PTD Nominees v Deacon

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST

S ECI 2022 02143

IN THE MATTER of PTD Trust

- and -

IN THE MATTER of ss 48 and 63A of the Trustee Act 1958 and in the inherent jurisdiction of the Court

PTD NOMINEES PTY LTD (ACN 069 927 591)	Plaintiff
v
PAMELA DEACON	First Defendant
- and -
ALICE SOPHIE DEACON	Second Defendant
- and -
PATRICK DEACON	Third Defendant

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JUDGE:	Moore J
WHERE HELD:	Melbourne
DATE OF HEARING:	20 April 2023
DATE OF JUDGMENT:	12 May 2023
CASE MAY BE CITED AS:	PTD Nominees v Deacon
MEDIUM NEUTRAL CITATION:	[2023] VSC 245

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TRUSTS – Application for judicial advice granted – Court advised proper exercise of power in Trust Deed to make amendments, inter alia, removing discretionary class of beneficiaries – Application for removal of trustees granted – Where former trustees consent to removal – Independent trustee appointed – Application for removal of appointor granted – Where removal of appointor is for the benefit of the third defendant and fair and proper arrangement overall – Independent appointor appointed – Supreme Court (General Civil Procedure) Rules 2015, r 54.02 – Trustee Act 1958, ss 48 and s 63A - Miller v Cameron (1936) 54 CLR 572; Kearns v Hill (1990) NSWLR 107; Monty Financial Services Ltd v Delmo [1996] 1 VR 65; Perpetual Trustees v Barns (2012) 34 VR 387; Morris v Smoel & Ors [2013] VSCA 11; McNee v Lachlan McNee Family Maintenance Pty Ltd [2020] VSC 273.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M Harvey KC with Mr N Baum	Monaco Lawyers
For the First and Second Defendants	Mr A Ford	James Mapleston
For the Third Defendant	Mr J Smith	Suzanne Lyttleton Lawyers

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

Disputation.......................................................................................................................................... 3

Arrangements for Patrick’s care................................................................................................. 4
Changes in control of PTD Nominees and the PTD Trust...................................................... 5

Current proceeding............................................................................................................................ 6

The PTD Trust.................................................................................................................................... 8

Orders of the Senior Master: November 1992 – June 2001......................................................... 9

The Financial Plan........................................................................................................................... 18

Pamela and Alice’s position........................................................................................................... 20

Unauthorised withdrawals from PTD Trust bank accounts................................................... 23

Judicial advice................................................................................................................................... 24

Removal of Pamela and Alice as trustees and appointment of independent trustee......... 33

Removal of Pamela as appointor and appointment of independent appointor.................. 35

Costs.................................................................................................................................................... 36

HIS HONOUR:

Introduction

Patrick Tristram Deacon,[1] who was born on 27 February 1986, suffered in utero and birth complications resulting in life long disabilities including cerebral palsy, intellectual impairment, blindness and epilepsy. Patrick’s disabilities are profound such that he is entirely dependent on 24 hour care to maintain his life.[2]
[1]To avoid confusion and without intending any disrespect, I will refer to the parties and family members by their first names.
[2]Patrick suffers from severe cerebral palsy with severe hypotonic spastic quadriplegia, severe gastro-oesophageal reflex, cortical visual impairment, aphasia, severe epilepsy, scoliosis, hip dysplasia, limb contractures, asthma, recurrent aspiration, one collapsed lung, one scarred lung, subluxated hips and recurrent electrolyte disturbance, meaning that he is extremely stiff with no effective use of any limbs.

Patrick’s father, who died on 9 March 2021, was Hugh Deacon. His mother is Pamela Deacon, who is the first defendant in this proceeding. Hugh and Pamela had four other children: Elvira Deacon, Crispian Deacon, Dominic Deacon and Alice Deacon.

In 1987, Patrick issued a proceeding in this Court claiming damages for bodily injury and brain damages as a result of medical negligence (the proceeding) relating to the circumstances of his birth. The proceeding was brought by Hugh in his capacity as Patrick’s litigation guardian.

Patrick settled the proceeding on 9 September 1991: the defendants promised to pay him $2,500,000, inclusive of costs, in full and final settlement of his claims.

The compromise was approved by Coldrey J on 10 September 1991. His Honour also made orders including the following:

(a) ‘The defendants within 14 days after service of a copy of this order on their solicitors pay $2,250,000 to the Senior Master for the benefit of the plaintiff and $250,000 to the solicitors for the plaintiff to be disbursed by them to the plaintiff’s parents, Hugh and Pamela Deacon’.

(b) ‘Subject to any further order, the Senior Master invest $2,250,000 for the benefit of the plaintiff, such sum not to be paid out to him until further order of this Court’.

On or about 25 September 1991, $2,250,000 was paid into Common Fund No. 2 administered by the Senior Master. An account in Patrick’s name was duly established by the Senior Master in the books for Common Fund No. 2.[3]
[3]As at September 1991, s 113(8) of the Supreme Court Act 1986 relevantly provided as follows: ‘the Senior Master must cause to be kept in the books of the Senior Master an account showing at all times the current amount held by the Senior Master or at credit in a Common Fund on behalf or account of each person, estate or trust and of any investments made of the money of a Common Fund or on behalf of a person, estate or trust.’

Over about the next 10 years, the Senior Master made various payments out of Common Fund No. 2 for Patrick’s benefit, including for the purchase of real estate. The Senior Master also received moneys into Common Fund No. 2 for Patrick’s benefit from the sale of real estate.

The final payments out of Common Fund No. 2 after which Patrick’s account was left with a nil balance were paid on 2 March 2001 and 29 June 2001.

(a) On 2 March 2001, payment of $350,000 was made by order of the Senior Master ‘to the parents, as trustees for the beneficiary, as part of the eventual full payment out of the funds’. In ‘Other matters’, the payment to the parents as trustees for Patrick is described as being ‘pursuant to the P.T. Deacon Trust’.

(b) The final payment out of capital of $796,128.33 was made on 29 June 2001 pursuant to orders made by the Senior Master that day which provided for the payment of the balance of the account to be paid to ‘the trustees of the PTD Trust’.

The PTD Trust had been established some six years earlier by a deed of trust dated 1 January 1994 executed on 23 March 1995 (the Trust Deed). The trustees of the PTD Trust were then Hugh and Pamela. Hugh was also the appointor.

On 2 April 1997, Hugh (as trustee and appointor of the PTD Trust) and Pamela (as trustee of the PTD Trust) appointed PTD Nominees Pty Ltd (PTD Nominees) as trustee. The directors of PTD Nominees were then Hugh, Pamela and Patrick’s brother Crispian.

On 1 July 2001, shortly after the final payment out of Common Fund No. 2 of the funds held for Patrick’s benefit, Hugh and Pamela resigned as directors of PTD Nominees and another of Patrick’s brothers, Dominic, was appointed a director.[4]
[4]At that time Crispian remained a director.

PTD Nominees is now the registered proprietor of substantial property holdings comprised of five properties in Victoria[5] and an apartment in Paris. The evidence before me is that these properties are properties of the PTD Trust. PTD Nominees became the registered proprietor of all of these properties, save for the apartment in Paris, on various dates after the final payment out of capital from Common Fund No. 2 on 29 June 2001.
[5]The properties are located in Metung (the Metung property), Elevated Plains, Woodend (the Woodend property), Flinders Lane in Melbourne and Bourke Street in Melbourne.

The corpus of the PTD Trust also includes funds of about $484,000 cash held in six bank accounts, as well as vehicles and other chattels valued at approximately $130,000. The PTD Trust also has substantial liabilities in the form of various loans, with a balance owing of approximately $2.9 million.

The underlying controversy in this proceeding can now be outlined. The funds in Common Fund No. 2 held for Patrick’s benefit were paid out to Hugh and Pamela for Patrick’s benefit over a period of about 10 years, with the remaining capital paid to the PTD Trust in 2001 as I have noted above. The beneficiaries of the PTD Trust are not, however, limited to Patrick: they include a wide class of discretionary beneficiaries who are related to Patrick.[6] It is in this context that Pamela maintains the view that the PTD Trust ‘is not Pats [sic]. It’s a Family Trust’. In various communications, she has referred to it as ‘the’ or ‘my’ ‘family trust’.
[6]See [33] below.

Disputation

In 2020-2022, various disputes arose within the Deacon family about matters including arrangements for Patrick’s care, the proposed sale of properties owned by PTD Nominees and living arrangements at some of those properties. It is unnecessary to recount the detail of all of those controversies, save for what follows.

Arrangements for Patrick’s care

Patrick’s brother Dominic has been Patrick’s primary carer since 2011. Until the Covid-19 outbreak in March 2020, Patrick lived with Pamela in an apartment in Docklands. Pamela cared for Patrick at night and Dominic cared for him during the day (with some assistance from time to time from his sister Elvira).

The pandemic disrupted Patrick’s living arrangements. Since about July 2020, he has been living at the Woodend property where Dominic, Dominic’s partner, Elvira, Elvira’s husband and their daughter also reside. Pamela also lived at the Woodend property between about July 2020 and October 2021. She then moved to the Metung property, where she has continued to live with her daughter Alice.

From the second half of 2020 and into early 2021, Pamela began telling family members that she wanted Patrick to live with her and Alice at the Metung property. For reasons which are presently immaterial, Dominic, as Patrick’s primary carer, was opposed to this proposal.

In about July 2021, Dominic made application to the Victorian Civil and Administrative Appeals Tribunal (VCAT) to be appointed as Patrick’s administrator and guardian. On 13 September 2021, VCAT made orders which:

(a)appointed the Public Advocate as Patrick’s guardian to decide where he should live and whether any services are needed and, if so, which ones;
(b)appointed Suzanne and Patrick Lyttleton as Patrick’s joint and several administrators; and
(c)noted that Dominic was Patrick’s primary carer and medical treatment decision-maker.

On 20 January 2022, VCAT made orders approving the following proposal advanced by Patrick’s administrator, Ms Lyttleton:

1.Serve the directors of the trustee with a letter of demand seeking payment of the beneficiary loan account;
2.Seek Counsel opinion with respect to Patrick Deacon’s interest in the PTD Trust;
3. On Counsel’s advice, issue any necessary proceeding against the trust and/or the directors of the corporate trustee to recover all entitlements owed to Patrick Deacon;
4. On Counsel’s advice, issue any necessary proceeding against the trust/or the directors of the corporate trustee with respect to any possible breach of duties by the trustee/directors of the trustee;
5. Postpone the filing of the Financial Statement and Plan until such time as the administrator has funds belonging to the represented person under the administrator’s control;
6. Dispense with the requirement of Order 9 of the 13 September 2021 orders to file an account by administrator for the represented person, unless funds are received in the current financial year.

Changes in control of PTD Nominees and the PTD Trust

In the context of these disagreements about Patrick’s care and living arrangements, as well as disputes about whether certain properties should be sold, in August 2020 Hugh, who was then the appointor of the PTD Trust, demanded that he and Pamela be added as directors of PTD Nominees. On 10 December 2020, Hugh and Pamela were reappointed directors of PTD Nominees; together with Dominic, they were then the directors of the company.

Hugh died a short time later on 9 March 2021. By his will he appointed Pamela as the appointor of the PTD Trust. She has since remained in that position until the orders made at the trial of this proceeding.[7]
[7]See [30] below.

On 25 January 2022, Pamela sent an email to Dominic stating that she was ‘selling the properties to avoid mortgagee sales’ and seeking his cooperation. In response, Dominic provided Pamela with a copy of the orders made by VCAT on 20 January 2022 referred to in [20] above and on 29 January 2022, Pamela sent an email to Dominic in which, amongst other things, she stated:

– The Trust is not Pats [sic]. It’s a Family Trust.

– VCAT can only appoint an administrator Pat [sic]. They cannot appoint an administrator for my family Trust.

– Supreme Court has confirmed that Pats [sic] funds were exhausted in 2001 …

On 3 February 2022, Pamela removed PTD Nominees as trustee for the PTD Trust and appointed herself and Alice as trustees in its place.

On 4 February 2022, Pamela sent Dominic an email in which she stated, amongst other things, that ‘you and the Lyttletons know they have no jurisdiction re. my Family Trust’.

At a meeting of shareholders of PTD Nominees on 15 March 2022, Pamela was removed as a director of the company, leaving Dominic the sole director.

Current proceeding

PTD Nominees issued this proceeding on 10 June 2022 seeking in substance:

(a)injunctive relief restraining Pamela or Alice from acting as trustees of the PTD Trust, or exercising the power of appointment;
(b)an amendment to the PTD Trust Deed pursuant to s 63A of the Trustee Act 1958 or, alternatively, pursuant to the Court’s inherent jurisdiction, removing Pamela as the appointor and appointing an independent appointor;

(c)orders pursuant to s 48 of the Trustee Act 1958 or, alternatively, pursuant to the Court’s inherent jurisdiction, removing Pamela and Alice as trustees for the PTD Trust;
(d)orders appointing PTD Nominees, or an independent person, as trustee of the PTD Trust; and

(e) judicial advice as to whether the PTD Trust Deed should be amended to remove the ‘Discretionary Class’.

On 19 July 2022, Pamela and Alice gave undertakings to the Court that, pending the determination of this proceeding, they would not exercise any power as trustees of the PTD Trust. Pamela also undertook that she would not exercise the power of appointment.

On 16 September 2022, the Court made orders for Patrick to be joined as a defendant to the proceeding. Patrick was represented by counsel at the trial of the proceeding who supported and adopted the submissions made on behalf of PTD Nominees.

At the conclusion of the trial of this proceeding I made the following orders:

1.Pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), judicial advice is given that it would be a proper exercise of the power of amendment in cl 23 of the trust deed of the PTD Trust dated 1 January 1994 and executed on 23 March 1995 (the Trust Deed) to amend the Trust Deed in the manner prescribed by the draft deed of amendment in Schedule B.[8]
[8]See Schedule to this judgment (the Schedule), referred to as ‘the amendments’).

2.Pursuant to s 48(1) of the Trustee Act 1958 (Vic):
(a) the first and second defendants are removed as trustees of the PTD Trust with immediate effect; and
(b) Lachlan James Vallance is appointed as trustee with immediate effect, on an undertaking from Mr Vallance that he will amend the Trust Deed pursuant to the power of amendment in cl 23 of the Trust Deed in the manner prescribed by the draft deed of amendment in Schedule B to these orders to make Patrick Deacon the sole beneficiary of the PTD Trust.

3.Pursuant to ss 51(1), 51(2)(a) and 58(1) of the Trustee Act 1958 (Vic) the property and assets of the PTD Trust are vested in Mr Vallance.
4. The plaintiff and the defendants shall take such steps as are required to transfer the property and assets of the PTD Trust into the name of Mr Vallance.
5. Mr Vallance be entitled to charge fees for work undertaken by him as trustee in accordance with the Practitioners Remuneration Order or, where litigation is involved, the relevant court scale, and such fees be paid out of the trust fund.
6. Pursuant to s 63A of the Trustee Act 1958 (Vic), an arrangement varying the Trust Deed in the following manner is approved:
(a) the following words are deleted from the meaning of ‘Appointor’ in the Schedule:

HUGH MOONEY DEACON
(b) the following words are inserted in their place:

DEBRA ANNE DAVIS
7.Ms Davis be entitled to charge fees for work undertaken by her as appointor in accordance with the Practitioners Remuneration Order or, where litigation is involved, the relevant court scale, and such fees be paid out of the trust fund.

The following are my reasons for judgment for making these orders.

The PTD Trust

The Trust Deed provides for the establishment of a trust fund comprised of the settlement sum of $10 ‘and any other property which may be paid, transferred or delivered to the Trustees to be held on the trusts of this settlement and the investments and moneys for the time being representing the same … upon the trusts and with and subject to the powers and provisions set out in this deed’.[9]
[9]Clause 1.

Under the Trust Deed, ‘beneficiary’ means ‘any person included in the Discretionary Class and any Corpus Beneficiary’.[10] Patrick is identified in the Trust Deed as the Corpus Beneficiary.
[10]Clause 2C.

The ‘Discretionary Class’ is relevantly defined in the Trust Deed as follows:[11]

…those persons named as Specified Beneficiaries in the Schedule, the Corpus Beneficiaries, and the parents, grandparents, brothers, sisters, spouses, former spouses, children and grandchildren of the Specified Beneficiaries or of the Corpus Beneficiaries and the parents, brothers, sisters, spouses, former spouses and issue of any of the persons included by the preceding description (all of whom are to be included in the term “the related beneficiaries”) and shall also include any company in which a related beneficiary owns a share or of which a related beneficiary is or has been a director and any trust under the terms of which a related beneficiary or any such company is entitled to a benefit whether vested, contingent, discretionary or otherwise, and any school or other establishment for educational or religious purposes and any charity. …

[11]Clause 2D.

Patrick is identified as the ‘Specified Beneficiary’ in the schedule to the Trust Deed.

As is presently relevant, the Trust Deed:

(a) Gives the trustee various powers including a power to make payments to a parent or guardian as follows:[12]
[12]Clause 6(k).

To pay over to the parent or guardian of any beneficiary who is under a legal disability any sum of money to which the beneficiary may from time to time be entitled and without requiring such parent or guardian to account for the application of the sum, and the receipt of a parent or guardian of the beneficiary shall be sufficient receipt and discharge to the Trustees for any moneys paid to them for or on behalf of the beneficiary and the Trustees shall not be bound to see to the application thereof.

(b) Gives the trustee an absolute discretion to make payments out of capital ‘for the maintenance, education, advancement or benefit of any member of the Discretionary Class’.[13]
[13]Clause 7.

(c) Provides for the making of distributions by the trustee from the Trust Fund including as follows:[14]

Discretions
(i)Shall pay or apply or appropriate the whole or such part of the income of the Trust Fund and in such manner and at such times as the Trustees shall in their absolute discretion think fit to or for the benefit of such of the members of the discretionary class and shall for the time being be living and if the Trustees shall think it desirable unequally between members of such class or for or towards the maintenance, support, education or benefit of such one or more to the exclusion of the other or others of such members as the Trustees shall in their absolute discretion determine.

[14]Clause 15(a)(i).

The Trust Deed vests power in the appointor to revoke the appointment of any trustee,[15] and also provides that the appointor may pass the power of appointment to some other person by deed or will.[16]
[15]Clause 17.
[16]Clause 18.

Orders of the Senior Master: November 1992 – June 2001

In the following paragraphs I summarise the orders made by the Senior Master in relation to the funds held by him in Common Fund No. 2 on Patrick’s behalf in the period after the orders made by Coldrey J on 10 September 1991,[17] until when the last of those funds were paid out 29 June 2001.[18] The summary is drawn from the form of orders made by the Senior Master, including the content of ‘Other matters’ recorded in those orders.
[17]See [5] above.
[18]See [8] above.

The summary reveals that, over this period of nearly 10 years, amounts held in Common Fund No. 2 for Patrick’s benefit were paid out to fund the purchase, in whole or in part, of 14 properties, principally comprising apartments in the Southbank and South Melbourne area, but also an apartment in Cornwall in the United Kingdom and an apartment in Paris. Over the same period, the proceeds of sale from various properties were also paid into Common Fund No. 2 for Patrick’s benefit.

The balance of the account in Patrick’s name in Common Fund No. 2 as at 1 June 1992 was $2,198,566. On the same date, interest in the sum of $214,300.52 was credited to the account.[19]
[19]It may be noted that, in the ensuing nine years until the final capital amount held for Patrick’s benefit was paid out of Common Fund No. 2, a further $1,550,216.48 in interest was credited to the account in Patrick’s name in Common Fund No. 2.

On 9 November 1992, the Court made orders that a trust be created to the effect of that set out in a declaration of trust proposed to be made by Hugh and Pamela and which referred to Patrick as the beneficiary. The proposed deed of trust identified Pamela, Hugh and a solicitor as the trustees, it defined Patrick as ‘the beneficiary’ and referred to the orders made by Coldrey J on 10 September 1991 approving the settlement of the proceeding in favour of Patrick. The objects of the proposed trust were expressed as being ‘to provide for the advancement, welfare, rehabilitation, maintenance, education or other benefit of the beneficiary as the Trustees in their reasonable discretion shall think fit’.[20] It was the expressed intention of the Court that the funds in Common Fund No. 2 held for the benefit of Patrick be paid to the trustees of this trust.
[20]Clause 3.1.

There is no evidence that the above declaration of trust was ever executed. However, subsequent to the making of the order on 9 November 1992, it would appear that Hugh and Pamela decided to reside indefinitely in the United Kingdom where Patrick would attend a facility for treatment. As they considered that they would be unable to fully administer the trust while they were residing outside Australia, Hugh and Pamela requested that the Senior Master continue to administer the funds in Common Fund No. 2 held for Patrick’s benefit until their return, at which time they would apply to the Court for an order for the creation of a trust. This rationale was recorded in an order made by Senior Master Mahoney on 11 February 1993 which provided for the payment out of Common Fund No. 2 of amounts in relation for relocation and transportation costs, as well as monthly amounts in respect of the costs associated with Patrick’s treatment and residency in the United Kingdom.

On 15 June 1993, the Senior Master made orders providing for an amount equivalent to £71,398.12 to be paid from Common Fund No. 2 for the purchase of an apartment in Cornwall in the United Kingdom. The orders narrated that ‘the Trustees will hold the Trust Property in accordance with the terms and provisions of the Declaration of Trust to be executed in accordance with, or to the effect of, the draft attached hereto’. Attached to the order was a declaration of trust proposed to be made by Hugh, Pamela and their solicitor as trustees which refers to Patrick as ‘the beneficiary’ and which deals with the purchase of the property in Cornwall as a residence for Patrick. The declaration states that, in the event that the property is purchased, it would be purchased by the trustees who would ‘hold and stand possessed of it upon trust for the beneficiary’. There is no evidence that this declaration of trust was ever executed.

On 24 June 1993, the Senior Master made orders providing for the payment from Common Fund No. 2 of approximately £13,000 to complete the purchase of and to undertake outstanding works on the Cornwall property.

On 20 October 1995, the Senior Master made orders providing for the payment of $305,000 from Common Fund No. 2 to enable the completion of a contract of sale for the purchase of a property at Lot 60, ‘Southbank Royale’, Wells Street, Southbank (Southbank Royale). The purpose of this payment and the broader context in which it was made was narrated in ‘Other matters’ as follows:

On 2 July 1995 the father of the beneficiary wrote to the Court seeking, amongst other things, the approval of the Senior Master to a proposal involving the application of funds held on behalf of the beneficiary towards the cost of the property (hereinafter called “the trust property”) situate at and known as Lot 60, “Southbank Royale”, Wells Street, Southbank … to be purchased by the parents of the beneficiary (hereinafter called “the trustees”) on trust for the beneficiary, and as a residence for him and his family, for a total price of $353,000, after deductions for … The trustees are seeking release of only an amount sufficient to complete the settlement, being prepared to contribute the deposit and the associated expenses out of their own resources.
They will execute a Declaration of Trust in the form of, or to the effect of, the draft attached. The trustees own a property at Kallista valued, when restored to good order and repair after fire and water damage whilst tenanted, at $230,000, which they are arranging to put on the market for sale. They propose paying the net proceeds of such sale into Court for the benefit of the beneficiary after completion of the sale. They have also acquired, as trustees for the beneficiary, and from their own resources, properties in South Yarra and Toorak which they propose either to sell, or, if so advised, retain, and transfer either the properties or the proceeds of realisation thereof to an incorporated trustee, the final form of which is yet to be established. The primary purpose of this Order is to provide full completion of the Contract of Sale of the trust property on 20 October 1995.

There was appended to the above order a declaration of trust dated 20 October 1995 which had been executed by Hugh and Pamela. The declaration of trust refers to the purchase of Southbank Royale as a residence for Patrick, and narrates that Hugh and Pamela as trustees had agreed to act as trustees for Patrick and to receive and hold the property as trustees if they succeeded in purchasing it. It states that ‘in the event that the Trustees purchase the Trust Property they will hold it and stand possessed of it upon trust for the beneficiary’ and that ‘the Trustees will keep the Trust Property available for the beneficiary’s accommodation’.

On 12 September 1996, the Senior Master made an order that the sum of $150,000 tendered by Hugh and Pamela as ‘representing the net sale proceeds for a property hitherto owned by them’ be paid into Patrick’s account in Common Fund No. 2. The order recorded that Hugh and Pamela had recently sold a property at Kallista (the Kallista property) and that ‘they wish to supplement the beneficiary’s funds with the net proceeds’.

On 2 September and 8 September 1997, the Senior Master made orders providing for the payment to Hugh of $42,500 in reimbursement of a deposit paid for the purchase of a property located at 95/8 Wells Street, Southbank and a payment of $107,500 ‘to the beneficiary for the balance of the beneficiary’s share of the purchase of the trust property’. The circumstances attending the making of these orders were relevantly narrated in ‘Other matters’ as follows:

The father has sought approval from the Court to apply a portion of the beneficiary’s funds in court [the funds] towards the purchase of the trust property [95/8 Wells Street, Southbank].
The valuers have valued the trust property at $425,000, which is the selling price of the trust property.
The father has requested that only an amount of $150,000 be paid from the funds towards the purchase of the trust property. The beneficiary’s parents will provide the balance of the purchase price from other sources.
It is intended that the parents will, in due course, execute a Declaration of Trust, to hold the trust property as trustees on behalf of the beneficiary.
The father has paid an amount of $42,500 for the deposit payable [the deposit] for the purchase of the trust property. He has requested reimbursement of the deposit.
The father has further requested that the balance of the beneficiary’s contribution to the purchase [the balance], an amount of $107,500, be paid directly to the beneficiary’s bank account prior to settlement of the purchase of the trust property. This order is made to provide for reimbursement of the deposit and payment of the balance.

The property at 95/8 Wells Street, Southbank was purchased in the name of PTD Nominees which remained the registered proprietor until 12 February 2004.

On 29 September 1997, the Senior Master made orders providing for the following:

(a)payment of $58,600 from Patrick’s account in Common Fund No. 2 to a real estate agency for a deposit in respect of the purchase of an apartment at 112/8 Wells Street, Southbank;
(b)payment of $261,400 ‘to the beneficiary, or as directed by the father, for the balance of the beneficiary’s share of the purchase of [the above apartment]’;
(c)providing for the payment into Patrick’s account in Common Fund No. 2 of $200,000 upon the sale of an apartment at 709/102 Wells Street, Southbank.

The circumstances attending to the making of the above orders were narrated in ‘Other matters’ as follows:

The father has sought approval from the Court to apply a portion of the beneficiary’s funds in court [the funds] towards the purchase of the apartment.[21]
[21]Defined as the apartment at 112/8 Wells Street, Southbank.
The apartment was initially on sale for $620,000, however a final price of $586,000 was negotiated.
The father has requested that an amount of $320,000 be paid from the funds towards the purchase of the apartment. The beneficiary’s parents will provide the balance of the purchase price from other sources.
The beneficiary’s share will be paid as follows:
(i) $58,600 for payment of the deposit payable;
(ii)$261,400 for the payment of the balance of the beneficiary’s share of the purchase price.

It is intended that the parents will, in due course, execute a Declaration of Trust, to hold the trust property as trustees on behalf of the beneficiary.
The father has informed the Court that he intends to sell the apartment in which the family presently resides, situated at 709/102 Wells Street, Southbank [the present apartment].
From the proceeds of the sale of the present apartment, an amount of $200,000 will be paid into court to be held on behalf of the beneficiary. Consequently, the net amount drawn from the funds will be $120,000.
This order is made to provide for payment of the beneficiary’s contribution to the purchase of the apartment.
…

On 4 February 1998, the Senior Master made an order providing for the payment of $13,000 from Common Fund No. 2 to Hugh as reimbursement of the partial cost of the refurbishment of a unit at 112/8 Wells Street, Southbank. The order records that the unit had been purchased for the accommodation of Patrick and his family.

On 11 August 1998, the Senior Master made an order providing for payment from Common Fund No. 2 of $40,000 to Hugh as contribution for the cost of furniture for and renovations/refurbishment of an apartment located at 108 Rue de Rivoli, Paris (the Paris apartment). The orders recorded that ‘the Deacons’ had recently purchased the Paris apartment which was to be the beneficiary’s principal place of residence whilst overseas.

On 1 March 1999, the Senior Master made an order providing for the payment out of Common Fund No. 2 of a total amount of $18,500 in respect of the purchase of a property at Lot 72 ‘Yarra Condos on Southbank’ 38 Kavanagh Street, Southbank. It recorded that Hugh and Pamela had ‘approached the Court with a proposal to diversify the beneficiary’s property investments’ and that the abovementioned property was the first of such properties that was to be purchased ‘off the plan’. The property was purchased in the name of PTD Nominees.

On 17 March 1999, the Senior Master made orders providing for the following:

(a)the payment from Common Fund No. 2 of $38,000 to Patrick for payment of a deposit in respect of the purchase of two investment apartments known as 22 and 508, 148 Wells Street, Southbank;
(b)the payment from Common Fund No. 2 of $90,000 to Patrick for the payment of the deposit in respect of a residential apartment at 111/8 Wells Street, Southbank;
(c)the payment into Court of the net proceeds of sale (the amount not being identified) of an investment property at 326 Toorak Road, South Yarra; and
(d)the payment into Court of the net proceeds of the sale ‘from time to time, of selected investment properties held for and on behalf of the beneficiary’.[22]

[22]The properties were not identified in the order.

The context of the above orders was recorded in ‘Other matters’ as follows:

The parents have previously approached the Court with a proposal to diversify the beneficiary’s property investments.
It is intended that the beneficiary’s funds in Court [the funds] contribute, in part, to the purchase of several properties to take advantage of the growth in the corporate rental market.
It is also envisaged that certain investment properties presently held on behalf of the beneficiary be sold and the net proceeds of such sales to be paid into Court, from time to time.
The parents have also expressed their wish to return to reside in Australia on a permanent basis.
Consequently, they have decided to purchase a larger apartment to reside in and, in due course, sell the family’s present Australian residence.
This order is made to provide for the following:
(1)Payment of the amount of $38,000, being the deposit due and payable in respect of the purchase of two investment apartments [the investment apartments] known as 22 and 508, 148 Wells Street, Southbank.
(2)Payment of the amount of $90,000, being the deposit due and payable in respect of the purchase of the residential apartment [the residential apartment] known as 111/8 Wells Street, Southbank.
(3)The payment into Court of the net proceeds of the sale of the investment property.

On 3 June 1999, the Senior Master made an order providing for the payment from Common Fund No. 2 to Patrick of $25,250 for payment of a deposit due for the purchase of an investment apartment at 61/8 Wells Street, Southbank. The orders recorded that Hugh was in the process of ‘restructuring the beneficiary’s current investment portfolio with assistance from the funds in Court’. On 24 June 1999, the Senior Master made an order providing for the payment of $112,750 from Common Fund No. 2 to Patrick, or as otherwise directed by Hugh, for the balance of Patrick’s share of the purchase of this apartment. The order records that:

The investment apartment was to be purchased utilising the sum of $138,000 paid into court, by the father, following the sale of 7/14 Springfield Avenue, Toorak. The beneficiary’s parents are to provide the balance purchase price from their own sources.

The property at 61/8 Wells Street, Southbank was purchased in the name of PTD Nominees which remained the registered proprietor until 19 September 2012.

On 20 July 1999, the Senior Master made an order providing for the payment from Common Fund No. 2 of $19,300 for a deposit in respect of the purchase of a property at 221 Sturt Street, Southbank. Orders were also made for the payment from Common Fund No. 2 to Patrick of amounts, as requested by Hugh and approved by the Senior Master, to complete the purchase of the property, and for the payment of any amounts due in respect of a transaction involving the sale of 112/8 Wells Street, Southbank and the purchase of 122/8 Wells Street, Southbank. It was recorded that the transactions described in the orders were ‘in line with the father’s documented investment strategy in respect of the beneficiary’s funds in Court’.

On 13 March 2000, the Senior Master made orders for payment from Common Fund No. 2 of $166,798.94, with the amount principally to be paid to a bank, and otherwise to be disbursed to other identified entities. These payments were in respect of purchase of a property at 72/38 Kavanagh Street, Southbank as ‘an investment for the beneficiary’ which was purchased in the name of PTD Nominees.

On 4 August 2000, the Senior Master made an order for the payment from Common Fund No. 2 of $15,000 to Hugh and Pamela for the cost of purchasing furniture and fittings for units located at 212 and 508, 148 Wells Street, Southbank. It was recorded that the completion of the purchase of those units ‘by the PTD Trust, for and on behalf of the beneficiary’ was due on or about 14 August 2000. The property at 212/148 Wells Street was purchased in the name of PTD Nominees which remained the registered proprietor until 21 September 2002. The order also referred to a ‘Statement of the financial plan implemented on behalf of Patrick’ (the Financial Plan) received on 3 July 2000. The Financial Plan is of importance; relevant aspects are set out in [6363] below.

On 10 August 2000, the Senior Master made orders providing for cheques totalling $339,779.42 to be drawn on behalf of Patrick and signed by the Master, in order to complete the sale of 22 and 508, 148 Wells Street, Southbank, referred to in paragraph [5454]. On 24 and 30 August 2000, the Senior Master made orders for payment of a total of about $3,000 relating to the purchase and furnishing of 212 and 508, 148 Wells Street, Southbank.

In an order made on 5 October 2000, the Senior Master recorded in ‘Other matters’ that, by letter dated 6 September 2000, the Court had noted that ‘no further payments will be made into the Court of funds from the realisation of real estate by the PTD Trust’. An order was made discharging paragraph 4 of an order made on 17 March 1999 which provided that ‘the net proceeds of the sale, from time to time, of selected investment properties held for and on behalf of the beneficiary’ be paid into Common Fund No. 2.

As I have noted,[23] on 2 March 2001 the Senior Master made an order that the sum of $350,000.00 be paid to Hugh and Pamela as part of the eventual full payment of the funds held in Patrick’s account in Common Fund No. 2. The order recorded that Hugh had advised the Senior Master that he and Pamela ‘could not accept investment of the funds as he prescribed and, consequently, sought full and complete responsibility for the beneficiary’s financial future.’ The order also recorded in ‘Other matters’ that the payment of the funds held by the Court to Hugh and Pamela ‘as Trustees for the beneficiary, pursuant to the P.T. Deacon Trust’, was considered to be in the best interests of the beneficiary, and that further payments would be made until the funds were eventually all paid to the parents in their trustee capacity. As set out in paragraph 8(b) this then occurred on 29 June 2001.
[23]See [8(a)] above.

The Financial Plan

The Financial Plan, which extends over 78 pages, is dated June 2000 and records that it was prepared by Pamela and Hugh. The following parts are to be noted:

(a)It identifies as its objective the implementation of ‘a financial plan that provides sufficient income, from invested capital, to provide for the housing and care of Patrick for life’.[24]
[24]Page 2.
(b)Under the heading ‘Actuarial Advice’, it states that actuaries engaged to represent Patrick in the proceeding estimated that the capital required and invested on Patrick’s behalf to provide for his housing and care for life, based on his needs, was $14.5 million in 1991, with the capital for investment being $2.4 million.[25]
[25]Being $2.5 million less $100,000 legal costs. Page 2.
(c)It refers in various places to the formulation of an investment plan ‘to meet Patrick’s specific financial needs’.[26]
[26]Pages 3 and 4.
(d)In a section of entitled ‘Financial Structure’, it states as follows:
The following financial structure was implemented as it was considered the most appropriate given the objectives:[27]
[27]Page 14.
·A Discretionary Trust was established – “the PTD Trust”.
·Patrick is the sole beneficiary.
·A company “PTD Nominees. Pty. Ltd” [sic] was established as the trustee.
·Directors of “PTD Nominees Pty Ltd.” [sic] are Hugh Deacon, Pamela Deacon and Crispian Deacon.
·Shares in “PTD Nominees Pty Ltd.” [sic] are held by all of Patrick’s family with the controlling interest being with Hugh and Pamela Deacon.
·All assets have been purchased by “PTD Nominees Pty Ltd.” [sic] on behalf of “The PTD Trust”.

(e)A later section entitled ‘Financial Plan’, records that the ‘financial structure out lined [sic] above was operative from 1994’ and that ‘all assets have been purchased by ‘PTD Nominees Pty Ltd’ on behalf of ‘the PTD Trust’.[28] It states that all capital had initially been invested in fixed interest in the formative stages of the plan with high returns achieved by Funds in Court, and that over time there had been a gradual transfer of earned income of capital from fixed interest held in Funds in Court to growth on intended investments.[29]
(f)It lists 12 properties purchased by PTD Nominees Pty Ltd, including 8 apartments at various locations in Southbank and the Paris apartment. The Financial Plan records that the current value of property purchased by PTD Nominees is approximately $4.13 million.[30]
(g)The section of the Financial Plan entitled ‘Trust Deeds’ incorporates the Trust Deed.
[28]Page 17.
[29]Page 16-17.
[30]Page 22.

Pamela and Alice’s position

A noted above,[31] Pamela and Alice have previously adopted the position that Patrick’s funds were ‘exhausted’ when they were paid out of the Common Fund No. 2 in 2001 and that the ‘family’ rather than Patrick is beneficially entitled to the assets of the PTD Trust. This position was further elaborated upon by Pamela in an affidavit dated 18 April 2023, the relevant parts of which are summarised below.
[31]See [23] and [25] above.

Pamela and Hugh married when Pamela was 18 years old. She described their family as having a ‘patriarchal structure’, with Hugh controlling the finances and making the major decisions for the family, while she attended to the children.

Soon after they married in about 1967 or 1968, Pamela and Hugh bought land in Kallista on which they built a home which was completed in 1976. Earlier they had also purchased a property in Tecoma in 1968 and a town house in Mentone.

Although Hugh looked after the family’s finances and Pamela was unaware of the ‘intricacies’ of those arrangements, Pamela deposed that Hugh would say to her that the ‘Deacon Family Trust’ was ‘our trust, and for the family’. Other than what follows, Pamela did not provide any further information or details about these claims. No documents relating to a ‘Deacon Family Trust’ – or any trust other than the PTD Trust – were tendered in evidence in the proceeding.

Pamela stated that, in about 1994, Hugh said that they needed to change ‘their family trust’ to benefit Patrick, or to create a new trust for Patrick. Although Pamela left it to Hugh to deal with the matter, Hugh said to her that ‘the Trust was for us as a family and to ensure Pat is provided for, and that Pat would inherit the assets of the Trust when Hugh and I die’.

Pamela deposed that she did not have any assets or superannuation of her own because she and Hugh had ‘merged [their] assets and income with those of Patrick’. She stated that, between when the proceeding was settled and July 1997, and before Patrick made any contribution from Common Fund No. 2 for the purchase of investment properties, ‘our property portfolio’ included the Kallista property, a property at 5/1A Coolullah Avenue, South Yarra (Coolullah Avenue) purchased in December 1991 and four separate apartments at 14 Springfield Avenue, Toorak purchased on various dates in 1994 and 1997. Her evidence was that the total purchase price of all of abovementioned properties was $941,000 and that Coolullah Avenue was purchased using a portion of the $250,000 paid to her and Hugh from the settlement of the proceeding.

Pamela stated that she did not have in her possession or control many documents supporting the contributions she and Hugh had made ‘to the trust’. However, based on the orders made by Senior Master and other documents provided by Funds in Court, she deposed that she and Hugh had contributed to ‘the trust’ the following funds and assets:

(a)$150,000 from the proceeds of sale of Kallista which was paid into Funds in Court on 13 September 1996. This is consistent with the orders made by the Senior Master on 12 September 1996 referred to in [47] above.
(b)Pamela also stated that she and Hugh paid into Funds in Court the profit from the sale of five other (unidentified) properties which they had purchased using their own funds, being a total amount of $454,798.

(c)She claimed that she and Hugh had contributed ‘around $50,000’ to the purchase of Southbank Royale. Her evidence was that ‘this property was never part of the PTD Trust as it was held in a separate Trust of which Hugh and I were the Trustees’.
(d)She deposed that she and Hugh contributed the purchase price of $164,000 for Coolullah Avenue: ‘the purchaser was Crispian Deacon, and the proprietor was Pat who was 6 years old at the time’ and the property was vested in PTD Nominees on 13 February 1998. This is consistent with the historical title search for that property.
(e)She deposed that she and Hugh were the registered proprietors of apartments 2 and 3 at 14 Springfield Avenue, Toorak, for which they provided the deposit and with the balance funded by a mortgage. She referred to the historical title searches for the properties which records that they were transferred to PTD Nominees on 12 June 1997.
(f)As indicated by historical property searches, on 16 July 1997, PTD Nominees became the registered proprietor of apartments at 4 and 7 at 14 Springfield Avenue, Toorak. Pamela deposed that she and Hugh used their own funds to pay the deposit and associated expenses for these purchases, with the remainder of the purchase prices funded by a mortgage which was serviced by rental income from these and other properties.

Pamela deposed that, in the period between 1994 and 2003, Patrick contributed from monies held in Funds in Court to the purchase of seven properties. She claimed that in each case the balance of the purchase price of a property was met using a combination of her and Hugh’s own funds, bank loans and profit from the sale of another property. She calculated that the total purchase price for 12 properties in this period was $4,185,750, with Patrick’s contribution being a total of $1,626,323.

In relation to the Financial Plan and the release of the remaining monies from Common Fund No. 2 in 2001, Pamela referred to the fact that, although Patrick is referred to as the sole beneficiary of the PTD Trust, the Trust Deed has a discretionary class of beneficiaries. She deposed that the Trust Deed was provided to the Court prior to the release of the remaining funds held in Common Fund No. 2 and had been provided years earlier. She stated that she assumed that the Trust Deed was permissible because it had been prepared by Hugh and their accountant, and because she did not know why the Court would allow funds to be released pursuant to it if there was problem with the inclusion of a discretionary class of beneficiary.

Unauthorised withdrawals from PTD Trust bank accounts

Dominic gave the following uncontested evidence:

(a) Between 7 August 2020 and 2 December 2021, Pamela and Alice withdrew, across 60 withdrawals, a total of $140,704 from PTD Trust bank accounts. PTD Nominees did not authorise Alice to make any transactions on the PTD Trust banks accounts. Although it was possible that some of the transactions which appeared to have been made by Pamela may have related to PTD Trust expenses, Dominic did not authorise any of those withdrawals, and none of the expenses had been accounted for or otherwise explained.

(b) Between 19 and 21 January 2022, Pamela made 14 separate withdrawals of $2,500 from a PTD Trust bank account, on each occasion for payment to her personal American Express account. Pamela also withdrew $5,000 on 8 December 2021. PTD Nominees did not authorise any of these payments, being for a total of $40,000, and Dominic is not aware of any PTD Trust expenses to which they could relate.

(c) That Pamela has caused loss to the PTD Trust by cancelling $46,492 worth of holiday rental booking properties at the Metung property which is valued at approximately $2.5 million. Because the property is occupied by Pamela and Alice, it is no longer available for holiday rentals. As a result, Dominic estimates that the PTD Trust is losing approximately $5,000 per month in gross income.

Pamela and Alice have not provided any response to the allegations summarised in the previous paragraph which were first detailed by Dominic in an affidavit filed by him on 10 June 2022.

Judicial advice

The main controversy at trial was whether the Court should give the judicial advice sought by PTD Nominees. For the reasons which follow, the Court granted the application and, pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015, formally advised that it would be a proper exercise of the power of amendment in the Trust Deed to make the amendments. In substance, when made the amendments will remove the reference in the Trust Deed to the ‘Discretionary Class’, identify Patrick as the sole beneficiary of the PTD Trust and make other limited consequential changes.

The purpose of r 54.02 is to establish a procedure to enable a trustee to obtain the direction or opinion of the Court on a matter of administration or management, or as to the construction of a trust instrument, without the need to commence an administration suit.[32] The procedure is a summary procedure, intended to enable questions arising in the administration of an estate or a trust to be resolved cheaply and simply.[33] There are no implied limitations on the Court’s power to give advice of this kind.[34] It is not part of the Court’s function to pass judgment on whether what the trustees propose to do is wise or unwise. Rather, the question for the Court is whether there is power to do what is proposed, and whether it would be improper for the trustees to exercise the power which they possess in the manner postulated.[35]
[32]Morris v Smoel & Ors [2013] VSCA 11, [22].
[33]Ibid [23].
[34]Ibid [24].
[35]Ibid [25].

Clause 23 of the Trust Deed gives the trustees of the PTD Trust a power of amendment which would permit the making of the amendments. Clause 23 provides as follows:

The Trustees for the time being may with the consent in writing of the Appointor (if any) from time to time revoke, add to or vary any of the terms or conditions of this deed provided that any such amendment shall not infringe the rule against perpetuities, or affect the beneficial entitlement to any amount set aside allotted to or used for the benefit of any beneficiary prior to the date of any such variation, alteration or addition.

On an ordinary reading, subject to the express conditions and limitations to which it refers, clause 23 would appear to give the trustees a very wide power to amend ‘any of the terms or conditions’ of the Trust Deed. In Kearns v Hill, the Court of Appeal of New South Wales concluded that a power of amendment in a trust deed expressed in similar and apparently broad terms to that contained in clause 23, permitted amendments which changed the identity of the beneficiaries of a trust (by inserting a new class of beneficiaries into the trust deed).[36] Consistent with the reasons of the Court of Appeal, there is no basis to construe the express power of amendment in clause 23 narrowly or restrictively.
[36](1990) NSWLR 107, 110E.

It is next necessary to consider whether it would be improper for the trustees of the PTD Trust to exercise this power of amendment by making the amendments. As I have noted, the purpose and principal effect[37] of the amendments is to eliminate the ‘Discretionary Class’ of the PTD Trust and to identify Patrick as its sole beneficiary. In considering this issue, all of the members of the ‘Discretionary Class’ who could be located were given notice of the application; only Pamela and Alice appeared. They opposed the giving of the advice sought by PTD Nominees for the reasons discussed below.
[37]The proposed amendments also address a number of ancillary and machinery issues.

I have concluded that the amendments are not improper because, contrary to Pamela and Alice’s position that the assets of the PTD Trust are not Patrick’s assets at all, but family assets, the evidence supports a finding that the corpus of the PTD Trust is composed predominantly of funds formerly held by the Senior Master on trust solely for Patrick’s benefit (or income earnt from those funds), together with real property purchased from those funds (or from income earnt from those funds and that property over the past 30 years).

The corpus of the PTD Trust can be readily traced to the $2.5 million paid to Patrick in settlement of the proceeding on 9 September 1991. The orders made by Coldrey J on 10 September 1991[38] expressly state that $2.25 million was to be paid to the Senior Master ‘for the benefit of [Patrick]’. Contrary to the submissions made on behalf of Pamela and Alice, the remaining $250,000 paid to Hugh and Pamela was also paid for Patrick’s benefit. This is clear from paragraph 2 of ‘Other matters’ in the orders which records that, pursuant to the compromise approved by the Court, the (total) sum of $2,500,000 was to be paid ‘for the benefit of the Plaintiff and the Plaintiff’s costs’. This narration provides the true characterisation of the $250,000 paid to Hugh and Pamela. It follows that any real property purchased by Hugh and Pamela with these funds, as suggested by Pamela in her evidence,[39] was held by them for the sole benefit of Patrick.
[38]See above at [5].
[39]See above at [69].

The funds held by the Senior Master in Common Fund No. 2 for Patrick’s sole benefit accrued $1,764,517 interest in the years between 25 September 1991 and when the last of those funds were paid out on 29 June 2001.[40] Over that time, amounts held in Common Fund No. 2 for Patrick’s benefit were paid out to purchase 14 properties. The orders made by the Senior Master over this period set out in [38]–[62] above consistently record that the funds paid out from time to time were paid to fund the purchase of particular properties to be held for Patrick’s benefit. Unsurprisingly, there is no suggestion in the orders made that those properties were to be held for the benefit of any other person, including Hugh or Pamela or any other member of the Deacon family. This is consistent with the fact that every representation made by Pamela and Hugh to the Senior Master in relation to the withdrawal of funds from the Common Fund No. 2, as recorded in the orders, unambiguously conveyed that the purpose of the withdrawal was to invest funds for the sole benefit of Patrick.
[40]See above at [40].

In his submissions, counsel for Pamela and Alice conceded that the communications between the Senior Master and Hugh and Pamela supported a conclusion that the relevant funds in Common Fund No. 2 were being held for the sole benefit of Patrick. The only contrary indication was said to be the reference to an ‘incorporated trustee’ in ‘Other matters’ in the orders of the Senior Master made on 20 October 1995. However, such a passing reference, which in substance does no more than refer to a possible action that Hugh and Pamela were considering taking in the future,[41] in no way affects or alters the above analysis and conclusion that the funds held by the Senior Master were held for the sole benefit of Patrick.
[41]See above at [45] which included the following sentence in ‘Other matters’: '[Hugh and Pamela] have also acquired, as trustees for the beneficiary, and from their own resources, properties in South Yarra and Toorak which they propose either to sell, or, if so advised, retain, and transfer either the properties or the proceeds of realisation thereof to an incorporated trustee, the final form of which is yet to be established’.

The orders made by the Senior Master in the period between November 1992 and June 2001 also show that at various times Hugh and/or Pamela paid amounts into the funds held for Patrick’s benefit in Common Fund No. 2.[42] However, it is apparent from the orders made on those occasions that the amounts paid in were the net proceeds of sale of investment properties which were held for and on behalf of Patrick or, in the case of the Kallista property which had been purchased at an earlier time by Hugh and Pamela personally, the payment in was ‘to supplement the beneficiary’s funds’. A payment so described made into an account held for the sole benefit of Patrick has all the hallmarks of being a gift. Counsel for Pamela and Alice accepted that the material before the Court indicated that Hugh and Pamela had gifted the Kallista property to a trust for the benefit of Patrick and that it therefore formed part of the PTD Trust. Nevertheless, for reasons which were not developed and which are not otherwise apparent, it was asserted that the gift of the funds from the Kallista property ‘informed the existence of a discretionary class’ of beneficiaries under the trust. I reject that submission.
[42]See above at [45], [47], [54], [55], [56], [61].

The same analysis would also appear to apply to the payment of $200,000 into Common Fund No. 2 upon the sale of the then family residence at 709/102 Wells Street, Southbank: the relevant orders record that the amount was to be ‘held on behalf of’ Patrick.[43] Having reviewed the orders made by the Senior Master in the relevant period, I am not able to properly evaluate Pamela’s claim that she and Hugh paid into Funds in Court a total of $454,798, being the profit from the sale of five properties which they had purchased using their own funds. Other than the amount, Pamela did not provide any details or particulars about these unidentified properties, and it is unclear whether they include the Kallista property and/or the property at 709/102 Wells considered above.
[43]See above at [50].

The contents of the Financial Plan prepared by Hugh and Pamela provides important insights into the investments which had been made on Patrick’s behalf as well as Hugh and Pamela’s understanding of the nature and character of those investments. Hugh and Pamela stated that the plan which had been pursued had been to provide income to support Patrick’s housing and care for his lifetime (my emphasis). It was a plan directed at meeting Patrick’s financial needs which had been implemented by the establishment of the PTD Trust in which Patrick was the sole beneficiary (my emphasis).

The Financial Plan also states that all assets had been purchased by PTD Nominees on behalf of the PTD Trust. Twelve properties are listed which are said to have a collective value of approximately $4.13 million.

In addition to these real property holdings, it is also known that the remaining capital held by the Senior Master in Common Fund No. 2 for Patrick’s benefit, being an amount of $1,146,128.33, was paid out in two instalments in March and June 2001.

The first of those payments was made by order made on 2 March 2001 providing for the payment of $350,000 ‘to the parents, as trustees for the beneficiary’. The order refers to the Financial Plan and correspondence between Hugh and the Senior Master. It then narrates the following under ‘Other matters’:

Hugh Deacon, the father of the beneficiary, has requested that $350,000.00 be paid into the H M & P A Deacon (ATF P T Deacon) National Australia Bank Account [the account] on or about 5 March 2001.
This order provides for such payment to the account.
The payment is part of the eventual full payment out of the funds in Court held for the beneficiary [the funds].
The beneficiary’s parents [the parents] have been reluctant to deal with the Senior Master other than in the manner in which they deem administration of the funds in Court to be appropriate. They have prepared the plan for the investment of the funds, and the administration of other assets held for the beneficiary.
By letter dated 6 September 2000, the Senior Master inter alia advised the parents that the funds would no longer be used for the purchase of real estate, nor would the Court henceforth receive moneys from the sale of real estate held for the beneficiary. What funds then remained in Court would be invested only by way of retention in Common Fund No. 2. The parents were advised that the only alternative to the manner of investment prescribed by the Senior Master would be full payment out of the funds to them as Trustees for the beneficiary.
By facsimile letter dated 21 October 2000, Hugh Deacon advised the Senior Master that the parents could not accept investment of the funds as he prescribed and, consequently, sought full and complete responsibility for the beneficiary’s financial future.
For reasons other than acceptance that the plan necessarily represents investment best practice, it is considered to be in the beneficiary’s best interests to pay the funds out of Court to the parents, as Trustees for the beneficiary, pursuant to the P.T. Deacon Trust.
…
Further payments are to be made from the funds until they are eventually paid out in full.
…

The second payment was made by order made on 27 June 2001 providing for the payment of the balance of Patrick’s account in Common Fund No. 2 to ‘the Trustees of the PTD Trust’. As with the above order, it refers to the Financial Plan and correspondence between Hugh and the Senior Master. It then narrates the following under ‘Other matters’:

The beneficiary’s parents [the parents] have been reluctant to deal with the Senior Master other than in the manner in which they deem administration of the funds in Court to be appropriate. They have prepared the plan for the investment of the funds, and the administration of other assets held for the beneficiary.
By letter dated 6 September 2000, the Senior Master inter alia advised the parents that the funds would no longer be used for the purchase of real estate, nor would the Court henceforth receive moneys from the sale of real estate held for the beneficiary. What funds then remained in Court would be invested only by way of retention in Common Fund No. 2. The parents were advised that the only alternative to the manner of investment prescribed by the Senior Master would be full payment out of the funds to them as Trustees for the beneficiary.
By facsimile letter dated 21 October 2000, Hugh Deacon advised the Senior Master that the parents could not accept investment of the funds as he prescribed and, consequently, sought full and complete responsibility for the beneficiary’s financial future.
For reasons other than acceptance that the plan necessarily represents investment best practice, it is considered to be in the beneficiary’s best interests to pay the funds out of Court to the parents, as Trustees for the beneficiary, pursuant to the PTD Trust.
…

It is clear from the above two orders that in 2001 the remaining capital held by the Senior Master in Common Fund No. 2 for Patrick’s benefit was paid out to the PTD Trust to be held for Patrick’s benefit.

All of the properties currently owned by PTD Nominees (except for the Paris apartment) were purchased by PTD Nominees after the remaining funds held by the Senior Master were paid out in June 2001. Other than the Paris apartment, PTD Nominees no longer owns any of the properties previously purchased by it on behalf of the PTD Trust using funds released by the Senior Master in June 2001. It may therefore be inferred that the properties currently owned by PTD Nominees were purchased by using, in whole or in part, the net proceeds from the sale of those formerly owned properties collectively worth about $4.13 million as at around the time the Financial Plan was prepared, and/or some or all of the $1,146,128.33 in cash paid out to the PTD Trust from Common Fund No. 2 in 2001.

As counsel for Pamela and Alice candidly acknowledged, it must therefore follow that Pamela’s claim that the funds held for Patrick’s benefit were ‘exhausted’ upon the payment out of the funds held in Common Fund No. 2 in 2001 is patently incorrect and misconceived. As a (now former) trustee of the PTD Trust, this reflects a most profound misconception by Pamela of the property held by the trust.

I am nonetheless cognisant that Pamela has deposed that she and Hugh contributed their personal funds to purchase various properties of which PTD Nominees was the proprietor. It is unnecessary for me to make any findings about those claims. The provision of the judicial advice sought by PTD Nominees does not prevent Pamela and Alice from advancing any claims that they have contributed to the purchase of properties of which PTD Nominees is the registered proprietor such that they are held wholly or partly for their benefit. As counsel for Pamela and Alice conceded, the identification, with particularity, of the property of the PTD Trust, and the extent to which any other person may be said to have an interest in such property, is a matter for the trustee to determine. In circumstances where it is clear that the property holdings of PTD Nominees, and the funds held by it, were substantially contributed to by funds held for the sole benefit of Patrick, or the investment earnings from those funds, it is sufficient and appropriate for the Court to give the judicial advice sought. Counsel for Pamela and Alice ultimately accepted that, given that there were assets in existence held for the benefit of Patrick, it was appropriate that they be held pursuant to a trust in which he was identified as the sole beneficiary.

Counsel for Pamela and Alice did, however, submit that if there had been an intermingling of funds in the PTD Trust, removing the discretionary class from the Trust Deed might affect properties which are not held solely for Patrick’s benefit. That contention is, however, not maintainable, given counsel’s acknowledgement that his clients would be at liberty to engage with the trustee to seek to establish that certain properties were not part of Patrick’s trust. The giving of the judicial advice which has been sought will not alter the property rights of any person in respect of property which is not the subject of the PTD Trust. The effect of the amendments made on the basis of the advice is to clarify the identity of the beneficiary under the PTD Trust by ensuring that any property held by the trustee under the Trust Deed is held solely for Patrick’s benefit.

The remaining argument advanced on behalf of Pamela and Alice in opposition to the provision of the judicial advice providing for the making of the amendments turned on the fact that the Trust Deed was provided to Funds in Court at least by 4 August 2000. It was submitted that, if there was a difficulty with the existence of a discretionary class of beneficiary in the Trust Deed, it was reasonable to expect that the Court would have raised any such concerns with Hugh and Pamela. Given that there was no evidence that any such concerns were raised, where the Court was made aware of the existence of a discretionary class of beneficiaries in the Trust Deed for the PTD Trust into which the remaining funds held by the Senior Master were paid, it was submitted that it was not appropriate to now remove the discretionary class from the Trust Deed.

I do not accept this submission. To the contrary, I consider that as the then directors of the trustee company, Hugh and Pamela failed to correct the misleading impression which they had given over many years as to the beneficiaries of the PTD Trust.

As I have explained, for a period of nearly 10 years, Hugh and Pamela consistently represented to the Senior Master when seeking approval for the withdrawal of funds, that the funds would be expended or invested solely for Patrick’s benefit. Notably, this was reflected in the content of three trust deeds in executed or unexecuted form, each of which identified Patrick as the sole beneficiary of trusts to be established for the purposes of particular investments.[44] There was no hint or suggestion in Hugh and Pamela’s representations to the Senior Master (and the terms of the orders made by the Senior Master providing for the release of funds) that the funds were intended to be used or invested for the benefit of any persons other than Patrick.
[44]See above at [41], [43] and [46].

This impression was then reinforced by the terms of the Financial Plan which Hugh and Pamela prepared and provided to the Senior Master. It expressly stated in clear and unqualified terms that the financial structure which had been adopted involved the purchase of all assets by PTD Nominees on behalf of the PTD Trust of which Patrick was the sole beneficiary.

This representation was erroneous. Given the clear and express terms of the representation, its obvious importance, and the fact that it was entirely inconsistent with what Hugh and Panela had conveyed in their communications with the Senior Master and Funds in Court over nearly 10 years, the mere inclusion of the Trust Deed within the 78 pages of the Financial Plan, without any further elaboration or explanation, was insufficient to remedy the inaccurate and misleading impression which they had created. This is particularly so given that the existence of the discretionary class of beneficiaries in the PTD Trust is not immediately apparent: the schedule to the Trust Deed only refers to the ‘specified beneficiaries’ and the ‘corpus beneficiaries’, in each case identified as Patrick (and no one else). And, contrary to the submissions made on behalf of Pamela and Alice, it is irrelevant that the Financial Plan contained three general quotations from a text about family trusts.[45]
[45]Page 15 of the Financial Plan contains a short subsection entitled ‘Advantages of a Family Trust’ which is comprised of three quotations from a book entitled ‘Family Trusts’.

For the above reasons, I do not consider that it would be improper for the trustees of the PTD Trust to exercise the power of amendment in clause 23 of the Trust Deed by making the amendments.

Removal of Pamela and Alice as trustees and appointment of independent trustee

The power to remove a trustee arises under s 48(1) of the Trustee Act 1958 and in the Court’s inherent jurisdiction.[46] The jurisdiction is to be exercised with a view to the interests of the beneficiaries, the security of the trust property and to the efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee.[47]
[46]Monty Financial Services Ltd v Delmo [1996] 1 VR 65, 76, referred to with approval in Wareham v Marsella (2020) 61 VR 262, 290.
[47]Miller v Cameron (1936) 54 CLR 572, per Dixon J.

A clear case was established for the Court to exercise its removal jurisdiction in relation to the position of Pamela and Alice as trustees of the PTD Trust because of their fundamental misconceptions about the nature of the trust as being a ‘family trust’, when in truth the trust is composed predominantly of funds formerly held by the Senior Master solely for Patrick’s benefit, and because of their misuse of trust funds as set out in [73]. However, at the commencement of his submissions at trial, counsel for Pamela and Alice informed the Court that his clients agreed to resign as trustees and would consent to the appointment of an independent trustee.

Counsel informed the Court that Pamela and Alice would prefer that those involved in the provision of day-to-day care for Patrick – Dominic and Elvira – also be appointed as co-trustees. This reflected their view that decisions relating to the PTD Trust should be informed by Patrick’s care and medical needs, and that he should remain under the family’s care.

PTD Nominees and Patrick nominated two candidates to be appointed as independent trustee of the PTD Trust: Lachlan Vallance, a solicitor, and Robert Pertich, a certified practising accountant. Mr Vallance and Mr Pertich have both provided their consent to be appointed as independent trustee of the PTD Trust. Counsel for Pamela and Alice informed the Court that their preference was for Mr Pertich to be appointed on the basis that he appeared to have had more involvement in the day-to-day activities of a business and would therefore be better equipped at engaging in the investment activities they desire the PTD Trust to undertake.

Given the position adopted by Pamela and Alice and my above observations, I ordered that they be removed as trustees of the PTD Trust with immediate effect.

I also ordered that Mr Vallance be appointed as trustee of the PTD Trust with immediate effect. Mr Vallance is suitably qualified and experienced in the administration of trusts and estates to properly undertake that role. As further discussed below, given the history of the PTD Trust and the position adopted by Pamela and Alice outlined above, the prospect of future legal controversies about the affairs and assets of the PTD Trust is readily foreseeable. That is a consideration which militates in favour of the appointment of Mr Vallance over Mr Pertich, given that Mr Pertich does not hold any legal qualifications. It is also significant that the Court has the assurance of an undertaking given by Mr Vallance that he will amend the Trust Deed in terms consistent with the judicial advice I have given.

I also consider that, in the circumstances of the case, the proposed appointment of family members as co-trustees is unnecessary and imprudent. Irrespective of who is appointed as independent trustee, Dominic remains Patrick’s primary carer and medical treatment decision-maker. The proposition that he and Elvira should also be trustees is therefore unnecessary in terms of attending to Patrick’s care arrangements. Further, it would only increase the prospect that the dynamics of familial conflict may be brought to bear upon the exercise of fiduciary duties.

Removal of Pamela as appointor and appointment of independent appointor

Pamela opposed the application for her removal as appointor of the PTD Trust, but her counsel informed the Court that she would consent to being a co-appointor with an independent appointor.

The only reason advanced by Pamela in opposition to her removal as appointor – that she had an ‘emotional attachment’ to the position because it was left to her by Hugh’s will – may immediately be disregarded; there is no place for sentimentality in considering whether to make the order sought by PTD Nominees.

It was uncontroversial that s 63A of the Trustee Act 1958 is a source of power for the Court to order that the Trust Deed be varied to provide for Pamela’s replacement by an independent person as the appointor of the PTD Trust.[48] In considering whether an arrangement under s 63A should be approved, the Court of Appeal in Perpetual Trustees v Barns[49] explained that the Court must be satisfied that the arrangement is for the benefit of the person incapable of assenting, and a fair and proper arrangement overall, taking into account the purpose of the trusts, and the intention of the settlor.[50] The Court should engage in a businesslike consideration of the arrangement.[51]
[48]McNee v Lachlan McNee Family Maintenance Pty Ltd [2020] VSC 273, [105].
[49](2012) 34 VR 387, 395.
[50]Ibid.
[51]Ibid.

For the same reasons that I consider it appropriate that Pamela and Alice be removed as trustees of the PTD Trust, I am also readily satisfied that an arrangement whereby the terms of the Trust Deed are varied to identify a suitable independent person as appointor of the PTD Trust is for the benefit of Patrick, and a fair and proper arrangement overall. A further pragmatic reason why it is reasonable and appropriate for Pamela to be removed as appointor of the trust is that, if she was to continue in that office, she would be in a position to frustrate the Court’s decision removing her and Alice from their positions as trustees.

PTD Nominees and Patrick nominated Debra Davis, a legal practitioner with extensive experience in the administration of trusts and estates, to be appointed as appointor of the PTD Trust. I agreed to this proposal as Ms Davis is suitably qualified and experienced to undertake the role.

Costs

At the conclusion of the trial, I ordered that PTD Nominees’ and Patrick’s costs of and incidental to this application be paid out of the PTD Trust on an indemnity basis. I reserved my judgment on Pamela and Alice’s application that their costs also be paid out of the trust, albeit on a standard basis. Counsel for Pamela and Alice submitted that I should so order because they had been the trustees of the PTD Trust and had been involved in the trust for many years.

The relevant principles were conveniently summarised as follows by McMillan J in Re Sturrock; Spierings v Richards & Anor:[52]

Trustees, including executors, are ordinarily entitled as of right to indemnity out of the trust for expenses properly incurred, that is, all costs except to the extent that they are of an unreasonable amount or have been unreasonably incurred. The concept of proper expenditure excludes conduct that demonstrates want of prudence or diligence. Expenses and liabilities that are improperly incurred, such as acting beyond power, in bad faith or exercised power “with an absence of care and diligence that a person of ordinary prudence should exercise” are not caught by the right of indemnity and should be borne by the trustee personally.

Each case of trust or estate litigation must be considered on its merits with respect to costs, as should each step taken in that litigation. A successful trustee would ordinarily be allowed their costs out of the trust fund or estate. Likewise, a trustee who fails in litigation may still be indemnified for their costs from the estate.

[52][2017] VSC 458, [20]-[21], citations omitted.

In my assessment, Pamela and Alice’s legal costs in defending this proceeding were both improperly and unreasonably incurred such that it would be unfair and unjust to Patrick, as the sole beneficiary of the PTD Trust, for the trust to be responsible for any proportion of their costs. There are four features of this proceeding and the circumstances from which it has emerged which lead to this conclusion.

First, as set out in [73]-[74], this is a clear case where trustees have misused trust funds. Secondly, Pamela and Alice unreasonably delayed the determination of an important aspect of the preceding by opposing the application for their removal as trustees until the plaintiff closed its case, at which time their counsel informed the Court that they would resign as trustees and consent to the appointment of an independent trustee. Thirdly, for the reasons I have explained, Pamela (and Hugh) were in critical respects the authors of the present legal controversy by their conduct in erroneously representing to the Court that Patrick was the sole beneficiary of the PTD Trust and by their failure to correct that representation. Fourthly, by wrongly adopting the position that Patrick’s funds were ‘exhausted’ when they were paid out of the Common Fund No. 2 in 2001 and that the ‘family’, rather than Patrick, is beneficially entitled to the assets of the PTD Trust, Pamela and Alice demonstrated a profound misconception about the nature of the PTD Trust and their duties and responsibilities as trustees.

I will accordingly order that Pamela and Alice bear their own costs of and incidental to the proceeding without indemnity from the PTD Trust.

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SCHEDULE

Deed of Amendment

This deed of amendment is made on [date].

between

Lachlan James Vallance of Central 1, Level 2, Suite 17, 1 Ricketts Road, Mount Waverley, Victoria (Trustee)

and

Debra Anne Davis of Level 15, 200 Queen Street, Melbourne, Victoria (Appointor)

BACKGROUND

A.By deed of settlement made on 1 January 1994 between Maxwell Simon Newnham as settlor and Pamela Anne Deacon and Hugh Mooney Deacon as the then trustees (Trust Deed) a discretionary trust was established known as the PTD Trust.
B.The Trustee was appointed as trustee of the PTD Trust on 20 April 2023 and has continuously held such office up to and including the date of this deed.
C.Clause 23 of the Trust Deed permits the Trust Deed to be amended and states:
“The Trustees for the time being may with the consent in writing of the Appointor (if any) from time to time revoke add to or vary any of the terms or conditions of this deed Provided that any such amendment shall not infringe the rule against perpetuities, or affect the beneficial entitlement to any amount set aside allotted to or used for the benefit of any beneficiary prior to the date of any such variation alteration or addition.”

D.The Appointor was appointed as appointor of the PTD Trust on 20 April 2023 and has up to and including the date of this deed continuously held office as Appointor and has not done anything to prejudice or preclude the Appointor from exercising the Appointor's powers and authority contained in the Trust Deed.
E.The parties desire to amend the terms of the Trust Deed in the manner set out in this deed.

OPERATIVE PROVISIONS

Variation of Trust Deed

(a)The Trustee declares that the Trust Deed is varied as follows:
(i) Clause 2.C. to the Trust Deed is amended by deleting clause 2.C. and substituting the following clause in its place:
“Beneficiary: means Patrick Deacon.”

(ii)     The Trust Deed is amended by deleting clause 2.D.
(iii)   The Trust Deed is amended by deleting clause 6(k).
(iv)   The Trust Deed is amended by deleting clause 7 and substituting the following clause in its place:
“The Trustee may if the need is so required set apart and apply such of the capital of trust as may be required for the maintenance, education, advancement and care of the Beneficiary”.

(v) Clause 15.(a)(i) is amended by deleting clause 15.(a)(i) and substituting the following clauses in its place:
“shall pay or apply or appropriate the whole or such part of the income of the Trust Fund and in such manner and at such times as the Trustee shall in their absolute discretion think fit to or for the benefit of the Beneficiary”.

Consent of Appointor

The Appointor consents to this variation of the Trust Deed.

Effective date of deed

The Trust Deed is varied on the date this deed is executed by all parties.

Rest of Trust Deed unaltered

The terms of the Trust Deed remain unaltered in all other respects.

Executed as a deed

Signed sealed and delivered by Lachlan James Vallance in the presence of:
Signature of witness	Signature of Trustee
Print name	Print name
Date	Date

Signed sealed and delivered by Debra Anne Davis in the presence of:
Signature of witness	Signature of Appointor
Print name	Print name
Date	Date

[2023] VSC 245

12 May 2023