing so, the Court distinguished between those cases where the disposition is plainly beyond power and those dispositions that are within power, but in respect of which there has been some breach of duty. An example of the first category is a purported distribution to an entity that is not a beneficiary under the trust. An example of the second category is a distribution that is made to a beneficiary within the terms of the trust, but where there has been a failure by the trustee of its duty to give proper consideration to relevant matters or its duty to give real and genuine consideration to the power. Lord Walker described this class of case as involving ‘inadequate deliberation’ and the former as involving ‘excessive execution’, which adequately captures the distinction.[86] A fraud on the power, such as where the power is exercised ostensibly within the terms of the trust but for an improper purpose, would appear to fit within the excessive execution category.[87]
[86]Pitt [2013] 2 AC 108, [60]; [2013] UKSC 26.
[87]Ibid [61]–[62] (Lord Walker).
As to the consequences of an inadequate deliberation, the Supreme Court held that first it was necessary to ascertain whether the failing constituted a breach of duty. This condition was thought necessary to avoid capturing those cases where the trustee had made a minor mistake or had acted innocently and conscientiously on advice that was subsequently found to be wrong. Lord Walker explained:
In my view Lightman J was right to hold that for the rule to apply the inadequate deliberation on the part of the trustees must be sufficiently serious as to amount to a breach of fiduciary duty. Breach of duty is essential (in the full sense of that word) because it is only a breach of duty on the part of the trustees that entitles the court to intervene … It is not enough to show that the trustees’ deliberations have fallen short of the highest possible standards, or that the court would, on a surrender of discretion by the trustees, have acted in a different way. Apart from exceptional circumstances (such as an impasse reached by honest and reasonable trustees) only breach of fiduciary duty justifies judicial intervention.[88]
[88]Ibid [73].
The Court concluded that in those cases where there was a breach of duty in the requisite sense, the breach rendered the decision voidable but not void. That is, a beneficiary could apply to the Court for an order setting aside a distribution, subject to various defences, including any belonging to the recipient. Lord Walker observed that the law has to balance the need to protect beneficiaries from aberrant conduct by trustees with the competing interests of legal certainty, and of not imposing too stringent a test in judging trustees’ decision making.[89] Critical to that balance was the discretion in the Court to decline to overturn the trustee’s decision. On this point, the ultimate conclusion of the Supreme Court was expressed this way under the heading ‘Void or Voidable?’:
Counsel on both sides readily admitted that they had hesitated over this point, but in the end they were all in agreement that Lloyd LJ was right in holding (para 99) that,
if an exercise by trustees of a discretionary power is within the terms of the power, but the trustees have in some way breached their duties in respect of that exercise, then (unless it is a case of a fraud on the power) the trustees’ act is not void but it may be voidable at the instance of a beneficiary who is adversely affected.
In my judgment that is plainly right, and in the absence of further argument on the point it is unnecessary to add much to it. The issue has been clouded, in the past, by the difficult case of Cloutte v Storey, a case on appointments that are fraudulent in the equitable sense, that is made for a positively improper purpose. Here we are concerned not with equitable fraud, nor with dispositions which exceed the scope of the power, or infringe the general law (such as the rule against perpetuity). We are in an area in which the court has an equitable jurisdiction of a discretionary nature, although the discretion is not at large, but must be exercised in accordance with well-settled principles.[90]
[89]Ibid [83].
[90]Ibid [93].

The applicants submit that Pitt can be distinguished on the basis that it concerned a failure by a trustee to take into account a relevant consideration, not in the exercise of a discretion, but as to establishment of the trust. That submission must be rejected. The Supreme Court heard two appeals together, one of which (Pitt) was concerned with a decision to settle moneys on a discretionary trust and the other (Futter v Futter) was concerned with a mistake by the trustee as to the revenue consequences of a disposition out of the trust. It is clear that the reasoning to which we referred applied in each situation and the distinction on which the applicants rely is unsound.
The applicants also submit that Wareham provides contrary authority, which this Court should follow unless persuaded it is plainly wrong. The short answer is that the issue was not argued or determined in Wareham.
We consider it is appropriate to follow the decision in Pitt. It is directly on point, canvasses all of the relevant authorities in the United Kingdom and is consistent with the judicial restraint that informs Karger.
Of course, the outcome in Pitt does not mean, as the applicants’ submissions implied, that a failure to give due consideration to the interests of a beneficiary or object of a power has no consequences. The point is that such a failure will not automatically lead to the decision being set aside and its consequences reversed. Rather, it is necessary for a plaintiff to establish that the decision should be set aside; it would also be necessary to determine any defence that might be raised in answer.
The insurmountable problem for the applicants is that they did not seek at trial the relief that they now seek in this Court. The trial was run on the pleadings and the parties are bound by the way they ran the case below. At the conclusion of the trial, the applicants sought leave to amend their pleadings to raise this issue. In our view, such leave was necessary in order for the judge to entertain the argument, but it was refused by the judge. That refusal is not challenged in this Court and the applicants are fixed with the consequences. For that reason, the applicants’ claim that the impugned distributions be set aside and an order be made for the payment of money to them must be refused.
Proposed grounds 9 and 10 must be rejected.

The removal of the trustee: issue 4

In proposed ground 11, the applicants contend that the judge erred in failing to remove the trustee.

Principles concerning removal of a trustee

Two relevant bodies of principle are involved in the consideration of this proposed ground. First, the principles that the Court must adopt in dealing with the question whether a trustee should be removed. Second, the nature of review in this Court of a decision of a judge to decline to remove a trustee.
On the second issue, it was common ground in this application that the decision of the judge was discretionary and that to overturn it, the applicants must establish an error of the kind identified in House v The King.[91] In Miller v Cameron, Dixon J observed on this point:
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. But in a case where enough appears to authorize the Court to act, the delicate question whether it should act and proceed to remove the trustee is one upon which the decision of a primary Judge is entitled to especial weight.[92]
[91](1936) 55 CLR 499; [1936] HCA 40.
[92](1936) 54 CLR 572, 580–1; [1936] HCA 13.
On the first issue, there is no dispute between the parties as to the principles. There is no suggestion that the judge erred in his articulation of the principles. In Wareham, this Court identified the welfare of the beneficiaries as a ‘safer guide’ to the exercise of the power to remove a trustee, and referred to the following passage from the High Court in Miller as giving content to that notion:
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.[93]
[93]Ibid 580 (Dixon J).
In order to justify a removal of a trustee, the Court ‘must find something which induces the Court to think either that the trust property will not be safe, or that the trust will not be properly executed in the interests of the beneficiaries’.[94] The justification may be found in a lack of impartiality as between beneficiaries.[95] It would be unrealistic however, in the context of many family trusts, to ignore the fact that the trustee will often be imbued with the vagaries of the family dynamic, its antagonisms and alliances. Impartiality does not require the trustee to bring a blank slate to the exercise of its powers.

The parties’ submissions on removal of the trustee

[94]Re Wrightson [1908] 1 Ch 789, 802–3 (Warrington J); [1908] UKLawRpCh 34.

[95]Nicholls (1991) 10 ACSR 723, 728 (Needham J).

The applicants submit that there is nothing gained by leaving the trustee in control of the trust. They submit that Mr Sampson’s failure to act impartially, the animosity that exists between Michael and his siblings, and the previous breaches of trust found by the judge make it unrealistic to expect that the trustee is able to properly administer the trust for the benefit of all three remaining beneficiaries.
The respondent submits that a breach of trust will not necessarily lead to the Court exercising its discretion to remove a trustee. It submits that the judge had regard to multiple factors, including the matters raised by the applicants, and gave them appropriate weight in determining not to remove the trustee.

Decision on removal of the trustee

The judge’s decision was made, in part, on the basis that the challenges to the distributions in 2017 and 2019 in relation to Paul and Deborah had failed. That was important to the judge’s reasoning because it underpinned his conclusion that the change in the directors of the trustee had seen an alteration in decision making without a repetition of past errors.[96] Our conclusion that the challenge to the 2017 and 2019 distributions in relation to Paul and Deborah must succeed means that the judge reached his conclusion on an erroneous basis. In our opinion, that error is sufficient to require this Court to revisit the discretion itself.
[96]Reasons, [381].
We are well satisfied that it is necessary to remove the trustee. In our view, the trustee has, over a number of years, failed to act impartially, failed to give real and genuine consideration to the interests of two of the primary beneficiaries, and relations between the beneficiaries and those involved in managing the trustee are, at least from this vantage point, irreconcilably damaged, such that it is not in the best interests of the beneficiaries for the trustee to continue in office.
The judge stated that he was not persuaded that the trustee was incapable of properly administering the trust into the future under the directorship of Michael and Mr Sampson.[97]
[97]Ibid [387] set out above at [76].
The basis on which Mr Sampson would act as a director of the trustee does not appear from the judge’s reasons, given that the judge concluded that Mr Sampson had not been validly appointed. However, the premise appears to have been that he would continue to play such a role into the future. Neither party suggested in this Court that Mr Sampson would cease to be involved and, as noted earlier in these reasons, both parties accepted that Mr Sampson is currently a director of the trustee. It is thus appropriate to consider the question of removal on that basis.
The judge found that Mr Sampson had acted in good faith in relation to the invalid variations.[98] There is no basis to conclude that Mr Sampson would act otherwise than in good faith should he continue as a director of the trustee. However, over an extended period, Mr Sampson can be seen to be aligned with John, Eva and Michael. For example, he put forward the proposal in December 2017. That proposal reflected his understanding of the wishes of John and Eva and would have cemented Michael’s ongoing control of the trust. He authored the purported variations to the trust deed. He participated in the 2018 distribution as a purported director and was present at the meeting in 2019 when the 2019 distributions were determined. Mr Sampson complied with Eva’s instructions not to provide trust documents to Paul despite knowing that Paul had an entitlement to them.
[98]Ibid [379].
Mr Sampson also took a dim personal view of Deborah’s response to the decision to transfer the South Yarra apartment to her. He regarded Deborah as being ‘grumbling, bad-tempered and ungracious’.[99]
[99]Ibid [364(a)].
The position of Michael is, to our mind, even clearer. It is plain that the relationship between him and his siblings is fractured. The incident when he made a silent telephone call to Deborah because he did not believe she had been in hospital is disturbing and reveals a high degree of suspicion. It bespeaks a total breakdown in trust between the two. Over a number of years he was favoured by the trustee over Paul and Deborah. His parents sought to install him into a position of control. With the passing of John and Eva, and given that none of the Owies children have children themselves, the trust now stands principally for the benefit of Michael, Paul and Deborah. It remains a trust of substantial assets likely to continue to generate substantial annual income. It would not be for the welfare of the beneficiaries as a whole for Michael and Mr Sampson to remain in control of the trustee.
The history of breaches in the administration of the trust deed, the antipathy and lack of trust between the siblings means, in our view, the continuation of the trustee or any trustee in which Michael has a controlling hand is untenable.
We would uphold proposed ground 11. In our opinion, an order for the removal of the trustee should be made. An independent trustee should be appointed.

Conclusion

We would grant leave to appeal and allow the appeal.
The findings made by the judge in relation to the distributions of income in 2015, 2016 and 2018 remain undisturbed. In addition, we have concluded that the 2017 and 2019 distributions were made without any real and genuine consideration by the trustee of whether a distribution of income should be made to either of the applicants.
JJE Nominees Pty Ltd should be removed as trustee. An independent trustee should be appointed.
---

[2022] VSCA 142

20 July 2022