Public Trustee v Smith - [2008] NSWSC 397

CITATION: Public Trustee v Smith [2008] NSWSC 397

HEARING DATE(S): 18/10/07; 19/10/07

JUDGMENT DATE :
5 May 2008

JURISDICTION: Equity

JUDGMENT OF: White J

DECISION: Stand the proceedings over for counsel for the cross-claimant to bring in short minutes of order in accordance with these reasons and to give directions for the resolution of the remaining issues including any further issues which the Public Trustee may wish to raise in the summons for judicial advice.

CATCHWORDS: WILLS – Testatrix left property by will owned by a company as trustee of a discretionary trust – testatrix controlled trustee – testatrix not named as a beneficiary - TRUSTS – remedies – rectification – whether persons establishing discretionary family trust intended to name herself as an object – whether clear evidence of sufficiently precise intention so that Court can determine the substance and detail of variation ESTOPPEL – estoppel by convention – whether both parties conducted their relationship on the basis of a mutual assumption – whether an act or omission on the part of the trustee led to any action or inaction on the part of the plaintiff – testatrix the controlling mind of the trustee – same assumption in both capacities but no causal link founding an estoppel - EQUITY – equitable estates and interests – discretionary family trust – after rectification testatrix was a member of the class of objects and was the controlling shareholder and director of the corporate trustee – whether testatrix was therefore the beneficial owner of the trust property – trust not a sham – control of trustee with power of appointment coupled with membership of the class of objects does not amount to beneficial ownership

LEGISLATION CITED: Environmental Planning and Assessment Act 1979 (NSW)
Wills, Probate and Administration Act 1989 (NSW)
Stamp Duties Act 1920 (NSW)
Family Law Act 1975 (Cth)
Corporations Act 2001 (Cth)

CATEGORY: Principal judgment

CASES CITED: Re O’Callaghan (Deceased) [1972] VR 248
JW Broomhead (Vic) Pty Ltd v JW Broomhead Pty Ltd [1985] VR 891
Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329
Bush v National Australia Bank Ltd (1992) 35 NSWLR 390
Muriti v Prendergast [2005] NSWSC 281
McGain v Federal Commissioner of Taxation (1966) 116 CLR 172
Commonwealth v Verwayen (1990) 170 CLR 394 Moratic Pty Ltd v Gordon [2007] NSWSC 5; (2007) ANZ ConvR 198; NSW ConvR 56-172; Aust Contract R 90-255
Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65 M K & J A Roche Pty Ltd v Metro Edgeley Pty Ltd [2005] NSWCA 39
Waterman v Gerling Australia Insurance Co Pty Ltd [2005] NSWSC 1066; (2005) 65 NSWLR 300
Grundt v Great Boulder Pty Limited Gold Mines Ltd (1937) 59 CLR 641
The August Leonhardt [1985] 2 Lloyd’s Rep 28
Austin v Keele (1987) 10 NSWLR 283
Carruthers v Manning [2001] NSWSC 1130 Cambouya Pty Ltd v Buchanan [2005] NSWSC 743 Shepherd v Doolan [2005] NSWSC 42
Calverley v Green (1984) 155 CLR 242
Gartside v Inland Revenue Commissioner [1968] AC 553
R & I Bank of Western Australia Limited v Anchorage Investments Pty Ltd (1992-1994) 10 WAR 59
Lygon Nominees Pty Ltd v Commissioner of State Revenue [2007] VSCA 140; 66 ATR 736
Ex Parte Gilchrist; Re Armstrong (1886) LR 17 QBD 521
Australian Securities and Investments Commission v Carey & Ors (No. 6) (2006) 153 FCR 509
In the Marriage of Davidson (No. 2) (1990) 101 FLR 373
In the Marriage of Ashton (1986) 11 Fam LR 457
In Marriage of Goodwin (1990) 101 FLR 386
In the Marriage of Harris (1991) 104 FLR 458
Stephens v Stephens (2007) 212 FLR 362
In the Marriage of Gould (1993) 115 FLR 371
Andco Nominees Pty Ltd v Lestato Pty Ltd (1995) 126 FLR 404
Thurlstane (Aust) Pty Ltd v Andco Nominees Pty Ltd (NSW Court of Appeal, 27 October 1997, Meagher, Powell and Cole JJA, unreported)
BP v KS (2002) 177 FLR 354Re Bowcock [1968] 2 NSWR 697
Kirby v Allen (unreported, Hamilton J, NSWSC 22 August 1997)

TEXTS CITED: The Chambers Dictionary ((2003) Chambers Harrap Publishers)
The Macquarie Dictionary (rev 3rd ed (1997) Macquarie)
Handley, Estoppel by Conduct and Election (2006) Sweet & Maxwell
Geraint Thomas, Thomas on Powers (1998) Sweet & Maxwell

PARTIES: The Public Trustee
v
Robyn Smith;
NSW Animal Welfare League; and
Gordon Salier

FILE NUMBER(S): SC 2750/05

COUNSEL: Cross-Claimant: M R Speakman SC, J E Lazarus
1st Cross-Defendant: A Kennedy
2nd Cross-Defendant: L Ellison SC, E Cox
3rd Cross-Defendant: G Salier (submitting appearance)

SOLICITORS: Cross-Claimant: C G Gillis & Co Lawyers
1st Cross-Defendant: Teece Hodgson & Ward
2nd Cross-Defendant: Peter M Wayne & Associates
3rd Cross-Defendant: Gordon Salier

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WHITE J

Monday, 5 May 2008

2750/05 The Public Trustee v Robyn Smith & 2 Ors

JUDGMENT

Introduction

1 HIS HONOUR: Dr Helen Ward died on 26 September 2002. By her will made on 5 September 2002, Dr Ward purported to deal with what she called “my property” at 152-154 Avoca Street, Randwick (“the Randwick property”). The defendant, Ms Robyn Smith, was given the right to reside in the Randwick property for at least 15 years provided she looked after Dr Ward’s cats. The other property of the estate was to be realised to form a fund from which the expenses of maintenance and repairs to the Randwick property were to be paid, and from which $200 per week was to be paid to Ms Smith for the upkeep of the cats. At the end of the period of 15 years, or until the last of the cats dies, if longer than 15 years, Ms Smith would be entitled to receive the Randwick property. The remaining balance of the fund would then be paid to the NSW Animal Welfare League. The Public Trustee was appointed as executor of Dr Ward’s will.

2 The gifts to Ms Smith were conditional upon Ms Smith agreeing to accept a condition obliging her to care for Dr Ward’s cats. She has accepted that condition.

3 The difficulty in this case is that Dr Ward was not the registered proprietor of the Randwick property. The registered proprietor is Helen Ward Nominees Pty Ltd (“Helen Ward Nominees”). Helen Ward Nominees entered into a contract to purchase the property on 1 June 1979. The purchase was completed on 8 October 1979. It held the property on trust pursuant to a discretionary trust deed. Dr Ward was not named as a beneficiary. At all times, Dr Ward was the beneficial owner of all of the shares in Helen Ward Nominees. She was a director from 31 May 1979 until her death. From 4 September 1998 she was the sole director.

4 Helen Ward Nominees has been replaced as trustee of the trust by the Public Trustee.

5 The Public Trustee filed a summons seeking judicial advice on questions arising under the will and the trust deed. These included whether Ms Smith took an interest in any assets under the will. The NSW Animal Welfare League was joined as a defendant. Ms Smith filed a cross-claim which has undergone a number of amendments. By consent, I ordered that the issues raised by Ms Smith’s cross-claim be determined separately and in advance of other issues in the proceedings. The active opponent to the relief claimed by Ms Smith was the NSW Animal Welfare League.

6 Ms Smith contends that the gift of the Randwick property to her in Dr Ward’s will is effective because Dr Ward was the beneficial owner of the property, or because Helen Ward Nominees was, and the Public Trustee is, estopped from denying that she was the beneficial owner of the property.

7 Ms Smith claims that it should be inferred that the trust deed was amended to include Dr Ward as a beneficiary or that the deed should be rectified to include her as a beneficiary. She contends that it should be inferred that Helen Ward Nominees exercised its powers under the trust deed to vest the Randwick property in her. Alternatively, she contends that there was a conventional estoppel which precluded Helen Ward Nominees from disputing that Dr Ward was beneficially entitled to the Randwick property, and that this estoppel binds the Public Trustee. Further in the alternative, she contends that Helen Ward Nominees held the property on a constructive trust for Dr Ward because Dr Ward and Helen Ward Nominees had the common intention that Dr Ward should have the beneficial interest in the property, and Dr Ward acted to her detriment in a way referable to that intention. It was also submitted that the property was held for Dr Ward on a resulting trust.

8 Counsel for Ms Smith also contends that if, by amendment or rectification, Dr Ward was a discretionary object, then by virtue of her control of the trustee, she was the beneficial owner of the Randwick property such that it passed to Ms Smith under the will.

9 If Dr Ward was not the beneficial owner of the Randwick property, there is a further question whether, by reason of her control of the trustee during her life and her testamentary wishes, the Public Trustee should exercise its powers as trustee to give effect to the wishes expressed in the will. That question is not directly raised by the second further amended cross-claim. It was alluded to by counsel for Ms Smith who referred to Re O’Callaghan (Deceased) [1972] VR 248 in their written submissions. However, the question was not directly addressed in the parties’ oral or written submissions.

Background

10 There are significant gaps in the documentary record. After Dr Ward’s death there were about 20 filing cabinets, about 30 archive boxes and several tea chests all filled with documents, at the Randwick property. The Public Trustee and Ms Smith arranged for an independent company to sort the records and dispose of older documents. After having discussed the matter with an officer of the Public Trustee, Ms Smith gave instructions for the company providing the service to destroy any medical or financial documents that were more than seven years old. More than 12 wheelie bin loads of documents were destroyed. There was a dispute as to whether the person with whom she dealt at the Office of the Public Trustee authorised an instruction to destroy financial records more than seven years old, but that need not be resolved. Even if Ms Smith misunderstood the advice she received from the Public Trustee, she did not improperly destroy documents. No adverse inference arises against Ms Smith because documents are missing. Many documents survived which were more than seven years old, including financial records. Where there are missing documents, they may well have been destroyed after Dr Ward’s death. On the other hand, they may have been lost or destroyed during her lifetime. Some documents, now claimed to be missing, might never have been created.

Purchase of the Randwick Property

11 Helen Ward Nominees entered into the contract to purchase the Randwick property on 10 June 1979. The contract for sale showed that Dr Ward had initially been named as the purchaser. Her name was crossed out and the name of Strong Holdings Pty Ltd inserted. The name of that company was subsequently changed to Helen Ward Nominees. The purchase price was $137,500. On 4 July 1979, the Bank of New South Wales offered Dr Ward a loan of $136,000 to be secured by mortgage. The sale was completed on or about 8 October 1979. Helen Ward Nominees gave a mortgage to Permanent Nominees (Aust) Ltd to secure the mortgage advance of $136,000. The mortgage advance was lent to Helen Ward Nominees and guaranteed by Dr Ward and Mr Geoffrey Strong. Mr Strong was released from his guarantee in August 1980.

12 Mr Geoffrey Strong was and is a solicitor. Initially, he was a shareholder and director of Helen Ward Nominees. He acted for Dr Ward on the purchase and prepared the trust deed. Strong Holdings Pty Ltd was a shelf company he had arranged to be registered. He deposed that on 31 May 1979, Dr Ward was issued with 99 of the 100 issued shares in Strong Holdings Pty Ltd and that he held one share, which he believes he would have held on trust for Dr Ward. He held the share because it was a director’s qualifying share. A company at that time needed two directors.

13 Mr Geoffrey Strong prepared the trust deed dated 1 September 1979. The settlor was Gerald Keith Strong. He was Geoffrey Strong’s father. Gerald Keith Strong died long before the hearing. Geoffrey Strong deposed that when he prepared the trust deed, his father was semi-retired and worked as a clerk in his office. He deposed that it was his practice to make his father the settlor of the vast majority of trusts that he was instructed to prepare. It was his practice that his father would give $10 to the client to open a bank account which would provide the settled sum for the purposes of the trust. He deposed that at all times his father acted on his instructions and did not exercise any independent discretion. I accept that evidence.

The Trust Deed

14 Helen Ward Nominees was named as the trustee of the deed, and executed the deed along with the settlor. The Trust Fund comprised the sum of $10 to be paid by the settlor and all accretions thereto made by the settlor or any other person. The trustee had the power to accumulate income, or from time to time during a year of income, to pay or apply the whole or any part of the income for the benefit of such of the “Income Beneficiaries” then living as the trustee in its absolute discretion might from time to time during the year of income determine. In the event that the trustee did not make an effective determination either to accumulate income or to apply income to one or more of the Income Beneficiaries, the income was to be held by the trustee on trust for Default Income Beneficiaries, and in default of there being any Default Income Beneficiaries in existence then for such charitable institution or charitable institutions as the trustee might in its absolute discretion determine. The “Income Beneficiaries” were those set out in the Fourth Schedule. The Fourth Schedule described such beneficiaries as:

The children or remoter issue of the said Helen Anne Ward

Any person who may at any time be or have been the spouse of any child or remoter issue of the said Helen Anne Ward

The parents of the said Helen Anne Ward

The brothers and sisters of the said Helen Anne Ward

The children and remoter issue of such brothers and sisters

Such charity as the Trustee may from time to time determine.

15 Notwithstanding the description of Dr Ward as “the said Helen Anne Ward” there was no earlier reference to Dr Ward in the deed.

16 The “Default Income Beneficiaries” were defined in the Fifth Schedule as “The children or remoter issue of the said Helen Anne Ward”.

17 Dr Ward was born on 27 November 1943. She was 35 when the trust deed was entered into. She had married a Dr Tyssen on 20 May 1967. They were divorced on 14 January 1976. She had no children. Her father died on 10 November 1969. Her mother died on 28 January 1992.

18 Dr Ward had a half-sister and two half-brothers by her father’s earlier marriage. Her half-sister, Gladys, had died on 23 November 1973 leaving two sons, her half-nephews. She had two half-brothers, Jack Ward born on 6 April 1919 and Spencer Thomas Ward born on 8 October 1922. Jack Ward died in about 1995. Spencer Thomas Ward is still living. When the trust deed was entered into, Dr Ward had a mother, two half-brothers, and two half-nephews.

19 Clause 2(d) provided that on the “Vesting Date”, the trustee should hold the trust fund for such of the “... Capital Beneficiary [sic] or such one or more thereof to the exclusion of the other or others thereof who or which shall be living or in existence (as the case may be) on the vesting date and in such proportions as the Trustees in their absolute discretion shall on or before the vesting date determine”.

20 The clause went on to provide that if the trustee had not made an effective determination of the trust fund on or before the vesting date then it should hold so much of the trust fund as should not have been the subject of an effective determination by the trustee upon trust absolutely for such of the Default Capital Beneficiaries as should be living or in existence on the vesting date. The “Capital Beneficiaries” were described in the Sixth Schedule. The Sixth Schedule was in the same terms as the Fourth Schedule. The Default Capital Beneficiaries were named in the Seventh Schedule. The description of Default Capital Beneficiaries was the same as the description of Default Income Beneficiaries. Dr Ward was not named as an Income Beneficiary, nor as a Capital Beneficiary.

21 Clause 2(e) empowered the trustee at any time prior to the Vesting Date to appropriate any part of the capital of the trust fund and hold the same upon trust absolutely for any Capital Beneficiary then living, whereupon such appropriated capital should cease to be part of the Trust Fund.

22 The “Vesting Date” was defined as follows:

“ ’Vesting Date’ means the first to occur of the following three dates namely;-

(a) the 30th day of June 2050; or

(b) the twentieth anniversary of the date of the death of the last survivor or the lineal descendants living at the date hereof of His late Majesty George V; or

(c) such earlier day of such earlier year as the Trustees may in their absolute discretion determine”.

23 Clause 2(i) provided that the trustee was to keep a written minute of any determination by it of the Vesting Date and of any determination under subclauses (a) (dealing with accumulation or appropriation of income), (b) (application of income for the benefit of a beneficiary), (d) (appropriation of capital), (e) (appropriation of capital prior to the vesting date), or (g) (declarations by the trustee as to whether property was received on capital or income account). No such minutes are in evidence.

24 Clause 4(b) empowered the trustee to exercise all powers and discretions conferred on it by the deed, notwithstanding that any director or shareholder had a direct or personal interest in the mode or result of the exercise of the power or might benefit directly or indirectly as a result of the exercise of the power.

25 Clause 6 empowered the trustee, with the consent of the appointor, to alter, vary or revoke all or any of the trusts and powers (other than a power in cl 7 dealing with appointment and removal of trustees), and to appoint and resettle the trust fund or any part of it as the trustee might in its absolute discretion from time to time think fit. Dr Ward was named as the appointor. Clause 7 provided that the appointor could, by deed, remove the trustee and appoint any company or person or persons other than the settlor, or a person who had paid or transferred to the trustee any property, to be a new trustee.

26 Clause 9 provided that the trustee could, with the consent of the appointor, by deed executed at any time before the vesting date, appoint any person or institution (other than an “excluded person”) as an Income Beneficiary or Capital Beneficiary.

27 Clause 11 provided:

(11) NOTWITHSTANDING anything in this Deed to the contrary expressed or implied no capital or income of the Trust Fund shall in any circumstances whatsoever be paid or transferred beneficially to or applied for the benefit of an excluded person and no power or discretion hereby or by law vested in the Trustees or any other person shall be capable of being exercised in such manner as to benefit any excluded person. An ‘excluded person’ for the purposes of this Deed means the Settlor and any natural person who shall at any time have made a disposition of property whether without consideration or upon any consideration other than full consideration in money or moneys worth to the Trustees to be held upon the trusts hereof, any Beneficiary (being a natural person) who at a time when he was a Beneficiary shall have made a disposition of property to the Trustees to be held upon the trusts hereof including a disposition of property made for full consideration in money or moneys worth but excluding a disposition of property comprising a loan of money made for full consideration in money or moneys worth or any Trustee. A ‘Disposition of property’ shall have the same meaning as is assigned thereto in Section 100 of the Stamp Duties Act 1920 (as amended) of the State of New South Wales at the date of this Deed and ‘property’ shall have the same meaning as is assigned thereto in section 3(1) of the said Act at the date hereof.

28 Clause 12 provided that the appointor could, by will or by deed, appoint any person or corporation in addition to or in substitution for the appointor. Subclause 12(d) provided:

(d) If upon the death of a natural person holding the office of Appointor, there is no person (including a corporation) holding such office and such natural person has made no provision in his will concerning the appointment of a person or corporation to the office of Appointor as provided in sub-clause (a) of this present clause then the personal representatives of such natural person shall hold the office of Appointor. The ‘personal representatives’ means the person or persons (including corporations) to whom probate of the will or letters of administration in the estate of such natural person shall first be granted by a Court of competent jurisdiction after the death of that natural person.

29 Pursuant to this clause, the Public Trustee became the appointor under the deed. On 15 April 2005, the Public Trustee exercised the appointor’s power to remove Helen Ward Nominees as trustee, and appointed the Public Trustee as trustee of the deed.

30 Clause 13 empowered the trustee, with the consent of the appointor, to resettle the whole or any part of the trust fund on the trustee of any other trust.

Purchase of 156-158 Avoca Street, Randwick

31 On 27 March 1981, Helen Ward Nominees exchanged contracts to purchase a property at 156-158 Avoca Street, Randwick. The purchase price was $267,000. A minute of meeting of directors of Helen Ward Nominees dated 27 March 1981 records Mr Strong and Dr Ward as being present and that:

It was affirmed by the Directors of the Company that the property known as 156-158 Avoca Street, Randwick was purchased by the Company as trustee of Helen Ward pursuant to a Deed of Trust dated 27th March 1981. The purchase price of $267,000 and the legal expenses are to be paid by raising a first mortgage advance from Lombard Australia Limited. Helen Ward will be personally responsible for the repayment of such mortgage and for the performance of the mortgage and she will personally enter into a Deed of Guarantee with Lombard Australia Limited for the due performance of the obligations under the mortgage. The balance of purchase money and legal expenses are to be paid by Helen Ward from her own funds.

32 No trust deed dated 27 March 1981 has been found. Mr Strong had no recollection of what the deed of trust dated 27 March 1981 referred to.

Company Annual Returns

33 On 9 July 1981, Mr Strong resigned as a director of Helen Ward Nominees and was replaced by Mrs Ruby Ward, Dr Ward’s mother.

34 Annual returns for Helen Ward Nominees for 1980 and 1981 were lodged with the National Companies and Securities Commission (“the NCSC”) on 29 March 1984. Annual returns for 1982, 1983 and 1984 were lodged on 5 and 20 March 1985. In 1983, a Mr Christopher Charlton was appointed as an accountant to attend to Dr Ward’s accounting, taxation and business requirements. He was then appointed to prepare financial statements and income tax returns for Helen Ward Nominees and the Ward Family Trust since its inception to 30 June 1982. He wrote to Madgwick & Madgwick, solicitors (“Madgwicks”), advising that head lease arrangements should be entered into between Dr Ward and her company. It appears that in 1983 such a draft document was prepared although there is no evidence as to whether it was entered into.

35 In July 1983, Madgwicks wrote to Mr Charlton in relation to Dr Ward’s affairs advising that the shares in the company would have to be transferred. Madgwicks reported on 29 June 1983 that Mr Strong had advised that he held no documents for Dr Ward.

36 On 8 July 1983, Madgwicks wrote to Mr Charlton in relation to possible stamp duty on transfers of shares and advised that “I presume there have been no loan accounts established so that there could be some sorting out to do there.”

37 The 1980 and 1981 annual returns for the company filed with the NCSC in 1984 showed that there were two members, Dr Ward and Mr Strong, and that they were the directors of the company for those years. The principal activity of the company was that of a trustee company. The annual return included a company profit and loss account which did not include the affairs of the trust. It showed the company as having no income or expenditure and $2 issued capital represented by cash of that amount.

38 The 1982 annual return, lodged on 5 March 1985, included notes to the accounts of the company. The notes stated that the company was trustee of the Ward Family Trust. There was no reference to any other trust of which it was trustee. A further note recorded that the company had incurred liabilities on behalf of the trust for which it acted as trustee amounting to $415,131. It was stated that adequate trust assets existed to indemnify the company against such liabilities. These liabilities include $376,056 as secured liabilities. It can readily be inferred that these secured liabilities were the balance owing on the loans of $136,000 from Permanent Nominees (Aust) Ltd for the purchase of 152-154 Avoca Street, Randwick and $267,000 from Lombard Australia Ltd for the purchase of 156-158 Avoca Street, Randwick.

39 Counsel for Ms Smith submitted that the minute of 27 March 1981 referring to the purchase of 156-158 Avoca Street by Helen Ward Nominees as trustee for Helen Ward, coupled with the 1982 annual return lodged in 1985 indicating that both properties were held on the same trust, shows that by 27 March 1981, Dr Ward was one of or the sole beneficiary of the trust. They submit that it should be inferred that a deed of trust dated 27 March 1981 referred to in the minute of the same date amended the beneficiaries of the trust created by the deed of 1 September 1979, by, at least, appointing Dr Ward as a beneficiary.

40 The annual return for Helen Ward Nominees for the calendar year 1984 records the issue in that year of 98 additional shares to Dr Ward to bring the number of shares to 100. Mr Strong deposed that those shares had been issued in 1979. The number of shares held by Dr Ward is not significant because Mr Strong acknowledges that he held the share issued to him on trust for Dr Ward.

41 The property at 156-158 Avoca Street, Randwick was sold on 21 May 1985 for $240,000.

Financial Statements of the Trust

42 The first financial statements for the trust in evidence are those for the year ending 30 June 1987. There are comparable figures for 1986. The financial statements show the Randwick property as an asset of the trust. It is brought to account at cost after depreciation in the sum of $140,091. The liabilities are a loan from Dr Ward of $104,632 as at 30 June 1987 and the “Beneficiaries’ Loan Account” of $35,449. The profit and loss statement showed income from rents received of $36,400 in each of the 1986 and 1987 years. Each of the profit and loss statements for the trust from 1987 to 1989 records income from “rents received” of $36,400. No depreciation is shown for 1988 or 1989.

43 According to the financial statements as at 30 June 1986 the trustee had liabilities in respect of the “Beneficiaries’ Loan Account” of $17,376 and a liability to Dr Ward of $122,959. The profit for the year ended 30 June 1987 was $36,146 (being the amount of rent received of $36,400 less depreciation). The financial statements recorded a distribution of net profit to Dr Ward of $31,913 and to Mrs Ruby Ward of $4,200.

44 The liabilities of the trustee as at 30 June 1987 were shown as $35,449 in respect of the Beneficiaries’ Loan Account and $104,632 in respect of the loan from Dr Ward. In 1987, the financial statements record a distribution of net profit of $18,073 to both Dr Ward and Mrs Ruby Ward. This indicates that the liability on the Beneficiaries’ Loan Account had increased by the amount of profit distribution of $18,073 to Mrs Ruby Ward. The loan owed to Dr Ward was increased by $18,073 in respect of the profit distribution to her but then reduced by the $36,400 being the cash received by Dr Ward. There was no change to the trust’s cash balance.

45 Notwithstanding that according to the profit and loss statements for the 1988 and 1989 years, the net profits of $36,400 in each year were distributed to Dr Ward and not to Mrs Ruby Ward, the balance sheets for those years show the Beneficiaries’ Loan Account increased by $36,400 each year, and the loan due to Dr Ward decreased by $36,400 each year. That is consistent only with net profit being distributed to Mrs Ruby Ward and being reflected in an increase in the amount owed to her recorded in the “Beneficiaries’ [sic] Loan Account”, and the rents of $36,400 allegedly paid by Dr Ward being repaid to her in reduction of the loan account due to Dr Ward. That is inconsistent with the stated profit distribution in the profit and loss account.

46 The property was let by Dr Ward to nurses or students. The rent, if paid by Dr Ward, would have been paid pursuant to a head lease and she would have sub-let the property. This arrangement could have had taxation advantages by transferring income to her mother. Nonetheless, the affairs of the trust were not being carefully accounted for. There is no corroborative evidence that a head lease was ever entered into. But it is clear that Dr Ward was being treated as a beneficiary and that the only other beneficiary to whom income was appointed was her mother, Mrs Ruby Ward.

47 Mrs Ruby Ward died on 28 January 1992. She left all her estate to Dr Ward.

48 The next financial statements in evidence were for 1996. In about 1990 or 1991, Dr Ward instructed a Mr Ron Collins, accountant, to prepare her personal tax return, the trust tax return for the Ward Family Trust, and the ASIC return for Helen Ward Nominees. He did so on the basis of summaries provided to him by Dr Ward of income and expenses. He was not provided with any documents or details of Dr Ward’s affairs by her former accountant. He was not provided with a copy of the trust deed. The 1996 income tax return includes comparable figures for the 1995 financial year. Again, the only income received was shown as rent of $36,400. The Randwick property was brought to account at cost. There was no provision for depreciation. The whole of the profit was applied to Dr Ward and she was shown as having drawn $36,400 in each financial year.

49 In about 1997, Mr Collins advised Dr Ward that she was not achieving any tax savings using the trust structure. This was because the income from rent notionally received by the trustee was provided to Dr Ward as a benefit and then became taxable at her personal rate. He advised Dr Ward that she could wind up the trust and avoid administration costs because she did not derive any benefit from it. She said that she did not want to do that as she might “one day use the trust as an investment vehicle”. She had not in fact been paying any rental income to the trustee.

50 From the 1998 financial year, the financial statements did not record any income, expenses or drawings for the trust. The financial statements disclosed total assets of $138,086, being land and buildings at cost plus cash of $10 and formation expenses of $306, and a liability to Dr Ward noted as “Beneficiaries Loan Accounts” of $138,076. There was no change to these figures.

Expenses of the Randwick Property and Mortgage Repayments

51 Dr Ward paid all of the rates, outgoings and expenses incurred before her death in relation to the property. She made all of the payments of interest and repayments of principal in respect of the loan for the purchase of the property. She received the rents from the property.

Dr Ward’s Understanding of the Trust

52 On 21 July 1992, Dr Ward wrote to the Randwick Council seeking to have the property at 152-154 Avoca Street assessed for rates on the basis of its being a residential building rather than a commercial building. She said that the building was a very old terrace, occupied by students and nurses from Prince of Wales Hospital. She had a one-bedroom flat there. The front bedroom had been partitioned off into an office/surgery. She had a part-time surgery in the room for three mornings a week but otherwise carried out research work at the University of New South Wales and the Prince of Wales Hospital. She said that the building had been bought 12 years previously in the name of Helen Ward Nominees which she described as “simply a trust company for my mother and myself to own the building. As my mother passed away earlier this year, the company serves no function except for my ownership of the building.”

53 Counsel for Ms Smith submitted that if Dr Ward was already one of the beneficiaries of the trust (either by an amendment to the trust deed made on 27 March 1981, or by rectification of the trust deed), the letter of 21 July 1992 amounted to a resettlement or an amendment of the trust deed to provide for Dr Ward to be the only beneficiary. The letter was also relied upon as establishing that at all times Dr Ward intended to be, and understood that she was, a beneficiary of the trust.

54 Dr Ward expressed the same sentiment on later occasions. On 18 February 1998, she wrote again to the Council “applying to reverse the original commercial DA to ‘residential’”. She said:

This building is owned in the name of Helen Ward Nominees – this was a

Family Trust

for my

Mother

and

Myself

. My mother passed away in 1992, so there are no longer any other persons interested, or involved, apart from myself.

55 On 9 June 1998, Dr Ward prepared and signed an Application for Development under s 77(3) of the Environmental Planning and Assessment Act 1979 (NSW) in respect of the Randwick property. The proposal she submitted did not involve the carrying out of any work. In the box requiring the consent of the owners of the property, she said that she consented to the application as “sole director of Helen Ward Nominees P/L a family trust (other members now deceased)”.

56 In notes she prepared in preparation for her will, Dr Ward drafted a gift of income expressed as “income from my property 152-154 Avoca Street Randwick owned by trust Helen Ward Nominees of which I am the only director ... ”. In the same document prepared in November 2001 she made a note that there should be no other claimants on the properties. In what appears to be a draft of her will, or possibly notes she prepared for herself in relation to it, dated 12 February 2002, Dr Ward again described the property as one “owned by my Trust Helen Ward Nominees (originally a trust for my mother and myself) of which I am the only director ... “. In her will she described the Randwick property as “my property”.

The Will

57 Dr Ward’s will was made on 5 September 2002. She appointed the Public Trustee her executor and trustee of the will. The will contains the following clauses referring to the Randwick property:

“ RIGHT OF RESIDENCE FOR RESIDENT

Trustee to Hold Randwick Property and Fund

2.00 If the Resident survives me, I give my property 152-154 Avoca Street, Randwick (‘the Residence’) and all the rest of my property (‘the Fund’) to the Public Trustee (‘my Trustee’) on trust.

2.01 If this property does not form part of my estate, I give instead the property which I owned and last used as my principal residence before my death.

2.02 My Trustee is to turn everything other than the Property into money and hold the proceeds as ‘the Fund’.

2.10 My Trustee is to allow the Resident to live there for 15 years following my death (or until the last of my cats die if longer than the 15 year period), (or until this right of residence ends in accordance with the clauses which follow).

2.11 If my cats die or abandon the property before the end of the period in clause 2.10, the Right of Residence will still continue for 15 years from the date of my death.

2.20 The income from the Fund is to be accumulated from time to time and made part of capital.

Resident

3.00 The Resident will be one of the following named persons who survive me and who is willing to carry out the condition as outlined in clause 4.00 below:

- 1st choice my friend Robyn
- 2nd choice my friend GAIL FERGUSON
- 3rd choice my friend KATRINA KING-KENNEDY.

Condition

4.00 It is a condition of the Right of Residence that the Resident agree to care for my cats ‘Georgie’ and ‘Melba’ and any other cat I own at the date of my death for the total period outlined in clause 2.10.

...

End of Right of Residence

5.00 The Right of Residence will end when:

- the period in clause 2.10 ends or

- none of the named beneficiaries in clause 3.00 wish to carry out the condition in clause 4.00.

...

Entitlement After Right of Residence Ends

8.00 Subject to the Resident’s rights, I give the Residence to whoever was the Resident willing to carry out the condition in clause 4.00 who is living at the end of the Right of Residence.

8.01 If the gift in clause 8.00 does not take effect, I make this gift to THE NSW ANIMAL WELFARE LEAGUE of 45 Herley Avenue, West Hoxton if it is in existence at the end of the Right of Residence.

8.02 Subject to the Resident’s rights, I give the Fund to THE NSW ANIMAL WELFARE LEAGUE of 45 Herley Avenue, West Hoxton if it is in existence at the end of the Right of Residence.

9.00 If the gift in clauses 8.01 and 8.02 does not take effect, I direct my Trustee in his absolute discretion to find a charity or organisation with similar objectives as the beneficiary in clause 8.01 and 8.02 in existence at the end of the Right of Residence.

...

Resident’s Rights

11.00 The Resident will have the right to exclusive occupation of the Residence until the right of residence ends.

11.10 However, she will have no interest in the Residence just because she is a resident. Nor will she have the right to lease or sell it.

Resident’s Obligations Regarding Residence

12.00 For as long as her right of residence continues, the Resident must keep the Residence secured and pay all or if partly rented, the proportionate regular outgoings on it.

12.01 The regular outgoings will include the costs of:

- keeping it secured

- maintaining it in a reasonable state of repair

- adequately insuring it against loss or damage

- all rates and taxes on it

- all fees charged by my Trustee in respect of the ongoing administration of the trust relating to it.

12.10 Any necessary capital repairs to the Residence are to be paid for out of the Fund. They are not the Resident’s responsibility.

...

Early End of Right of Residence

15.00 My Trustee may end the right of residence if in his opinion the Resident:

- has become medically unfit to continue to reside in the Residence and has vacated,

- has abandoned the Residence, or

- has persistently and wilfully refused to meet her obligations as a Resident.

15.10 My Trustee may only end the right because the Residence has been abandoned if the Resident has not lived there for at least 3 months.

15.20 My Trustee may only end the right because the Resident has persistently refused to meet her obligations if he has warned her that the right of residence will be ended if the refusal continues.

15.30 If the Resident advises the Public Trustee in writing that she wishes to give up the right of residence, the right will end in accordance with the terms of the advice. For example, if she advises that she wishes to give up the right at a particular date, the right will end on that date.

Sale Through Necessity & Payment of Trustee’s

16.00 My Trustee may sell the Residence without needing anyone’s consent if:

- the proceeds of sale are needed to pay any claim against the Residence (or the estate generally),

- the Property is unfit to live in without capital repairs and funds to pay for them are not available, or

- the Resident’s right of residence has ended and the beneficiaries entitled to the Residence do not agree to take a transfer of it.

Inference that Trust Deed Was Amended to add Dr Ward as a Beneficiary

58 Counsel for Ms Smith submitted that the trust deed was amended and new beneficiaries were added, or the trust fund was resettled pursuant to the trustee’s powers in cl 6, such that Dr Ward was added as a beneficiary and that she and her mother were the only beneficiaries of the trust. Alternatively, it was submitted that it should be inferred that Dr Ward was added as a beneficiary, that the trustee had determined to bring forward the Vesting Date, and had determined pursuant to cl 2(d) to hold the trust fund on behalf of Dr Ward, or alternatively for Dr Ward and Mrs Ruby Ward. Alternatively counsel submitted that it should be inferred that Helen Ward Nominees exercised its power under cl 2(e) of the trust deed to appropriate the entirety of the capital of the trust fund to be held on trust absolutely for Dr Ward, or alternatively for Dr Ward and Mrs Ruby Ward.

59 Whilst there was no direct evidence of any of these things, counsel submitted that it should be inferred that something was regularly done to bring about that position. Counsel for Ms Smith submitted that all distributions of trust income were made to Dr Ward or to her mother and that Dr Ward constantly referred to the trust as being for the benefit of herself and her mother, and no-one else. Counsel submitted that just as a trust may be inferred from entries made in books of account and memoranda, so a resettlement or amendment could be inferred from such entries.

60 In JW Broomhead (Vic) Pty Ltd (in liq) v JW Broomhead Pty Ltd [1985] VR 891, McGarvie J said (at 921):

A declaration of trust by a person may be implied from entries made by him in his books of account and memoranda, and from his treating property as trust property:

(1844) 14 Sim 186; 60 ER 328;

(1858) 4 K & J 204; 70 ER 85;

[1897] 2 QB 19;

[1974] Ch 269, at pp. 319-20 and 325;

, 4th ed., vol. 48, pp. 295-6, para. 543, n. 3.

61 The fact that the financial statements for the trust show that the trust income was distributed to Dr Ward and her mother is evidence that Dr Ward and the accountant who prepared the financial statements believed that she was a beneficiary. It is also consistent with all of the other named discretionary objects remaining discretionary objects of the trust, but with Dr Ward (or her accountant) deciding to distribute the trust income only to Dr Ward and (while she was alive) Mrs Ruby Ward.

62 However, I do not infer that Dr Ward or her advisors gave attention to the terms of the trust deed and amended the trust deed so as to provide for her to be a beneficiary. Had Dr Ward acquainted herself with the terms of the trust instrument, she would have noticed from the outset that she was not named as a beneficiary. I do not think that it can be inferred from the fact that she was treated as a beneficiary that the trust deed was amended to provide for her to be named either as an additional discretionary object, or as one of only two discretionary objects (namely herself and her mother), or that the trust was resettled. Such evidence as there is about the trust does not show that Dr Ward and her advisers attended to detail. Neither Mr Strong nor Dr Ward read the trust deed carefully enough in 1979 to appreciate that Dr Ward was omitted as a beneficiary. Annual returns for the company were not lodged on time. In 1983, Madgwicks were looking for documents and advised that a head lease should be entered into and loan accounts established to put affairs in order. There is no evidence that a head lease was entered into. As indicated in para [45] the financial statements for 1988 and 1989 contain internal inconsistencies.

63 As noted in para [39], counsel for Ms Smith submitted that it should be inferred that a deed of trust dated 27 March 1981 governed the trusts upon which both the Randwick property and the neighbouring property at 156-158 Avoca Street were held and that pursuant to that trust deed, Dr Ward was the beneficiary, or alternatively, a beneficiary, of the trust. No deed of trust dated 27 March 1981 has been found.

64 Mr Strong was a director of Helen Ward Nominees on 27 March 1981. He had no documents to provide to Madgwicks in 1983. There is nothing in the minute of 27 March 1981 suggesting a resettlement of the trusts created by the deed of 1 September 1979 on which the Randwick property was held. The minute refers only to Dr Ward being the beneficiary of a trust of the property at 156-158 Avoca Street. If the inference contended for is to be drawn, it must be based upon the notes to the 1982 annual return for the company which stated that the company was trustee of the Ward Family Trust and had liabilities which, it can be inferred, were for the balance owing on loans for the purchase of both properties. However, in my view, the inference counsel submitted should be drawn is too tenuous. The available financial statements do not show any precision or attention to detail. If there were earlier financial statements showing that there had been a change to the trusts on which the Randwick property was held then the inference might well be drawn. No such financial statement is available. In my view, the brief note in the 1982 annual return referring to the Ward Family Trust is likely to be a reference to the trusts created by the deed of 1 September 1979. That suggests that the property at 156-158 Avoca Street had become subject to those trusts, or it was assumed by the accountant who prepared the financial statements that both properties were held on the same trust. It does not further suggest that Dr Ward had become the sole beneficiary, or even a beneficiary, of that trust.

65 The fact that Dr Ward believed that the trust was established for her mother and herself does not indicate that the trustee took the steps required by cl 2(d) to bring forward the vesting date and determine that the trust fund would be held on trust for Dr Ward or for Dr Ward and Mrs Ruby Ward, or that it made an appropriation of capital pursuant to cl 2(e). Dr Ward’s correspondence rather suggests that she did not give attention to the terms of the trust deed. She did not appreciate that the trust had not been established simply as one for her mother and herself to own the building, or that she was not originally named as a beneficiary, or that there were other named beneficiaries apart from her mother. I do not infer that she gave attention to the terms of the trust deed by which she could have caused the trust property to have been held on trust for her alone.

The Beneficiaries

66 It is unnecessary to decide whether Helen Ward Nominees would have been in breach of trust had it resettled the trust to settle the Randwick property on Dr Ward if she were not already a beneficiary. However, in case the matter goes further I should indicate that I would accept the submissions of counsel for Ms Smith that the trustee would not necessarily have been in breach of the trust deed in doing so, even though such a resettlement could not have been in the interests of the existing beneficiaries. The trustee was empowered to add beneficiaries and could exercise that power, as well as the other powers under the trust deed, notwithstanding it would have provided a benefit to Dr Ward. Of course, had the power been exercised, it would have been necessary for the trustee to give due consideration to all of the objects of the trust in considering whether or not to exercise the power.

67 A question arose as to whether there were any other beneficiaries whose interests were to be considered after Mrs Ruby Ward’s death. On any view, the trustee was entitled to appoint income or capital to such charity as it might determine. It was bound to consider whether to appoint any income of the trust to one or more charities, and if it accelerated the vesting date or otherwise made an appropriation of capital or resettled the trust, it would have been required to consider whether any of the trust funds should be applied for the benefit of one or more charities.

68 Also, in my view, half-brothers and half-sisters, and children of half-brothers and half-sisters of Dr Ward were included as discretionary objects. The Chambers Dictionary ((2003) Chambers Harrap Publishers) defines “brother” as including a half-brother. The definition is “a male in relation to another person of either sex born of the same parents or (half-brother) parent ...”. The Macquarie Dictionary (rev 3rd ed (1997) Macquarie) has the following definition: “brother 1 a male child of the same parents as another (full brother or brother-german). 2 a male child of only one of one’s parents (half brother).” The Wills, Probate and Administration Act 1989 (NSW) provides in the order of statutory trusts on intestacy for brothers and sisters of the whole blood to be followed by brothers and sisters of the half blood (s 61B(6)) thereby indicating that a half-brother or half-sister is a brother or sister. If “brothers and sisters” are a genus, in my view half-brothers and half-sisters are a species within that genus.

69 The trust deed should be construed having regard to the objective matrix of facts in which it was entered into. Dr Ward had no brothers or sisters of the full blood. Therefore there would be no reason to have included full blood brothers and sisters of Dr Ward, or their children or remoter issue, as income or capital beneficiaries. Dr Ward’s father had died. Even if her mother adopted another child, there would be no possibility of Dr Ward having a brother or sister of the full blood. This also points to construing the words “brothers and sisters” as including half-brothers and half-sisters.

70 Accordingly, the trustee was also obliged to consider Dr Ward’s half-brothers and her half-nephews in exercising its powers.

Rectification

71 It could not be contended, and was not, that the trust deed should be rectified to provide for Dr Ward, or Dr Ward and her mother, to be the only beneficiaries to the exclusion of the other discretionary objects named in the deed. For the trust deed to be rectified there must be clear and convincing evidence that at the time the trust deed was executed the trustee and the settlor had an actual intention as to the effect which the deed was intended to create which was different from the effect which the instrument did have in a clearly identified way (Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 345). It must be demonstrated with clarity that the parties had a sufficiently precise intention that the court can determine both the substance and the detail of the precise variation to be made to the wording of the instrument (Bush v National Australia Bank Ltd (1992) 35 NSWLR 390 at 407; Muriti v Prendergast [2005] NSWSC 281 at [137]).

72 There was no evidence of a contemporaneous statement by Dr Ward as to her intentions, but there were nonetheless numerous later manifestations of her intention. She clearly believed that she was a beneficiary of the trust. Indeed, in later years, she believed that she and her mother were the only beneficiaries of the trust. However, it is incomprehensible that when the trust deed was executed she should have believed that she and her mother were the only beneficiaries; as distinct from her believing they were included amongst the beneficiaries to whom she, by her control of the trustee, could appoint the income and property of the trust.

73 There is no direct evidence of the settlor’s intentions. I accept Mr Strong’s evidence that at all times his father acted on his instructions and did not exercise any independent discretion. His father was the settlor of numerous trusts. It can be safely inferred that the settlor either had no intentions as to the terms of the trust deed, or intended that the trust deed should have the effects which the client or his son intended, whatever that might be.

74 Mr Strong was a co-director of the trustee, Helen Ward Nominees. In attributing an intention to the trustee, his intentions, as well as those of Dr Ward, are relevant. Mr Strong gave evidence, which I accept, that the trust deed was based on a standard precedent he used and that it was his invariable practice at the time to name his client as the first income beneficiary and the first capital beneficiary in the relevant schedules. He said he had no recollection of having received any contrary instruction from Dr Ward. Although he had some recollection of the matter, I do not think he had a detailed recollection of what instructions he did or did not receive. Nonetheless, I do not think it likely that he received any instruction from Dr Ward that she not be named as a beneficiary. To the contrary, I conclude that she always assumed that she was a beneficiary, and that she had intended to be a beneficiary of the trust.

75 When the trust deed was entered into, there was still death duty in New South Wales. It would not have been irrational for Dr Ward to have been excluded as a beneficiary of the trust. If death duty had been in mind, then it might well have been thought that given her beneficial ownership of the shares in the trustee company and her capacity to control the trustee, if she were a discretionary object, her interest as such coupled with her shareholding in the trustee might be assessed as having substantial value. However, Mr Strong gave evidence that it was his standard practice even when death duty was in force before 1982 to include the client as a beneficiary in a discretionary trust. He was of the view that the nature of a discretionary trust was such that it provided sufficient protection against death duty. Whether or not that was a correct view to take at the time, I accept Mr Strong’s evidence that it was his usual practice to include the client as an income and capital beneficiary when drawing such trust deeds even before the abolition of death duty. It is therefore probable that it was Mr Strong’s intention at the time that Dr Ward be included as a capital and income beneficiary.

76 By itself, this evidence might not amount to the clear and convincing proof required in rectification cases. However there is corroborative evidence from the text of the trust deed itself that Dr Ward’s omission as an income and capital beneficiary was a mistake. The fact that the trust deed named the income and capital beneficiaries as children or other relations of “the said Helen Anne Ward” indicates that the draftsman of the trust deed had intended to include Dr Ward as a beneficiary. The reference to “the said Helen Anne Ward” is not explained by her being named as the appointor, because that is contained in a later part of the deed. I accept Mr Strong’s evidence that it is likely her omission was due to a typographical error. Mr Strong explained that in his precedent trust deed the second-named beneficiary would have been recorded as the spouse of the client. He said that because Dr Ward had no spouse, that line would have been deleted from the draft of the trust deed and it is possible that in doing so the first-named beneficiary, Helen Anne Ward, was also deleted by mistake. I accept that that is what happened.

77 It follows that the trust deed should be rectified by including Dr Ward as one of the income and capital beneficiaries. Upon the deed being rectified, she is to be treated as always having been a named beneficiary.

78 I do not accept counsel’s submission that Dr Ward’s letter of 21 July 1992 (referred to in para [52]) amounted to a resettlement or an amendment of the trust deed to provide for her to be the only beneficiary. The power of amendment or resettlement was vested in Helen Ward Nominees, rather than in Dr Ward personally. The letter does not purport to be an exercise by the company of any power under the trust deed.

79 There is a question as to whether Dr Ward was precluded from taking any benefit under the trust deed because of cl 11 (quoted at para [27] above). Dr Ward would be precluded from obtaining any interest in the trust property if she were an “excluded person”. The definition of “excluded person” is set out in that clause. Section 100 of the Stamp Duties Act 1920 (NSW) referred to in cl 11 defined the phrase “disposition of property” widely. Relevantly, the definition included the making of a payment. The question is whether the transaction or transactions by which Dr Ward became a creditor of the trustee involved her making a payment to the trustee to be held on the trusts of the trust deed otherwise than by way of loan for “full consideration in money or money’s worth”. In their written submissions, counsel for Ms Smith initially contended that Dr Ward lent money to Helen Ward Nominees to enable it to repay the mortgage on the Randwick property. Any such loan was interest free. The trustee’s promise of repayment would not be full consideration in money or money’s worth for the loan if the loan were interest-free (McGain v Federal Commissioner of Taxation (1966) 116 CLR 172).

80 In final oral submissions, counsel for Ms Smith sought to correct the characterisation of the arrangements for the acquisition of the properties. In the case of the purchase of the Randwick property, the loan was provided by Permanent Nominees (Aust) Ltd to the trustee. Dr Ward guaranteed the loan. The plaintiffs initially submitted that she lent the money to Helen Ward Nominees to enable it to repay the mortgage on the Randwick property in 1985, but counsel submitted that the better characterisation of events was that Dr Ward herself discharged the debt of Helen Ward Nominees to Permanent Nominees (Aust) Ltd and that Helen Ward Nominees became liable to her not for moneys lent to it, but for moneys paid to its use at its request. I think this characterisation of events is correct.

81 In any event, even if there were a loan by Dr Ward to Helen Ward Nominees the moneys lent were not property to be held upon the trusts of the trust deed. Rather, they were moneys applied to relieve the trustee of a liability against which it was entitled to be indemnified out of the trust property. I accept that there was no disposition of property by Dr Ward to Helen Ward Nominees to be held on the trusts of the trust deed. Nor did the payment of the trustee’s expenses amount to a disposition of property by Dr Ward to the trustee to be held on the trusts of the trust deed. There would in any event have been full consideration for the payment of expenses, both in the form of the implied promise of the company to indemnify Dr Ward in respect thereof, and from the fact that Dr Ward was allowed to receive the rents of the property.

82 For these reasons, I do not consider that cl 11 precludes Dr Ward from being treated as one of the discretionary objects.

Estoppel by Convention

83 Counsel for Ms Smith submitted that both Helen Ward Nominees and Dr Ward adopted the assumption that Dr Ward and her mother were, until her mother’s death in 1992, the only beneficiaries of the trust and that Dr Ward was from that time onwards the sole beneficiary of the trust. They submitted that as the sole director of Helen Ward Nominees, Dr Ward was the controlling mind of the company and her knowledge and state of mind are to be attributed to it. Counsel submitted that departure from that assumption would occasion detriment to Dr Ward because:

(a) she acted on the basis of the assumption in not acting to ensure that appropriate steps were taken and recorded pursuant to the trust deed to make herself the sole beneficiary, or alternatively to make herself and her mother the only beneficiaries;

(b) she personally paid all outgoings, made capital improvements and repairs in respect of the Randwick property believing that it was owned by herself, albeit through a trust originally set up for her and her mother, repaid the loan from Permanent Nominees (Aust) Ltd to Helen Ward Nominees and received no interest on the debt; and

84 Counsel submitted that an estoppel by convention prevented both Dr Ward and Helen Ward Nominees Pty Ltd from denying that, at the date of her death, Dr Ward was the sole beneficiary of the trust and that that estoppel binds the Public Trustee (Commonwealth v Verwayen (1990) 170 CLR 394 at 444).

85 I accept that if there is an estoppel binding Helen Ward Nominees which requires it to hold the trust property on trust solely for Dr Ward that that estoppel binds the Public Trustee which has succeeded to the office of trustee.

86 In Moratic Pty Ltd v Gordon [2007] NSWSC 5; (2007) ANZ ConvR 198; NSW ConvR 56-172; Aust Contract R 90-255 (at [32]), Brereton J said that:

In common law conventional estoppel, it is necessary for a plaintiff to establish (1) that it has adopted an assumption as to the terms of its legal relationship with the defendant; (2) that the defendant has adopted the same assumption; (3) that both parties have conducted their relationship on the basis of that mutual assumption; (4) that each party knew or intended that the other act on that basis; and (5) that departure from the assumption will occasion detriment to the plaintiff.

Ryledar Pty Ltd v Euphoric Pty Ltd

87 The key requirement in the present case is that “both parties have conducted their relationship on the basis of that mutual assumption”. As Brereton J also observed in Moratic Pty Ltd v Gordon (at [37]), it is a requirement of a conventional estoppel that each party know or intend that the other act on the relevant assumption.

88 Reliance on the assumption as to the conventional basis of the parties’ relationship, and detriment to the party claiming the estoppel if the opposite party is permitted to depart from that assumption, are necessary elements of a conventional estoppel (M K & J A Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39 at [72]; Ryledar Pty Ltd v Euphoric Pty Ltd at [202]-[203]).

89 Moreover, as Deane J said in Commonwealth v Verwayen at 444, the allegedly estopped party (at 344):

must have played such a part in the adoption of, or persistence in, the assumption that he would be guilty of unjust and oppressive conduct if he were now to depart from it. The cases indicate four main, but not exhaustive, categories in which an affirmative answer to that question may be justified, namely, where that party:(a) has induced the assumption by express or implied representation; (b) has entered into contractual or other material relations with the other party on the conventional basis of the assumption; ...”

90 In Waterman v Gerling Australia Insurance Co Pty Ltd [2005] NSWSC 1066; (2005) 65 NSWLR 300, Brereton J (at 328 [96]) correctly observed that conventional estoppel is not distinct from but is a sub-species of estoppel in pais and is encompassed by the statements of principle in Grundt v Great Boulder Pty Limited Gold Mines Ltd (1937) 59 CLR 641. In Grundt, Dixon J said (at 674-675):

The principle upon which estoppel in pais is founded is that the law should not permit an unjust departure by a party from an assumption of fact which he has caused another party to adopt or accept for the purpose of their legal relations. This is, of course, a very general statement. But it is the basis of the rules governing estoppel.

91 In my view, it is not enough to show that Dr Ward believed that she and her mother were the sole beneficiaries of the trust and that after her mother’s death, she was the sole beneficiary of the trust, and that she refrained from taking action to formalise the position because of that belief. It is not enough that the trustee may also be taken to have had that belief because she was its controlling mind. It must be shown that some action or inaction on the part of the trustee caused Dr Ward to hold or to continue to hold that belief, and to refrain from taking action to formalise the position, or otherwise to act to her detriment. That may be shown if, to use the language of Brereton J from Moratic Pty Ltd v Gordon (at [32]), “both parties have conducted their relationship on the basis of that mutual assumption [and] each party knew or intended that the other act on that basis”. I do not consider that anything that Dr Ward did or failed to do was the result of any action or inaction on the part of Helen Ward Nominees, or that Helen Ward Nominees knew or intended that Dr Ward should act on that basis. Helen Ward Nominees gave no thought to the basis on which Dr Ward should act.

92 In The August Leonhardt [1985] 2 Lloyd’s Rep 28 at 34-5 (quoted with approval in Handley, Estoppel by Conduct and Election (2006) Sweet & Maxwell at [8-011]), Kerr LJ expressed a similar concept as follows:

All estoppels must involve some statement or conduct by the party alleged to be estopped on which the alleged representee was entitled to rely and did rely ... in cases of so-called estoppels by convention, there must be some mutually manifest conduct by the parties ... in the present case ... each acted – or failed to act – independently from the other on the basis of a mutual mistake which remained uncommunicated between them. There cannot be any estoppel unless the alleged representor has said or done something, or failed to do something, with the result that – across the line between the parties – his action or inaction has produced some belief or expectation in the mind of the alleged representee.

93 Counsel for Ms Smith submitted that any requirement for some communication “across the line” was satisfied in this case. The common assumption adopted by Dr Ward and by Helen Ward Nominees was manifested in the accounting treatment in the tax returns for the trust and the communications with Randwick Council and Sydney Water.

94 However, whilst I accept that Dr Ward adopted the same assumption both in her personal capacity and when she was acting as director of Helen Ward Nominees, that does not mean that any action or inaction of Helen Ward Nominees produced some belief or expectation in the mind of Dr Ward which caused her to refrain from acting. Such conduct on the part of Helen Ward Nominees is in my view essential to ground an estoppel.

95 For these reasons I conclude that the Public Trustee is not estopped on the grounds of conventional estoppel from denying that Dr Ward was the beneficial owner of the Randwick property.

96 It is strictly unnecessary to consider whether Dr Ward acted to her detriment on the basis of the assumption she adopted that she was the beneficial owner. However, I should say that if I had been of the view that Helen Ward Nominees had caused Dr Ward to adopt the assumption that she was the beneficial owner of the Randwick property, the requirement that Dr Ward suffer a detriment if the trustee were to be permitted to depart from that assumption would be fulfilled. It is true that during her lifetime and after 1992 Dr Ward enjoyed the property as if she were the beneficial owner. She derived all of the rents from the property. If there was any trust income, it was paid to her. I would not accept that her payment of principal and interest on the mortgage, or payment of expenses for the property, was a relevant detriment when she enjoyed the property during her life. However, if her testamentary wishes were to be frustrated because she was not the beneficial owner of the Randwick property, I would accept that that was a sufficient detriment.

97 Had the estoppel claim otherwise succeeded, it would be necessary to consider the relevance, if any, to an estoppel in pais that the assumption of beneficial ownership was only adopted by Dr Ward because she failed to attend to the terms of the trust deed and failed to consider the position of other discretionary objects. Those matters could be relevant to whether to permit the trustee to depart from the assumption adopted by Dr Ward would be unjust. It is unnecessary to decide that question as Helen Ward Nominees did not cause Dr Ward to adopt the assumption.

Constructive Trust

98 The constructive trust claim fails for similar reasons. Counsel for Ms Smith submitted that the constructive trust arose in order to prevent unconscionable reliance on title to the property in circumstances where there had been a common intention as to beneficial ownership on the face of which Dr Ward had changed her position and would suffer detriment if the common intention were not carried out.

99 However, for such a constructive trust to arise based upon the parties’ common intention, it must be shown that Dr Ward acted to her detriment in a way which was referable to “the common intention proved and undertaken on the footing of the grant of the beneficial interest claimed” (Austin v Keele (1987) 10 NSWLR 283 at 291; see also Carruthers v Manning [2001] NSWSC 1130 at [124]; Cambouya Pty Ltd v Buchanan [2005] NSWSC 743 at [39]-[41]; Shepherd v Doolan [2005] NSWSC 42 at [40] and the cases there cited).

100 Dr Ward did not act or refrain from acting because of any agreement with Helen Ward Nominees, nor because of that company’s intention (held through her as its director) that she was a beneficial owner of the property. Her actions and inactions simply arose because she adopted the assumption.

101 In any event, it is not unconscionable for the trustee to deny that Dr Ward had the sole beneficial interest in the property when it was Dr Ward’s duty as the director of the trustee to consider the claims of all of the persons who might qualify as capital and income beneficiaries.

102 Dr Ward’s assumption that she was the sole beneficial owner of the property only arose because she failed in her first duty as a director of the trustee to ascertain the terms of the trust. Equity would not come to her aid to give effect to her understanding that after her mother’s death she was the sole beneficial owner of the property by declaring or enforcing a constructive trust in her favour, when she, as a director of the trustee, had a duty to consider the other discretionary objects, even though, after such consideration, she was entitled to cause the trustee to apply the property for her own benefit. To allow the remedy of constructive trust in this case would be to reward a breach of trust by Helen Ward Nominees for which Dr Ward was responsible. She failed to consider any claims of other potential discretionary objects. It was submitted for Ms Smith that there were no other potential discretionary objects after Ruby Ward’s death other than such charity as the trustee might from time to time determine. Even if that were so, it was nonetheless the trustee’s duty to consider appointing a charity as an income or capital beneficiary. In fact, for the reasons given, I do not consider that the range of discretionary objects was so limited.

Resulting Trust

103 There is no presumption of a resulting trust. Dr Ward did not provide the purchase price for the Randwick property. The purchase price for the Randwick property was provided by way of loan by Permanent Nominees (Aust) Ltd. Dr Ward became a creditor of the trustee by discharging the loan. It was submitted for Ms Smith that in substance Dr Ward provided the purchase money by procuring the loan from Permanent Nominees (Aust) Ltd which she guaranteed and repaid. However, for the presumption of a resulting trust to apply, the money must be provided by the purchaser in his or her character as such, and not, for example, as a loan (Calverley v Green (1984) 155 CLR 242 at 246). Dr Ward did not do that. In any event, the circumstances of the execution of the trust deed would rebut a presumption of a resulting trust even if Dr Ward had advanced the purchase price.

Beneficial Ownership by Virtue of Control

104 Ms Smith pleaded that if by rectification of or amendment to the trust deed Dr Ward were included as one of the listed income and capital beneficiaries, then, because Dr Ward controlled Helen Ward Nominees, its powers of selection of beneficiaries and the assets of the trust, at Dr Ward’s death she held the beneficial interest in the assets of the trust and therefore the beneficial interest in the Randwick property.

105 Ms Smith also pleaded that even if Dr Ward were not an object of the discretionary trust, her control of the trustee gave her the beneficial interest in the assets of the trust. In view of my conclusion that the trust deed should be rectified to include her as one of the discretionary objects, it is not strictly necessary to consider that further submission. However for the reasons which follow, I would reject it. Indeed, to say that a person who controls a trustee which holds property on trust for others, rather than the beneficiary of the trust, is beneficially entitled to the trust property, is inconsistent with the very notion of a trust.

106 Counsel for Ms Smith disclaimed any argument that the trust was a sham.

107 As it is conceded that the terms of the trust deed were intended to operate according to their tenor, it follows that Dr Ward’s interest as one of the discretionary objects did not amount to a proprietary interest in any of the assets of the trust or in the trust fund as a whole (Gartside v Inland Revenue Commissioners [1968] AC 553 at 617-618; R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1992-1994) 10 WAR 59 at 79; Lygon Nominees Pty Ltd v Commissioner of State Revenue [2007] VSCA 140; 66 ATR 736 at [76]-[78]). As one of the capital and income beneficiaries amongst whom the trustee was entitled to appoint the income and capital, Dr Ward was entitled to enforce due administration of the trust. She was not the less so entitled because as the sole shareholder (or in earlier years, as the sole beneficial shareholder) and as the controlling director (and in latter years the sole director), she controlled the trustee. The fact that she would not need the assistance of a court of equity to enforce the trustee’s obligations does not mean that as a beneficiary she was not entitled to invoke equity’s jurisdiction. But, unless the corporate structure of the trustee is entirely disregarded, she cannot be treated as if she were the trustee. The separate existence of the trustee cannot be disregarded consistently with treating the trust as taking effect according to its tenor.

108 In my view, on orthodox principles, neither the fact that Dr Ward was in a position to control the exercise of the trustee’s powers, and was in any event entitled to remove the trustee and appoint a new trustee, nor the fact that she could cause the trustee to appoint the income or capital of the trust to herself, would mean that she was the beneficial owner of the trust property prior to causing the trustee to appoint the property to herself. Even a donee of a general power of appointment is not the beneficial owner of the property prior to the exercise of the power, although for many purposes such a donee will be treated as if he or she were the beneficial owner. As Fry LJ said in Ex Parte Gilchrist; Re Armstrong (1886) LR 17 QBD 521 at 530-531:

The question is, whether the general power of appointment given to the bankrupt is her ‘separate property’ within the meaning of sub-s. 5 of s. 1 of the Act of 1882. To my mind the question is one of the most elementary description, and, if it had not been argued as it has, I should have thought it unarguable. No two ideas can well be more distinct the one from the other than those of ‘property’ and ‘power’. ... A ‘power’ is an individual personal capacity of the donee of the power to do something. That it may result in property becoming vested in him is immaterial; the general nature of the power does not make it property. ... Not only in law but in equity the distinction between ‘power’ and ‘property’ is perfectly familiar.

109 Dr Ward did not hold a general power of appointment. She had no power to appoint property. She had a power to remove the trustee and to appoint a new trustee. The trustee, and not Dr Ward personally, had a special power of appointment to the named income and capital beneficiaries which included Dr Ward herself consequent upon rectification of the trust deed. By virtue of cl 4(b) of the trust deed, the trustee was not precluded from appointing capital or income to Dr Ward, notwithstanding that she was a director and shareholder of the trustee and had a personal interest in the exercise of the discretion. But that fact did not entitle Dr Ward to the capital or income unless and until the trustee exercised its power under the deed in her favour. The argument for Ms Smith amounts to this: that the power to control the exercise of the trustee’s discretions to appoint the trust property to herself meant that Dr Ward, by virtue of such power, was the beneficial owner of the property. In my view, such reasoning confuses power on the one hand and the disposition of property through exercise of power on the other. In my view, the argument is inconsistent with the recognition that the trust deed is not a sham, that is, that it was intended to operate according to its tenor. That is because on the tenor of the trust deed the property of the trust is vested in the trustee and the beneficiaries become entitled to the income or capital of the trust only upon the exercise of the favourable discretion by the trustee. To say that one of the beneficiaries already has the beneficial ownership of the property would be to transmute the terms of the trust. If the argument is correct then, presumably, the trust would have to be read as empowering the trustee to divest Dr Ward of her beneficial interest if the trustee decided to appoint the property to someone else, such as Mrs Ruby Ward, or a charity. However, they were not the terms of the trust.

110 Counsel for Ms Smith relied on a number of cases in the Family Court and also upon R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd and Australian Securities and Investments Commission v Carey (No. 6) in support of this submission. It is convenient first to deal with the family law cases upon which counsel relied. Properly understood, they do not justify the conclusion that Dr Ward was the beneficial owner of the Randwick property notwithstanding that as the director of Helen Ward Nominees she would have been entitled to cause the company to exercise its trust powers to appoint the property to herself provided that she gave due consideration to the claims of other discretionary objects.

111 Counsel referred first to In Marriage of Davidson (No. 2) (1990) 101 FLR 373 which in turn referred to In Marriage of Ashton (1986) 11 Fam LR 457. In Davidson (No. 2), the Full Court of the Family Court said (at 381-383):

“The wording of the provisions of the MAVK Trust deed which have been cited above, coincides closely with those of the Ashton Family Trust considered in some detail by Strauss J when delivering the judgment of the Full Court in In the Marriage of Ashton ... . As was the case in Ashton the trustee of the MAVK Trust is a company of which the husband is ostensibly an equal shareholder but which the learned trial judge described as ‘the creature’ of the husband. We are of the view that on the evidence this finding was open to him.

... the list of beneficiaries ... includes a company in which the husband's present wife, child, or other relative of the husband has a shareholding and there is nothing in the deed to prevent the husband from holding the overwhelming majority of the shares in such a company and from receiving the full benefit of a distribution to that company. The husband in the present case therefore has an ability ... to distribute capital or income to himself through a company in which, say, his present wife or one of his children is a minority shareholder.

It was argued that such a manipulation of the provisions of the trust would amount to a breach of the fiduciary duty of the husband as appointor relying on the decision of Kay J in

(1889) 42 Ch D 522. Whatever may have been the position one hundred years ago, Australian courts today have to look at the reality of the situation and the purpose which family trusts serve today. A limitation as to the husband's power to control the assets and income of the trust in accordance with the provisions of the trust deed, is inconsistent with the reasoning of the Full Court in

. ...

It is our view ... that if the husband were to follow the procedure outlined above, it will not render him liable to any other beneficiary.

... It seems to us moreover, that the husband could properly utilise cl (12)(a) to pay the wife direct and distribute the balance of the trust property ultimately to himself through his company if he wished ...

...

We adopt the words of Strauss J when dealing with the Ashton Family Settlement deed, that no person other than the husband has any real interest in the property or income of the MAVK trust except at the will of the husband, and that therefore he has the

ownership of the trust property. We are of this view notwithstanding the existence of a valid trust. The reality of the matter is that the husband can lawfully benefit directly any of the potential beneficiaries at any time or, indirectly, himself. ... It is implicit in the findings of the learned trial judge that the trust is not a sham. This is our view also.

112 In In Marriage of Ashton, Strauss J, with whom Ellis and Emery JJ agreed, said (at 461-462):

It was conceded throughout that the husband was in full control of the assets of the trust, and the evidence made it clear that he was applying them and income from them as he wished and for his own benefit. Having regard to the admissions made during the hearing, there are good grounds for saying that the trust is no more than the husband's

. ...

The powers which the husband has in the Ashton Family Settlement give him control of the trust either as trustee or through a trustee which is his creature, and at the same time he is able to apply all the income and property of the trust for his own benefit. In my opinion, in a family situation such as the one here, this court is not bound by formalities designed to obtain advantages and protection for the husband who stands in reality in the position of the owner. He has de facto legal and beneficial ownership.

113 These cases concern the application of s 79 of the Family Law Act 1975 (Cth). Section 79 relevantly provides that:

“ 79 Alteration of property interests

(1) In property settlement proceedings, the court may make such order as it considers appropriate:

(a) in the case of proceedings with respect to the property of the parties to the marriage or either of them—altering the interests of the parties to the marriage in the property.

114 In In Marriage of Goodwin (1990) 101 FLR 386, the Full Court of the Family Court held that trust property held by a corporate trustee of which the husband was a director was “in reality” the husband’s property because the husband controlled the trustee and the trust for his own purposes, and the trustee acted as his “creature”.

115 Counsel also referred to In the Marriage of Harris (1991) 104 FLR 458. There the husband was the appointor and guardian of a trust. The Full Court of the Family Court said that the trustee was under the complete control of the guardian as regards this position of trust property or trust income. It was argued for the husband that his interest in the trust was a chose in action as a beneficiary and although that chose in action was property, it had no real or ascertainable value. The Full Court of the Family Court described the husband’s position as follows (at 465):

“... the husband had the fullest power of disposition over the property and the income of the trust, including the power to cause to have distributed to himself all its income and all its corpus. If he should choose to do so, no person could complain of any breach of trust. If the trustee were to be unwilling to carry out his wishes, he could replace the trustee with another company which was in his effective control or any other person who would do his bidding. The very object of the trust, as appearing from the instrument, was to put the husband as appointor and guardian into the position of complete and unfettered control just as if he were the owner of the property. This arrangement was not a sham. It was a genuine transaction intended to bring about legitimate income tax advantage and may have had other commercial motives

116 The Full Court described the question as being whether the husband’s interest under the trust was “property” which could be altered under s 79. After referring to various definitions of property, the Court concluded (at 467-468):

“... the husband's interest as a beneficiary under the trust in combination with his rights and powers as appointor and guardian place him, for the purposes of s 79 of the

into the position of an owner of property which property is constituted by his interest and his rights and powers under the trust. This property is properly evaluated as equivalent to the value of the assets of the trust

117 There are numerous authorities to like effect many of which are discussed in Stephens v Stephens (2007) 212 FLR 362. There, Bryant CJ (at 375) summarised the authorities as establishing that:

a party who is the trustee of a discretionary trust, or has the capacity to appoint himself as trustee, and is also a beneficiary or who has the capacity to become a beneficiary or become a majority shareholder in a company (who is or can become a beneficiary) can have the assets of the trust treated

as if

they are his or her own property. ...

Were it otherwise, it is obvious that a party could, by simply acquiring or placing assets in a discretionary family trust, effectively avoid an order being made which would enable the other party to share in the property owned by the trust.

118 In some of the cases, findings that property of the trust is to be treated as if it were the property of the husband has been supported by findings that the trustee was the “alter ego” or “puppet” or “creature” of the husband. It is not clear to me what the significance of such a finding is unless it is another way of saying that the husband controls, or is in a position to control, the exercise of the trustee’s powers; which in turn simply raises the question as to whether such control amounts to ownership, or should be treated as if it did amount to ownership.

119 In In the Marriage of Gould (1993) 115 FLR 371, Fogarty J, with whom Nicholas CJ and Finn J agreed in this respect, said of the expression “alter ego” (at 383):

... the description of an entity as the ‘alter ego’ or ‘puppet’ of a person really denotes something different [from a sham]. Correctly described, it is not an assertion that it is a ‘counterfeit, a facade or a false front’. Rather, it describes an actual situation although as a matter of law or practicality the actions of the other entity may be capable of and may in fact be controlled by the party in question. For example, a party may establish a trust over which he or she exercises control. That trust

may in turn own or control property. It may be correct to describe that trust as the alter ego or even perhaps the puppet of that party, but it would not be correct to describe its existence or its ownership or control of property as a sham.

120 I take the references to the “trust” owning or controlling property, or being an alter ego of a party, as being references to the trustee. To say that because A controls B, B is the alter ego of A, in itself says nothing as to the equitable ownership of the property held by B. To describe the measure of control using the epithets of “alter ego” or “puppet” or “creature” does not resolve the question of ownership.

121 It is instructive that the orders made are directed to the party to the marriage (almost always husbands) requiring him to pay money or exercise powers, rather than applying to the trustee directly requiring the trustee to hand over whatever sum is payable to the wife (e.g. Marriage of Ashton at 458, 471; In Marriage of Davidson (No. 2) at 380, 384-385). The sequel to In Marriage of Davidson (No. 2) was that following the husband’s default in compliance with the Court’s orders a registrar of the Family Court executed a deed as appointor of the trust (that is exercising the husband’s power) to appoint a new appointor. The new appointor removed the existing trustee and appointed a new trustee, a nominee company associated with the firm of accountants. An order was made vesting the trust assets in the new trustee. A challenge in this court to the appointment of the new trustee as being a fraud on the power of appointment as being made for the purpose of making a distribution from the trust to the wife of the amount payable by the husband under the Family Court’s judgment was rejected (Andco Nominees Pty Ltd v Lestato Pty Ltd (1995) 126 FLR 404; and on appeal Thurlstane (Aust) Pty Ltd v Andco Nominees Pty Ltd (NSW Court of Appeal, 27 October 1997, Meagher, Powell and Cole JJA, unreported)). Santow J noted (at 430-431) that:

“ ... the trustee intends to refer to and act in accordance with the judgments of their Honours Cook and Ellis JJ and of the Full Court of the Family Court of Australia in relation to the administration of the trust.

It is important to be reminded that those judgments do not make any order against the trust itself nor in any way purport to bind the trust, the trustee or any future appointor. The orders made were against Mr Davidson personally. It is true that the orders were originally framed on the basis that Mr Davidson as appointor and according to the evidence, was in complete control of Lestato as trustee, so that the trust was held then to be the creature of the husband. That may be apt so far as the position then.

However, it did not follow that the Family Court, either before Cook J or in the Full Court, took the further step of treating Lestato as in a position to breach its trust, or as permitted to do so by anything the Family Court might order.

122 His Honour held that it was not established that the appointment of the new trustee was a fraud on the power. The new trustee was required to consider the interests of all of the potential discretionary objects. It was not pre-ordained that assets would be appointed in favour of the wife. The new trustee intended to act in accordance with its obligations.

123 All of these steps would have been unnecessary had the finding of “de facto ownership” been the same as a finding that notwithstanding the terms of the trust deed the husband beneficially owned the trust assets. On appeal, Meagher JA, with whom Powell and Cole JJA agreed, said it was a little difficult to know what to make of the Family Court’s findings that the trust assets were de facto the assets of the husband given that it was common ground that the trust was a discretionary trust of the normal kind and was not a sham (at 2). What is clear is that neither Santow J nor the Court of Appeal considered that the effect of the Family Court’s findings was that the husband was the beneficial owner of the assets of the trust. Nor it appears was the Family Court of that view, having regard to the orders it made and its use of the expression “de facto ownership” rather than “ownership”.

124 The same approach to the making of orders under the Family Law Act where property was held by a company as trustee of a discretionary trust controlled by one of the parties to the marriage was taken by Warnick J in BP v KS (2002) 177 FLR 354, albeit with a different outcome. The parties to the marriage made a maintenance agreement which was approved. At the time neither of the parties were named beneficiaries of the trust, but the trustee of another family trust of which they and their children were beneficiaries was a beneficiary. Warnick J found that in approaching the court for the approval of the maintenance agreement, the parties treated the relevant corporations and trusts as their own (at 359 [28]). After suffering a stroke the husband defaulted in meeting his obligations under the maintenance agreement and the wife sought to enforce the agreement by obtaining orders that the husband exercise his powers as shareholder in or director of the trustee to cause the trustee to vary the trust deed to add the wife as a beneficiary and to vest so much of the trust property in the wife as was due to her by the husband, or alternatively, to appoint the wife’s nominee as trustee of the trust in order for such a substituted trustee to make such payment out of the trust assets (at 371-372). Warnick J concluded:

“ [78] There are a number of Family Court cases in which findings were made that the capital of discretionary trusts was either ‘property’ of a person who could control the trust or the ‘defacto property’ of such a person. While such findings might impliedly leave the court at liberty to deal with that property as the court sees fit, this is not necessarily so.

[79] The significance of such a finding may initially be that the assets of the trust can properly be included in a ‘pool’ of assets for division between the parties. To do so is a notional step in a process of reasoning, as distinct from the executive nature of a court order dealing with trust assets.

[80] Even when such a finding underpins a court order, there is a difference between first, an order requiring a payment from, for example, husband to wife, (albeit the only source of funds is the capital of a discretionary trust of which the husband is trustee or appointor or otherwise in control), leaving it to the husband to act, presumably according to law, and second an order requiring a trustee to pay funds from a trust to satisfy an order for property settlement.

[81] As seen, Ellis J in Davidson (No 2) , Maxwell J in Alcaine and Santow J in Andco Nominees were circumspect in the ‘reach’ of the orders they made, or were prepared to countenance.

[82] While the distinction between orders designed to facilitate satisfaction of other orders for property settlement by distribution from a trust and orders that direct that result may seem fine, it is nonetheless real.

[83] In the instant case, the wife seeks a transfer to her of the husband’s shares in the trustee company NTE. In other words, the wife is not even yet a trustee. She does not seek an order (as she originally did) requiring the husband as trustee to take particular steps (which no doubt she would argue were lawful) in relation to the trust, for example, to distribute money to himself, albeit perhaps by indirect means through a nominated beneficiary. Nor does she seek an order which in practical terms might only be met by the husband ‘accessing’ trust funds. She seeks that she become the trustee solely for the purpose of making amendments to the trust to obtain for herself the trust assets.

[84] I find that the wife has pre-determined that if she is placed in a position of control of NTE she intends to distribute all (or alternatively some) of its capital to herself.

[85] In my view, this goes a step beyond the position under consideration in

, and the orders sought, on the evidence, cross the line between facilitation and even expectation, to pre-determination. Therefore, they should not be made.

125 It is perfectly understandable that in the context of s 79 the expression “property of the parties to the marriage or either of them” should be read as extending not only to property owned by a party to the marriage but also property controlled by a party to the marriage where the control is such as to put the party in the same position as if he or she were the owner of the property. That is how I understand the family law cases to have proceeded. In Marriage of Ashton and In Marriage of Davidson (No. 2), the Court spoke of “de facto ownership”. Ownership is a legal concept. The expression “de facto ownership” appears to describe something which is not legal or equitable ownership but a power which is to be treated as the equivalent of ownership. It involves no stretching of the concept of property to construe the expression “property of a party” as extending to property which a party owns or which the party controls as if he or she were the owner. It comes down to what the word “of” in the phrase denotes – whether it means ownership only, or whether it includes control as effective as ownership. This is the context in which the family law cases must be read. In my view, they do not support the wider proposition that as a matter of general law an object of a discretionary trust can be described as the beneficial owner of the property held by the trustee, merely by virtue of his or her being a discretionary object and also controlling the trustee.

126 The question in R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd was whether the defendant breached a Mareva injunction restraining him from disposing of, creating or encumbering any estate or interest in any of his present or future assets. The defendant was an object of a family discretionary trust. He was the governing director of the trustee and controlled the exercise of its powers. The trustee was empowered to vary the trust deed and add beneficiaries. The defendant was an “appointor” with power to remove and appoint new trustees. Some of the powers of the trustee required the approval of a guardian but at the date of the order no-one was appointed to that office. After the orders were made the defendant varied the trust deed by appointing his son as guardian of the trust, removed himself as appointor and declared that his son was the appointor of the trust. The defendant’s son then removed the existing trustee and appointed one of his companies as trustee. With the consent of the defendant and his wife, the new trustee declared that they were excluded as general beneficiaries of the trust (at 63-64). The defendant was charged with contempt. To establish that charge it had to be shown the defendant disposed of his assets. Owen J, with whom on this point Rowland and Ipp JJ agreed, held (at 79-80) that whilst the defendant’s interest as a beneficiary of the discretionary trust to compel due administration of the trust was an equitable chose in action, and had some indicia of property, because as a beneficiary the defendant did not have a proprietary interest in any particular asset of the trust fund or in the trust fund as a whole. Rather the beneficiary had no more than an expectancy that the trustee might appoint income or capital in his favour. That expectancy lacked the requisite aspect of value to be regarded as an asset. Likewise the chose in action to compel due administration of the trust did not have a value to constitute it as an asset (at 79-80).

127 It is not, with respect, very clear why the defendant’s powers to control the trustee could not be taken into account in determining whether his equitable chose in action as a discretionary object had such value to qualify as an asset. However, that is not the present question. It was also contended that the defendant’s power over the assets of the trust was a present or future asset of which the defendant disposed (at 75). Ipp and Owen JJ held that this was a possible construction of the order, but that the order was ambiguous and therefore the defendant could not be held to be in contempt. Owen J said that it was arguable that the combination of powers might amount to a general power of appointment and that as such might be a form of property or (which was less likely) might constitute some form of property interest in the underlying assets of the trust fund (at 83). Rowland J concluded that the defendant had disposed of assets because he had disposed of any entitlement he might have received in the funds of the trust (at 64). With respect, it is not easy to reconcile this with his Honour’s acceptance of Owen J’s reasons for rejecting the first two grounds of appeal.

128 Although counsel for Ms Smith relied on the judgments in this case, I do not think they take the matter further. It was not suggested by any of their Honours that such control as the defendant had over the trustee coupled with his interest as a discretionary beneficiary amounted to beneficial ownership of the trust assets.

129 Finally, counsel referred to ASIC v Carey (No. 6). That concerned the power of a court under s 1323(1)(h) of the Corporations Act 2001 (Cth) which provides:

“1323 Power of Court to prohibit payment or transfer of money, financial products or other property

(1) Where:

(a) an investigation is being carried out under ... this Act in relation to an act or omission by a person, being an act or omission that constitutes or may constitute a contravention of this Act; or

...

and the Court considers it necessary or desirable to do so for the purpose of protecting the interests of a person (in this section called an

aggrieved

person) to whom the person referred to in paragraph (a) ... (in this section called the

relevant

person), is liable, or may be or become liable, to pay money, ... the Court may, on application by ASIC or by an aggrieved person, make one or more of the following orders:

...

(h) an order appointing:

(i) if the relevant person is a natural person—a receiver or trustee, having such powers as the Court orders, of the property or of part of the property of that person.

130 Subsections 1323(2A) and (2B) provide:

(2A) A reference in paragraph (1)(g) or (h) to property of a person includes a reference to property that the person holds otherwise than as sole beneficial owner, for example:

(a) as trustee for, as nominee for, or otherwise on behalf of or on account of, another person; or

(b) in a fiduciary capacity.

(2B) Subsection (2A) is to avoid doubt, is not to limit the generality of anything in subsection (1) and is not to affect by implication the interpretation of any other provision of this Act.

131 “Property” is defined in s 9 as follows:

property

means any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action.

132 ASIC sought orders appointing receivers to property which included (in the proposed order 3.6) “property held by a Third Party, as trustee for a trust, where the Individual Defendant is a beneficiary of the trust (including as a general beneficiary of a discretionary trust)” (at 512 [8]). French J approached the question of whether receivers should be appointed to the assets of discretionary trusts where the defendants, who were “relevant persons”, were discretionary objects, according to whether or not they had a contingent interest in the property of the trust or “effective ownership” (at 520-522 [36], [37], [41]-[46]). His Honour said (at [36]):

The difficulty with applying the notion of contingent interests to beneficiaries of a discretionary trust lies partly in the uncertain scope of the distribution be it income or capital, which may be made in favour of any given beneficiary. I am inclined to think that a beneficiary in such a case, at arms length from the trustee, does not have a ‘contingent interest’ but rather an expectancy or mere possibility of a distribution. In some discretionary trusts, and there is an example among those of which Mr Beck is a beneficiary, charities as a class are included in the class of beneficiaries. It could hardly be said that every charity in Australia has thereby acquired a contingent interest in that trust. On the other hand, where a discretionary trust is controlled by a trustee who is in truth the alter ego of a beneficiary, then at the very least a contingent interest may be identified because, to use the words of Nourse J

Inland Revenue Commissioners v Trustees of Trustees of Sir John Aird's Settlement (No. 1)

that the beneficiary will receive the benefits of distributions either of income or capital or both.

133 His Honour appears to have proceeded on the basis that if a relevant person had a contingent interest in property of the trust, the power under s 1323(1)(h) to appoint receivers to the property of that person extended to the appointment of receivers to the assets of the trust, rather than merely to that person’s contingent interest (at 521-522). It is unnecessary for me to consider that question.

134 French J also said (at 515):

“. .. In Commissioner of Taxation v Vegners (1989) 20 ATR 1645 at 1649-1650, Gummow J said that the expression ‘discretionary trust’ is used to identify a species of express trusts in which, unlike a fixed trust, the entitlement of the beneficiaries to income, or to corpus, or both, is not immediately ascertainable (at 1648):

… the beneficiaries are selected from a nominated class by the trustee or some other person and this power may be exercisable once or from time to time.

His Honour described the power of the trustee as a ‘special or hybrid power’. Thus (at 1648):

… a power exercisable in favour of any person including the donee of the power would be a general power and thus would be tantamount to ownership of the property concerned, whilst the objects of a special power would be limited to some class, and the objects of a hybrid power would be such that the donee might appoint to anyone except designated classes or groups.

At least by analogy it may be observed that a beneficiary who effectively controls the trustee of a discretionary trust may have what approaches a general power and thus a proprietary interest in the income and corpus of the trust.

135 Where, as in the usual case, the trustee of a discretionary trust has a special power to appoint trust property to objects of a designated class (or a hybrid power), I respectfully doubt that it is correct to say that a beneficiary who controls the trustee has what approaches a general power of appointment. In the usual case, as in this case, the power vests in the trustee and is a special power. It does not become a general power of appointment merely because the beneficiary can compel its exercise in favour of himself. As Gummow J said in the passage cited, a general power is usually understood as one exercisable in favour of any persons the donee of the power thinks fit including himself and his executors and administrators (Geraint Thomas, Thomas on Powers (1998) Sweet & Maxwell at [1-18]). That is not to say that the beneficiary’s ability to control the trustee would not justify characterising what might otherwise be a bare expectancy as a contingent interest for the reasons given in ASIC v Carey (No. 6) at [36] (quoted in para [132] above), thus conferring a proprietary interest in the trust funds.

136 French J also said (at 520-521):

“ As discussed earlier, the beneficiary who effectively controls the trustee’s power of selection because he is the trustee or one of them and/or has the power to appoint a new trustee has something approaching a general power and the ownership of the trust property. There are cases in the Family Law jurisdiction which have dealt with like circumstance [sic] . In Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337, Gibbs J said (at 354–355):

… if a company is completely controlled by one party to a marriage, so that in reality an order against the company is an order against the party, the fact that in form the order appears to affect the rights of the company may not necessarily invalidate it.

Stephen, Aickin and Wilson JJ agreed.

137 After discussing the family law cases of Ashton, Goodwin and Davidson (No. 2), his Honour said (at 521-522):

“By way of example, Mr Beck is a beneficiary of the Agribusiness Annuity Trust of which Eagle Bluff Nominees Pty Ltd is trustee. He is the director and secretary of that trustee company. He is the original appointor under the trust and his wife, Anne Beck, the current appointor. The trustee has a wide discretion including the power to prefer one or other beneficiary to the total exclusion of any other beneficiary. Mr Beck would appear, through his trustee company, to have effective control of the assets of the trust. At the very least he has a contingent interest in the sense used earlier. His interest would appear to amount to effective ownership of the trust property. The property of that trust is, in my opinion, amenable to control by the receivers under s 1323.

...

Mr Dixon, the fourth defendant, is also a beneficiary of a number of trusts. By way of example he is appointor of the Awarra Family Trust. He has power to remove and appoint new trustees. He is one of an open class of beneficiaries. The trustee has evidently every power as if it were the absolute owner of the trust fund. On this basis, and having regard to the principles previously discussed, he has at least a contingent interest in the property of the trust if not a general power which approaches ownership.

...

I am not satisfied that I have the power under s 1323(1)(h) to extend the scope of the property covered by the individual receiver orders to the very general class defined in [3.6] of the proposed varied definitions of Individual Property and corporate property. I will, however, consider a proposal for orders to be made in relation to trusts of which the relevant defendant is the effective controller, thereby enjoying at least a contingent interest, if not effective ownership, of the trust property. This will require specification of the trusts to be affected.

138 French J did not say that it followed from the defendants’ positions as beneficiaries of discretionary trusts and their control of the trustees that this amounted to actual ownership as distinct from “effective ownership”. As with the reference to “de facto ownership” I take the phrase “effective ownership” to mean that the defendants had such control of the affairs of the trust that they were in as good a position as if they were the beneficial owners, but not to mean that they were the beneficial owners of the trust property. In my view, there is very sound reason for construing the expression in s 1323(1)(h)(i) “an order appointing a receiver or trustee of the property of [the relevant person]” as extending not only to property actually owned by the relevant person but property effectively owned by him or her, for the same reasons as discussed in the family law cases concerning s 79 of the Family Law Act. However, I do not understand ASIC v Carey (No. 6) to establish that because a beneficiary of a discretionary trust controls the appointment or removal of the trustee, or controls the exercise of the trustee’s powers and can appoint trust property to himself or herself, that the holder of such a power is the beneficial owner of the trust property irrespective of the terms of the trust deed. In the construction of statutory powers such trust property might be regarded as the property “of” such a person (depending of course upon the statute in question) if something short of ownership provides the necessary connection between the person and the property denoted by the word “of”.

139 For these reasons, I conclude that Dr Ward was not the beneficial owner of the Randwick property at her death. I have concluded that during her life she was an income and capital beneficiary entitled to consideration by the trustee in the exercise of its powers of appointment, but she was not the beneficial owner of the trust assets.

The Will as a Direction to the Public Trustee in the Exercise of its Powers under the Trust Deed

140 Ms Smith’s cross-claim asserts her entitlement to inherit the Randwick property in accordance with the terms of the will on the basis of Dr Ward having been its beneficial owner at her death. However, in their written submissions, counsel for Ms Smith said “It may be accepted that if Dr Ward had no interest in the Randwick property, beneficial or otherwise, the gift of the property fails.” (My emphasis.) Counsel referred to Re O’Callaghan at 254-256; Re Bowcock [1968] 2 NSWR 697 at 698-699; and Kirby v Allen (Supreme Court of NSW, Hamilton J, 22 August 1997, unreported) (at 8-9). This was a prelude to a submission that there was no reason in principle to treat a gift of property owned beneficially by the testator any differently from a gift of property owned by a company in which the testatrix was the sole shareholder and controller, or owned by a partnership of which she was a member, but rather the case was stronger where the property was beneficially owned by the testatrix alone.

141 This part of the cross-claimant’s written submissions was touched on but lightly by counsel for the Animal Welfare League.

142 The cases cited stand for a wider principle. In Re O’Callaghan, Gowans J said (at 256):

... where a testator conveys to his executor a direction to reduce into possession an asset not owned by the testator and the executor is armed by him with the power to get it in, the executor is bound to do so, and to deal with it by way of disposition in the way the testator directs.”

143 There still remains the question whether the terms of the will amount to a direction to the Public Trustee that it exercise the powers which devolved on it as appointor under the trust deed and as the new trustee to give effect to the gifts in the will, insofar as that could properly be done without the commission of a fraud on its power as appointor to remove and replace the trustee, and insofar as that could properly be done in the exercise of its power as trustee. The trust deed in its present form would not permit the Public Trustee to apply the trust property in a way which would give effect to the terms of the will, because the power to appoint capital is to appoint capital to the named capital beneficiaries living at the time of the appointment. Even after rectification of the trust deed, as the deed presently stands, the trust property could not be appointed to Dr Ward’s estate. However, the trustee, with the consent of the appointor, has the power to resettle the trusts. The question whether the Public Trustee could or should exercise its powers under the trust deed to give effect to Dr Ward’s wishes expressed in her will has not been fully argued, indeed it has been barely argued at all. The question is one in which persons who took no active part in the hearing before me, such as the Public Trustee, would be interested.

144 Accordingly, I will stand the proceedings over for counsel for the cross-claimant to bring in short minutes of order in accordance with these reasons and to give directions for the resolution of the remaining issues including any further issues which the Public Trustee may wish to raise in the summons for judicial advice. I will then deal with questions of costs.

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CITATION:	Public Trustee v Smith [2008] NSWSC 397
HEARING DATE(S):	18/10/07; 19/10/07
JUDGMENT DATE :	5 May 2008
JURISDICTION:	Equity
JUDGMENT OF:	White J
DECISION:	Stand the proceedings over for counsel for the cross-claimant to bring in short minutes of order in accordance with these reasons and to give directions for the resolution of the remaining issues including any further issues which the Public Trustee may wish to raise in the summons for judicial advice.
CATCHWORDS:	WILLS – Testatrix left property by will owned by a company as trustee of a discretionary trust – testatrix controlled trustee – testatrix not named as a beneficiary - TRUSTS – remedies – rectification – whether persons establishing discretionary family trust intended to name herself as an object – whether clear evidence of sufficiently precise intention so that Court can determine the substance and detail of variation ESTOPPEL – estoppel by convention – whether both parties conducted their relationship on the basis of a mutual assumption – whether an act or omission on the part of the trustee led to any action or inaction on the part of the plaintiff – testatrix the controlling mind of the trustee – same assumption in both capacities but no causal link founding an estoppel - EQUITY – equitable estates and interests – discretionary family trust – after rectification testatrix was a member of the class of objects and was the controlling shareholder and director of the corporate trustee – whether testatrix was therefore the beneficial owner of the trust property – trust not a sham – control of trustee with power of appointment coupled with membership of the class of objects does not amount to beneficial ownership
LEGISLATION CITED:	Environmental Planning and Assessment Act 1979 (NSW) Wills, Probate and Administration Act 1989 (NSW) Stamp Duties Act 1920 (NSW) Family Law Act 1975 (Cth) Corporations Act 2001 (Cth)
CATEGORY:	Principal judgment
CASES CITED:	Re O’Callaghan (Deceased) [1972] VR 248 JW Broomhead (Vic) Pty Ltd v JW Broomhead Pty Ltd [1985] VR 891 Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 Bush v National Australia Bank Ltd (1992) 35 NSWLR 390 Muriti v Prendergast [2005] NSWSC 281 McGain v Federal Commissioner of Taxation (1966) 116 CLR 172 Commonwealth v Verwayen (1990) 170 CLR 394 Moratic Pty Ltd v Gordon [2007] NSWSC 5; (2007) ANZ ConvR 198; NSW ConvR 56-172; Aust Contract R 90-255 Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65 M K & J A Roche Pty Ltd v Metro Edgeley Pty Ltd [2005] NSWCA 39 Waterman v Gerling Australia Insurance Co Pty Ltd [2005] NSWSC 1066; (2005) 65 NSWLR 300 Grundt v Great Boulder Pty Limited Gold Mines Ltd (1937) 59 CLR 641 The August Leonhardt [1985] 2 Lloyd’s Rep 28 Austin v Keele (1987) 10 NSWLR 283 Carruthers v Manning [2001] NSWSC 1130 Cambouya Pty Ltd v Buchanan [2005] NSWSC 743 Shepherd v Doolan [2005] NSWSC 42 Calverley v Green (1984) 155 CLR 242 Gartside v Inland Revenue Commissioner [1968] AC 553 R & I Bank of Western Australia Limited v Anchorage Investments Pty Ltd (1992-1994) 10 WAR 59 Lygon Nominees Pty Ltd v Commissioner of State Revenue [2007] VSCA 140; 66 ATR 736 Ex Parte Gilchrist; Re Armstrong (1886) LR 17 QBD 521 Australian Securities and Investments Commission v Carey & Ors (No. 6) (2006) 153 FCR 509 In the Marriage of Davidson (No. 2) (1990) 101 FLR 373 In the Marriage of Ashton (1986) 11 Fam LR 457 In Marriage of Goodwin (1990) 101 FLR 386 In the Marriage of Harris (1991) 104 FLR 458 Stephens v Stephens (2007) 212 FLR 362 In the Marriage of Gould (1993) 115 FLR 371 Andco Nominees Pty Ltd v Lestato Pty Ltd (1995) 126 FLR 404 Thurlstane (Aust) Pty Ltd v Andco Nominees Pty Ltd (NSW Court of Appeal, 27 October 1997, Meagher, Powell and Cole JJA, unreported) BP v KS (2002) 177 FLR 354Re Bowcock [1968] 2 NSWR 697 Kirby v Allen (unreported, Hamilton J, NSWSC 22 August 1997)
TEXTS CITED:	The Chambers Dictionary ((2003) Chambers Harrap Publishers) The Macquarie Dictionary (rev 3rd ed (1997) Macquarie) Handley, Estoppel by Conduct and Election (2006) Sweet & Maxwell Geraint Thomas, Thomas on Powers (1998) Sweet & Maxwell
PARTIES:	The Public Trustee v Robyn Smith; NSW Animal Welfare League; and Gordon Salier
FILE NUMBER(S):	SC 2750/05
COUNSEL:	Cross-Claimant: M R Speakman SC, J E Lazarus 1st Cross-Defendant: A Kennedy 2nd Cross-Defendant: L Ellison SC, E Cox 3rd Cross-Defendant: G Salier (submitting appearance)
SOLICITORS:	Cross-Claimant: C G Gillis & Co Lawyers 1st Cross-Defendant: Teece Hodgson & Ward 2nd Cross-Defendant: Peter M Wayne & Associates 3rd Cross-Defendant: Gordon Salier