Rayner v NJ Sheaffe Pty Ltd - [2010] NSWSC 810

NEW SOUTH WALES SUPREME COURT

CITATION:
Rayner & Ors v N J Sheaffe Pty Limited & Ors [2010] NSWSC 810

JURISDICTION:
Equity Division

FILE NUMBER(S):
289040 of 2009

HEARING DATE(S):
16, 17, 23, 24 June and 20 July 2010

JUDGMENT DATE:
27 July 2010

PARTIES:
Christina Wyndham Rayner (First Plaintiff)
Phillipa Janet Campbell Williams (Second Plaintiff)
Moon Moon Pty Limited (Third Plaintiff)
N J Sheaffe Pty Limited (First Defendant)
Nicola Joan Sheaffe (Second Defendant)
Pamela Joan Sheaffe (Third Defendant)
Allan Richard Nicholls (Fourth Defendant)

JUDGMENT OF:
Lindgren AJ

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable

COUNSEL:
S J Burchett (First, Second and Third Plaintiffs)
B J Salmon QC with him Ms Vanessa Thomas (First and Second Defendants)

SOLICITORS:
HWL Ebsworths Lawyers (First, Second and Third Plaintiffs)Warren V Thibault (First and Second Defendants)McMahon Broadhurst Glynn (Third Defendant, Pamela Joan Sheaffe by her tutor, Helen Nicol Bennett filed a submitting appearance)Alan Richard Nicholls (Fourth Defendant, filed a submitting appearance)

CATCHWORDS:
Power of removal and appointment of trustee in deed of settlement establishing discretionary trust – appointor (mother) appoints attorney (daughter) by enduring power of attorney – appointor/donor comes to suffer from dementia and to lack mental capacity – directors of trustee company are three sisters of whom the attorney is one – disputation between the three sisters, the two outvoting the attorney on the board of directors of the trustee company – attorney exercises mother’s/appointor’s power of appointment by removing company as trustee of the discretionary trust and appointing a company in which she is sole shareholder and director as trustee in its place – in course of hearing of proceeding brought by the two sisters, the attorney/sister accepts that her company had not been eligible to be appointed as trustee under terms of the discretionary trust and she appoints independent accountant to be trustee – whether she had bound herself as part of a family arrangement not to use her power of attorney to exercise the power of appointment at all – whether appointment of the accountant was in breach of fiduciary duty

LEGISLATION CITED:
Conveyancing Act 1919 (NSW)
Powers of Attorney Act 2003 (NSW)
Trustee Act 1945 (NSW)

CATEGORY:
Principal judgment

CASES CITED:
Crowle Foundation v NSW Trustee & Guardian [2010] NSWSC 657
Fitzwood Pty Ltd v Unique Goal Pty Ltd (2002) 188 ALR 566
Foakes v Jackson [1900] 1 Ch 807
Hillcrest (Ilford) Pty Ltd v Kingsford (Ilford) Pty Ltd (No 2) [2010] NSWSC 285
Inland Revenue Commissioners v Schroder [1983] STC 480
Klotz v Neubauer [2001] SASC 454
Public Trustee v Brown [1939] Ch 944
Re Burton (1994) 126 ALR 557
Re Evered [1910] 2 Ch 147
Re Norris; Allen v Norris (1884) 27 ChD 333
Re Skeats’ Settlement (1889) 42 ChD 522
Re Newen; Newen v Barnes [1894] 2 Ch 297
Siahos v J P Morgan Trust Australia Ltd [2009] NSWCA 20
Spina v Conran Associates Pty Ltd; Spina v M & V Endurance Pty Ltd [2008] NSWSC 326
Spina v Permanent Custodian Limited [2008] NSWSC 561
Sweeney v Howard [2007] NSWSC 852
Watson v Watson [2002] NSWSC 919
Wong v Wong [2008] NSWSC 300

TEXTS CITED:
Bowstead and Reynolds on Agency (18th ed, 2006)
Jacobs’ Law of Trusts in Australia (7th ed 2006
Restatement of the Law (3rd): Agency, vol 1

DECISION:
THE COURT

DECLARES that the purported removal by the third defendant, through her attorney, the second defendant, of the third plaintiff as trustee of the Sheaffe Family Trust (the Trust) and the appointment of the first defendant as the trustee of the Trust in its place by Deed dated 16 July 2008 was invalid and of no effect.
DECLARES that notwithstanding the purported removal and appointment referred to in para (1), the third plaintiff remained in office as trustee of the Trust.
DECLARES that subject to any offsetts, the first and second defendants are jointly and severally liable to reimburse the Trust for all and any Trust moneys expended, and to account to the Trust for all and any Trust property disposed of, since 16 July 2008 without the consent of the third plaintiff given through the first and second plaintiffs.
DECLARES that the purported removal by the third defendant through her attorney, the second defendant, of the trustee of the Trust and the appointment of the fourth defendant as trustee of the Trust in its place by Deed dated 16 June 2010 was valid and effective.
ORDERS that the first and second defendants pay three quarters of the plaintiffs’ costs of the proceeding.
ORDERS that the costs, if any, of the third and fourth defendants be paid out of the funds of the Trust.

JUDGMENT:

- 64 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

LINDGREN AJ

TUESDAY 27 JULY 2010

09/289040 CHRISTINA WYNDHAM RAYNER & ORS V N J SHEAFFE PTY LIMITED & ORS

JUDGMENT

Introduction

This case concerns an unfortunate dispute between three sisters. They are the first plaintiff, Christina Wyndham Rayner (“Tina” – without discourtesy and only for convenience I will refer the three sisters by the names by which they were referred to in the evidence), the second plaintiff, Phillipa Janet Campbell Williams (“Phillipa”) and the second defendant, Nicola Joan Sheaffe (“Nicola”). Tina and Phillipa are on the one side in the dispute and the youngest sister, Nicola, on the other. The third plaintiff, Moon Moon Pty Limited (“Moon Moon”), is a company of which the three sisters are the directors. By virtue of their majority voting power, Tina and Phillipa control the decision-making within Moon Moon. That is a source of grievance on the part of Nicola.
The first defendant, N J Sheaffe Pty Limited (“Nicola’s Company” or “her Company”), as its name suggests, is a company controlled by Nicola. In fact, she is its sole shareholder and director.
The third defendant, Pamela Joan Sheaffe (”Pamela”) is the mother of the three sisters. She suffers from advanced dementia and appears by a tutor. A submitting appearance has been filed on Pamela’s behalf.
The fourth defendant, Alan Richard Nicholls, is an accountant. Nicola, acting as attorney for Pamela has purported to appoint him as trustee of the Trust referred to below. Mr Nicholls has also filed a submitting appearance.
Central to the dispute are:

A family discretionary trust that was established by a Deed of Settlement dated 10 August 1976 between Eileene Osborne Atkinson as settlor and Moon Moon as trustee (the Trust);

The property of the Trust, now consisting of a farm known as “Rock Abbey” at Halls Creek Road, Manilla, New South Wales, an amount of approximately $70,000 invested with Perpetual Investment Management Limited (Perpetual) (Account 2418 2301 5805 51) and a small amount in the Trust’s bank account at Westpac Banking Corporation (Account 630150) which was funded when necessary from the Perpetual investment;

The fact that in the 1990s Nicola moved from Sydney to Rock Abbey to live, and over the years provided increasing care there for her ageing father, James Campbell Sheaffe (known as “Pete”) until he died on 21 February 2008 and mother Pamela until, suffering from dementia, she entered what has been variously described in the evidence as the Manilla Community Hospital and a nursing home associated with the Manilla District Hospital in 2006;
A continuing general Power of Attorney given by Pamela on 27 May 2003 to Nicola, the validity of which has not been in dispute;

Steps taken by Nicola under the Power of Attorney and in the name of Pamela to vary the terms of the Deed of Settlement and to remove Moon Moon as trustee of the Trust and appoint the Company in its place;

In the course of the hearing a purported removal by Nicola as attorney for and in the name of Pamela of the trustee of the Trust (whether Moon Moon or her Company) and replacement of it with the fourth defendant, Mr Nicholls;

The nature of the farm as “barely viable” if viable at all and as not generating anything remotely approaching enough income to pay even one person a reasonable wage;

Payment by Nicola out of the funds of the Trust of certain moneys to herself as reimbursements and as remuneration for her work on the farm.

Relief sought

In the light of the appointment by Nicola during the course of the hearing of Mr Nicholls as trustee of the Trust, the plaintiffs, with leave, filed a third further amended summons on 18 June 2010. They seek:
A declaration that the purported removal of Moon Moon and appointments of the Company and of Mr Nicholls were invalid, void and of no effect (if the plaintiffs obtain this relief, Moon Moon will be shown to have remained in office as trustee);
A declaration that Nicola and/or Pamela is bound by an alleged agreement made by Nicola on 19 October 2006 not to exercise any power under the Power of Attorney (and is estopped from doing so) as “appointor” under the Trust;
A taking of accounts in relation to Nicola’s and Nicola’s Company’s dealings with the property of the Trust from 16 July 2008 to date;
A review under s 38 of the Powers of Attorney Act2003 (NSW) of the making or the operation or effect of the Power of Attorney;
If the removal of Moon Moon and the appointment of Mr Nicholls was effective, orders under s 70 of the Trustee Act 1945 (NSW) or in the exercise of the Court’s inherent jurisdiction removing Mr Nicholls, reappointing Moon Moon in his place, and consequential relief;
An order that the plaintiffs’ costs be awarded on an indemnity basis and be paid by Nicola and the Company or, in the alternative, be paid out of the assets of the Trust.
By her amended cross-claim, Nicola seeks:
Orders removing “the current trustee” of the Trust and appointing Mr Nicholls as trustee;
In the alternative, a declaration that Nicola is entitled as Pamela’s attorney under the Power of Attorney, to remove “the existing trustee” of the Trust and to appoint Mr Nicholls as trustee;
Relief consequential upon the change in trustee;
An order that the trustee appointed by the Court sell the assets of the Trust and after payment of all costs associated with the sale, distribute the balance of the proceeds as follows:
Pay the defendants’ costs of the proceedings; retain the sum of $290,000 and pay that sum to NSW Trustee and Guardian to be held for Pamela’s benefit for so long as she shall live; and divide the balance remaining between the three sisters in equal shares; or
Distribute the whole to NSW Trustee and Guardian to be held for the benefit of Pamela absolutely;
An order that Tina and Phillipa pay Nicola’s and Nicola’s Company’s costs of the proceeding;
An order relieving Nicola and Nicola’s Company under s 85 of the Trustee Act1925 (NSW) in respect of any breach of trust.

Facts

The following is an account of the salient facts in chronological sequence as revealed by the evidence.
Moon Moon was registered and the Trust established in August 1976. Pete and Pamela Moved to Rock Abbey to live in about 1976 or 1977. At that time Tina, Phillipa and Nicola were living elsewhere. Moon Moon was registered on 5 August 1976 as a company limited by shares. Pete and Pamela were the foundation directors and remained directors until in the case of Peter 21 February 2008 (the date of Pete’s death) and in the case of Pamela apparently 5 March 2008 (the date of acceptance of Pamela’s resignation). The three sisters were appointed as additional directors on 31 December 1988 and have been the only directors since their parents ceased to be directors. For some years before Pete’s death on 21 February 2008, the only active directors were Pete and his three daughters due to Pamela’s mental incapacity. There are only two shares in the capital of Moon Moon and they are held by the three sisters jointly.
By the Deed of Settlement dated 10 August 1976 establishing the Trust Ms Atkinson settled a sum of $50 on Moon Moon to be held by it and its successors in the office of trustee upon the trusts set out in the Deed of Settlement. The expression “the trust fund” as used in the Deed of Settlement included the sum of $50 and all further moneys and property paid and transferred to Moon Moon as trustee and accepted by it as additions to the trust funds.
Clause 2 provided for a trust that was to operate until the “vesting day”, an expression defined in cl 1(c) in a manner not presently material. The vesting day has not yet arrived.
The expression “the beneficiaries” was defined in cl 1(e) to mean any one or more of certain specified persons and/or classes of persons. The first of the six classes were Pamela, Nicola, Phillipa, Tina, any grandchild of Pete and Pamela born before the vesting day, and the spouse, widow or widower for the time being of such grandchild. The seventh class was:
Any company or body corporate wherever incorporated in which any of the foregoing persons referred to above (whether specifically or by class) as a shareholder for the time being or holds office as director for the time being.
The eighth and final class was any charitable institution exempt from Commonwealth income tax.
Clause 4 provided for the trusts that were to exist “on the vesting day”. The powers of the trustee of the Trust were set out in cll 5 and 6. The Trust is a “discretionary trust”. The trustee has an “absolute discretion” to determine which beneficiaries are to receive income and capital. There is a default provision benefiting the children of Pete and Pamela in equal shares.
One of the powers (cl 6(g)) was a power to permit any beneficiary to reside in any dwelling house or unit which might for the time being be subject to the Trust, upon such conditions as to payment of rents, taxes, rates and other outgoings and as to repair and decoration as for such period and generally upon such terms as to the trustee in its discretion should see fit. In fact, Nicola has been allowed to reside with her parents in a dwelling house at Rock Abbey without paying rent but she has provided services in connection with the Trust’s farming activity there without charge.
Clause 7 provides that it is not permissible for the trustee to confer any benefit on the Settlor or the Trustee (other than remuneration under cl 9) and that similarly no provision of the Deed of Settlement is to operate so as to confer or be capable of conferring any benefit, direct or indirect, in or out of the trust fund on any person (notwithstanding that that person be otherwise within the description of beneficiary) who has paid money or transferred or otherwise disposed of property (otherwise than by way of loan) to the trustee to be held on the trusts created by the Deed of Settlement, as from the time when that person paid money or transferred or disposed of property as described. This provision is relevant, inter alia, to an allegation that in April 2006 Pete and Pamela forgave amounts owed to them by the Trust on loan account so from that time they were disqualified from receiving any benefit from the Trust.
Clause 8A provided that the power of appointing a new trustee in place of a trustee (whether the original trustee, Moon Moon, or otherwise) or in addition to any existing trustee, and the power to remove a trustee should be vested in Pete during his life, from his death in Pamela provided she should have survived him, and on and from the death of the later of them to die, then in Pete’s legal personal representatives. As will be noted later Pete’s legal personal representatives are Tina, Phillipa and Nicola. Since the death of Pete on 21 February 2008, Pamela has had the power referred to, and Nicola claims that Pamela has exercised the power through her attorney (Nicola). In submissions, the parties have referred to the person holding the power of appointment under cl 8A of the Deed of Settlement “the Appointor”, although that expression is not used in the Deed of Settlement.
Clause 8D provides:
Notwithstanding anything herein contained neither the Settlor nor any beneficiary shall be eligible for appointment as a Trustee hereof.
Nicola’s Company was therefore not eligible for appointment as a trustee because it was a “beneficiary” being a company in which Nicola was a shareholder and held office as director. Nicola recognised this position at the heel of the hunt. On 16 June 2010, just before the end of the hearing, she (more precisely “Pamela acting through her” or “Nicola on behalf of Pamela”) appointed Mr Nicholls in place of the purported appointment of her Company.
Clause 9 provided for remuneration of the Trustee.
Clause 11 provided that prior to the vesting day or any earlier termination of the Trust, the Trustee might from time to time vary the trusts in any manner subject to certain constraints, one of which was that no share or benefit from or interest in or under the trust funds should be acquired by or passed to the Settlor, the Trustee or any person paying money or transferring or disposing of property (otherwise than by way of loan) referred to in cl 7.
As noted earlier, on 31 December 1988, the three sisters were appointed as additional directors of Moon Moon.
Soon after Moon Moon bought Rock Abbey and Pete and Pamela moved there to live, they (mainly Pamela) began to run the property as a cattle stud. That operation ceased in mid 1994 when the cattle was sold and the property turned over to agistment. Nicola says that it was shortly after the last sale of the cattle in July 1994 that she moved up to Rock Abbey to join her parents living there.
There is a difference in the evidence as to the circumstances surrounding Nicola’s move to Rock Abbey to live. Nicola says that the move occurred in 1994, whereas her sister Tina places it in late 1997 or early 1998. Although it does not matter, I accept Nicola’s evidence that she moved up there just after the last sale of stud cattle occurred, which records show was in July 1994. According to Tina, Pete and Pamela were minded to move from Rock Abbey to Camden to live so as to be closer to their three daughters, but Nicola wanted to move to Rock Abbey because of financial considerations associated with living in Sydney and also to pursue her horse riding interests. Nicola, on the other hand, said that she left a secure computer company job that she had had for 12 years to join her parents on the farm. This, like several other points of dispute between the sisters that intruded into the hearing, is not of present relevance. However, it goes some way to explain the division between the three sisters: Nicola sees herself as having made a sacrifice for the sake of the parents; Tina and Phillip, while not disputing that she has worked hard at Rock Abbey, see her as having been indulging her own horse riding and farming interests.
One thing that is clear is that Rock Abbey was a small operation the income from which could not alone support Nicola and her parents. Other sources of income available were their pensions, Nicola’s “carer’s pension” and Nicola’s income from her two-day a week job at Horseland Saddlery at Tamworth – some 60 kilometres from Manilla.
Nicola said that the agistment operation was affected by drought in 2002 and ceased. In 2003, after the end of the drought, Nicola and her parents (Pete was the active one at that time) began to re-stock. They bought 30 head of cattle of which they kept the 13 heifers as a breeding heard and sold the steers. She further said in cross-examination that the re-stocking was funded by her parents’ pensions and her own “carer’s pension” and from a sale of Pete’s and her NRMA shares, not from any moneys of the Trust. I discuss this evidence later. Nicola insisted that the farm provided a “very modest living”. She also agreed that she was making her living from her part-time job at Horseland Saddlery in Tamworth.
On 21 August 2002 Nicola was appointed as secretary of Moon Moon in place of Pamela.
On 27 May 2003, Pete and Pamela each signed an enduring (then called “continuing” - see s 163F(2) of the Conveyancing Act 1919 (NSW)) general Power of Attorney, containing no conditions or limitations in favour of Nicola. The terms of the Power of Attorney given by Pamela to Nicola are set out at [90] below.

In each case the witness to the signature was an Edward Mark Leyden, a solicitor of Manilla. There is no challenge to the validity of either Power of Attorney executed by Pamela. (Mr Leyden signed, relevantly, a certificate under s 163F(2) of the Conveyancing Act1919 (NSW) to the effect that he had explained the effect of the document to Pamela.) The Power of Attorney granted by Pamela to Nicola is central to certain later events and to this proceeding.
There was some conflict in the evidence as to the degree to which Pete depended on Nicola and the time at which his dependence on her began. Phillipa states that for approximately the first five years, she observed Pete cutting firewood using both axe and chainsaw, and checking the water and the stock on the farm using a “quad” bike. She states that the first time she saw him use a walking stick was at a party to celebrate his (and his twin brother’s) 90th birthday in 2004.
On 21 April 2006 Pete and Pamela signed a letter addressed to Moon Moon as trustee of the Trust. It read as follows:
Dear Nicola, Phillipa & Christina, Re: Gift
Both your mother & I wish to advise the board of Moon Moon Pty. Ltd. that we wish to gift the balance of our outstanding loan account (as at 30th June 2005) as presented in the accounts of The Sheaffe Family Trust, to the trust. The amount is $57,035, and it is our desire that it be dealt with under the conditions of the existing Trust deed.
Yours faithfully]
The letter was signed by Pete and by Nicola under her Power of Attorney for Pamela.
Minutes of a meeting of the directors of Moon Moon of the same date recorded the tabling of the letter. It was resolved that the gift as offered and described in the letter be accepted and that the letter be filed in the records of Moon Moon and a copy of both the letter and the minutes be provided to the Trust’s accountants before 30 June 2006.
Dr Henderson of Manilla states that from about 2005 he observed a rapid decline in Pamela’s cognitive ability and that in 2006 she was admitted to the Nursing Home attached to the Manilla District Hospital where she receives full-time care. He last visited Pamela on 5 November 2009 and describes her as suffering from advanced dementia.
In September 2006 Peter Rayner, Tina’s husband, had a conversation with Pete at Rock Abbey concerning what was to happen after Pete’s death. The result was a somewhat lengthy “Letter of Wishes” dated 5 September 2006. Mr Rayner assisted in the preparation of the Letter of Wishes. The letter was addressed to Pete’s three daughters. Briefly, Pete expressed the wish that Nicola enjoy a lifetime right of residence at Rock Abbey if she should so wish; that Phillip and Tina should be at liberty with their families to enjoy Rock Abbey by visiting it; and that when appropriate Rock Abbey be sold and the proceeds be divided equally between the three sisters. The letter referred to control of Rock Abbey by Moon Moon and specifically referred to the one third vote that each of the sisters would have in Moon Moon, subject to Nicola’s lifetime right of residence. The letter contained the sentence: “… a simple majority should prevail regarding decisions, subject to certain provisos discussed herein but ultimately dictated by my will”. The letter stated that a decision to sell Moon Moon was to be based on “a majority decision of the board of Moon Moon or the current trustee”. This ambiguous statement at least contemplated that Moon Moon might not always be the trustee of the Trust. The concluding words of the letter expressed what has proved to be a vain hope: “In short, I want all three of you to continue to enjoy Rock Abbey as a family.”
The Letter of Wishes stated that no person other than Nicola was “to habit or co-habit at Rock Abbey unless consent to do so is given by the Board of Directors of Moon Moon”, which consent might be given conditionally. Nicola took strong objection to this stipulation.
Peter Rayner arranged for the family’s solicitor, Ed Leyden, to attend on Pete to go through the Letter of Wishes with him and witness and attest his signature on it, as Mr Leyden did.
I do not find the Letter of Wishes particularly helpful for present purposes. In any event, its opening sentence was a statement by Pete that it was not an attempt to rule from the grave.
On the following day, 6 September 2006, Pete made his will. He appointed his three daughters executors and trustees; gave his guns and rifles to Nicola (apparently she held the relevant licence); gave listed “heirlooms and chattels” to the three daughters in equal shares; directed that subject to the terms of the Trust created by the Deed of Settlement, his power as Appointor was to pass to his daughters “in equal shares with the majority view to prevail”; expressed the wish that Nicola be permitted to reside in the “house and curtilage” at Rock Abbey rent free and without contribution to expenses until she no longer wished to reside there or was unable to do so or it was “inappropriate” for her to do so; and gave the rest of his estate to those of his three daughters who should survive him and if more than one in equal shares as tenants in common. It was not and could not be suggested that the direction concerning Pete’s power as Appointor could be effective since the régime of the succession of Appointors was established by cl 8A of the Deed of Settlement itself. If Pamela survived Pete, she became Appointor and from her death, his legal personal representatives, his three daughters, became Appointors.
On the same date, in a short handwritten note, Peter expressed the wish that Tina’s two boys have his guns and that Nicola look after them “til that time”.
On 19 October 2006, Pete revoked the Power of Attorney dated 27 May 2003 he had given to Nicola and signed two Powers of Attorney in place of it: one in favour of Nicola which excluded any power Pete might have as an Appointor under the Trust or as a director of Moon Moon, the other in favour of all three daughters in respect of dealings as Appointor of the Trust and as director of Moon Moon.
Apparently the question arose how a similar result could be achieved in relation to Pamela. Because of her mental incapacity, she could not revoke the existing Power of Attorney or grant substituted ones as Pete might have suggested she do. In fact what happened was that Nicola signed a document also dated 19 October 2006 reading as follows:
I confirm that as part of Family arrangements currently taking place I acknowledge and confirm that I will not exercise any Powers under this Attorney [the Power of Attorney dated 27 May 2003 was referred to earlier in the document] as Appointor under the Sheaffe Family Trust Deed of Settlement dated the 10th August 1976 or in my Mother’s capacity as Director of Moon Moon Pty Ltd.
According to this document, if, as happened, Pamela survived Pete but was mentally incapable, from his death until she died the power of removal and appointment given by cl 8A of the Deed of Settlement would not be able to be exercised, and the trustee in place at Pete’s death, whether Moon Moon or some other person he might have appointed, would remain in office.
On 26 December 2006 there was a meeting of the directors of Moon Moon. Pete and his three daughters were present. Peter Rayner was also present and by invitation chaired the meeting. It was noted in the minutes that there had been a loss of $2,424 for the year ended 30 June 2006 but that this had been contributed to by depreciation of $7,400 and that there had been a positive cash flow of $5,000 for the year.
The minutes contained the following statement in relation to the loan accounts of Pete and Pamela:
An anomaly was discovered in terms of liabilities owing to Pamela Joan and James Campbell Sheaffe and it was RESOLVED that Nicola Sheaffe approach the accountants to have the mistake rectified (viz. loan a/c to be transferred to gift so that PJ and JC Sheaffe loan a/c be zero).
It was also resolved that in view of the fact that Nicola had the Power of Attorney from Pete, at least one other director should be made a co-signatory on the account with Perpetual and that both signatures should be required for any application for redemption. It was noted that Nicola would attend to this and advise the board by the end of February. It was stated that the value of the Perpetual investment was $74,107.00 as at 3 July 2006 and that there was cash at bank of $490. It was resolved to repair the stockyards on the basis of an estimated cost of less than $2,000. It was also agreed to reimburse Nicola $1,359 “with the understanding that the petrol account be re-established with the local supplier”.
In early 2008, the three sisters agreed that a new cattle yard should be installed.Nicola got a quotation from M & M Stock Yards and Steel Fabrications (M & M) for $6,582.40.She said that she showed it to her sisters who agreed that she should accept it and have the work done. She did so.
On 21 February 2008 Pete died. According to an ASIC search Pamela also ceased to be a director of Moon Moon on that date, but minutes of a meeting of the directors held on 5 March 2008 record that a letter of her resignation as a director was received from Pamela which was accepted.
Following completion of the new cattle yard in June 2008, Nicola received a bill dated 23 June 2008 from M & M for $6,274.84.
On 23 June 2008 Nicola, signing as “Secretary & Director, Moon Moon P/L”, wrote a letter to Perpetual advising that she wished to withdraw $6,500 from Moon Moon’s investment. She asked that the amount be transferred to Moon Moon’s Westpac bank account of which she gave details. Nicola paid M & M $6,274.84 by a Westpac cheque drawn on 27 June 2008.
On seeing the new cattle yard at Rock Abbey, Tina asked Nicola how it had been paid for. Nicola told her that she had withdrawn the funds from Perpetual, signing as a director and secretary of Moon Moon. Tina protested that two signatures were required. Tina places this conversation in June 2008.
On the same occasion Phillipa also saw the new cattle yard and heard Nicola tell Tina that she had paid for it from the money at Perpetual. However, Phillipa places the conversation on or about 4 July 2008. Nothing turns on the different dating of the conversation.
Nicola’s evidence is that she believed that she was entitled to pay M & M for the work to which her sisters had agreed from the only source from which the Trust could pay $6,274.84, namely, the investment with Perpetual.
Phillipa prepared an agenda of items to be discussed at a board meeting to be held on 14 July 2008. A source of complaint by Tina and Phillipa was that a man named Mike Walton had moved onto Rock Abbey to live shortly after Pete’s wake on 8 March 2008. (Nicola permitted him to occupy the additional cottage on Rock Abbey and said that he did much work on the property for which he made no charge.) This and other matters were referred to in Phillipa’s agenda. Phillipa’s agenda also referred to Pete’s wish that Rock Abbey be viewed as “a family home, a welcoming refuge from the city & a place for us all to gather & be a support for each other”.
On 16 July 2008 Nicola’s Company was registered with Nicola as the sole director and shareholder.
On the same day, 16 July 2008, Nicola and her Company executed a deed which was expressed to be between Pamela and Nicola’s Company (Deed of Removal and Appointment). Pamela, through her attorney, Nicola, under cl 8A of the Deed of Settlement removed Moon Moon as trustee of the Trust and appointed Nicola’s Company as trustee in its place. Nicola’s Company accepted the appointment.
No doubt in an attempt to overcome the problem that Nicola’s Company fell within the definition of “the beneficiaries” in the Deed of Settlement, the Deed of Removal and Appointment provided (in cl 3) that Nicola’s company had irrevocably agreed that under no circumstances whatsoever should it ever become or be considered to be a beneficiary of the Trust and renounced forever any opportunity to be considered as such a beneficiary. Further, by cl 4 Nicola’s Company, pursuant to cl 11 of the Deed of Settlement, purported to amend the Deed of Settlement to incorporate a new clause 13 which was to the effect that under no circumstances should the trustee for the time being or alternatively any prior trustee or subsequent trustee, whether holding the position of trustee or having been removed or retired as trustee, be entitled to be a beneficiary, and the provision was said to be “irrevocable” and any attempt to amend or delete the new cl 13 was declared to be “void”.
As noted elsewhere, on 16 June 2010, towards the end of the hearing, Nicola came to accept that her Company had not been eligible to be appointed as trustee, and by a further Deed of Removal and Appointment of that date, Pamela through her attorney Nicola, removed “the entity which may be the Trustee whether it be Moon Moon Pty Limited or N J Sheaffe Pty Limited from the position of Trustee of the Sheaffe Family Trust” and appointed Mr Nicholls as trustee. This was announced in Court the following day and this second Deed of Removal and Appointment was admitted into evidence.
By a letter dated 16 July 2008 addressed to Perpetual, Nicola’s Company as both Owner and Trustee as at and from 16 July 2008 of the investment at Perpetual, requested Perpetual to change its records to show that as and from that date it (Nicola’s Company) was the owner of the investment. Attached to the letter was a copy of the Deed of Removal and Appointment and a copy of the certificate of incorporation of Nicola’s Company. The letter referred to Moon Moon as the former owner.
According to Phillipa, on 16 or 17 July 2008 early in the morning she received a telephone call from Nicola in which Nicola said that she had been to see her solicitor and accountant and had formed her own company and taken over from Moon Moon, using for that purpose the Power of Attorney given by Pamela. A meeting of the directors of Moon Moon was already scheduled to be held on 18 July 2008 and Nicola said that there would not be a meeting but that she (Phillipa) was welcome to come to Rock Abbey whenever she liked.
The following day, Friday 17 July 2008, Nicola advised Tina by telephone to the same effect. Later that day, Tina, Phillipa and Peter Rayner travelled to Rock Abbey. Nicola agreed to reverse her action of the preceding day and to reinstate Moon Moon as trustee provided she was “fully protected”, and to that end to give instructions to the solicitors the following day. Nicola says that anything she may have said at that time resulted from the fact that she was fearful and intimidated. In particular, she refers to shouting and screaming by Tina, Phillipa and Peter Rayner. They deny the allegation and refer to shouting by Mike Walton, who was present in the house when they arrived but left shortly afterwards.
On 18 July 2008 Tina, Phillipa, Nicola and Peter Rayner met at the offices of Mr Leyden. Mr Thibault, Nicola’s solicitor, was not present but participated by telephone. Nicola said that she wished to reinstate Moon Moon as trustee. According to Mr Rayner, Mr Thibault said that he would wish to include in the reinstatement deed a provision that neither should the trustee be able to be removed nor should the property be able to be sold, without the unanimous approval of all directors. Peter Rayner said that Tina and Phillipa nodded agreement and that he (Peter Rayner) said that such an arrangement reflected the parents’ wishes. Mr Leyden undertook to draft the proposed reinstatement document. Nicola’s account is that she still felt intimidated and was not able to obtain independent advice from Mr Thibault until after the meeting.
The meeting of directors took place at Rock Abbey at 11.00 am. [CB 66] Present were Tina, Phillipa and Nicola and, by invitation, Peter Rayner. The minutes of the meeting record that agreement had been reached for the reinstatement of Moon Moon as trustee. They note that the solicitors had been instructed to attend to the documentation. It was resolved that Moon Moon pay the legal fees incurred by Nicola’s Company. These resolutions are recorded as being unanimous.
Nicola requested payment for performing managerial duties and it was resolved to pay her $100 per month to be reviewed in six months’ time.
On 21 July 2008 Mr Leyden sent a copy of a draft deed of reinstatement to Peter Rayner.However, Nicola was to take a different course.
On 23 July 2008, Mr Thibault wrote to Wardley Osborne, Chartered Accountants at Tamworth, enclosing a photocopy of the Deed of Removal and Appointment dated 16 July 2008, minutes of the meeting of directors of Nicola’s Company of that date and a copy of two directions given to Perpetual. One of these was signed by Nicola on behalf of Moon Moon and the other which was signed by her on behalf of her Company. Also enclosed was a copy of written instructions which Mr Thibault had taken from Nicola. The directions were addressed to Perpetual and requested it to change its records to show that as from 16 July 2008, the investment was held by Nicola’s Company in place of Moon Moon.
It is clear then that by 23 July 2008 Nicola had changed her mind.
Two days later, on 25 July 2008, Mr Thibault wrote to Perpetual enclosing the original letter executed by Moon Moon (signed by Nicola), the original letter from her Company, and a copy of the Deed of Removal and Appointment dated 16 July 2008.
The Deed of Removal and Appointment was registered on 1 August 2008, Book 4549 No 911.
On 6 August 2008 Perpetual sent to Mr Thibault a Standard Transfer Form to be signed, stamped and returned, and on 28 August 2008 he returned the form which Nicola had signed as Director/Secretary of Moon Moon and Director/Secretary of her Company. The Standard Transfer Form was dated 19 August 2008.In cross-examination Nicola said that she thought that the change effected by the Standard Transfer form was just the normal outworking of the change of trustee.
On 21 August 2008, HWL Ebsworth Lawyers (Ebsworths) wrote to Mr Thibault advising that they acted for Tina and Phillipa, making certain allegations on their behalf and seeking undertakings in writing from Nicola and her Company designed to preserve the status quo in relation to the Trust. As well, they sought advice as to what Nicola and her Company would do in light of the fact that her Company fell within the definition of “the beneficiaries” in the Deed of Settlement so that its appointment as trustee was invalid.
There followed a course of correspondence between Ebsworths and Mr Thibault. One matter on which the respective parties seemed to be in agreement was that Rock Abbey was not to be sold without the agreement of all three sisters. This would mean that each one of them would have a right of veto. However, Ebsworths could not get agreement to reinstate Moon Moon as trustee of the Trust and so they filed the Summons which commenced this proceeding on 27 May 2009.
On 28 October 2009 Mr Thibault wrote to Ebsworths advising that due to the drought, funds were needed from the Perpetual investment to feed the approximately 100 head of cattle owned by the Trust. Mr Thibault advised that Nicola had advanced approximately $4,750.00 to the Trust to meet expenses, including $2,894.00 for feed. He sought the agreement of Tina and Phillipa to a release of funds from Perpetual for feed, rates, insurance premiums “and the like when they fell due”.
Ebsworths wrote on 30 October 2009 agreeing to reimbursement of the sum of $2,894.00 and asking for a breakdown of the sum of $4,500.00. Ebsworths also questioned the ongoing viability of Rock Abbey as a profit-making grazing enterprise. They asked that an orderly selling of the cattle be considered by Nicola in order to avoid further depletion of the capital invested with Perpetual.
On 21 December 2009, without notice to her sisters, Nicola sold all of the cattle by private treaty to M J and J Fisher for $30,200. She deposited the proceeds on that date in the Westpac account which by then stood in the name of Nicola’s Company as trustee for the Trust.

On 8 January 2010, Nicola caused the Trust to repay to her the amounts of loans she had allegedly made on 12 August 2009 ($2,500), 31 August 2009 ($4,000) and 6 October 2009 ($748), totalling $7,248.00. These amounts are referred to in the table in [75] below.
On 3 February 2010, Nicola caused the Trust to pay her wages for “running the Trust for a period of 78 weeks at $200.00 per week total $15,600.00” which her solicitor, Mr Thibault, asserted was well below what she “would have been entitled to be paid under the awards applying to the running of a property such as this”.
On 4 March 2010, by consent an order was made in this proceeding restraining Nicola and her Company from dealing with Trust assets without giving seven days’ notice to the plaintiffs.
By a letter dated 11 March 2010 to Ebsworths, Mr Thibault advised that the proceeds of the sale of the cattle were applied as follows:

1	21 December 2009 – Two weeks wages for my client, Nicola Sheaffe	$400.00
2	2 January 2010 – Brown Tyres, being tyres for the Subaru Trust vehicle	$608.00
3	8 January 2010 – Payment to my client in repayment of loans. The loans involved were as follows: I. 12 August 2009 - $2,500.00 II 31 August 2009 - $4,000.00 III 6 October 2009 - $ 748.00	$7,248.00
4	9 January 2010 – Woods Garage service and repairs of Motor care	$253.93
5	10 January 2010 – Payment of account for accountancy fees of Wardle Osborne Chartered Accountants	$1,254.40
6	10 January 2010 – Manilla Vet Clinic for veterinary services for livestock	$100.10
7	10 January 2010 – Telstra part payment of telephone bill	$100.00
8	10 January 2010 – Tamworth Regional Council, payment of Rates	$211.08
9	10 January 2010 – Landmark Rural Supplies poly pipe account	$1,959.25
10	10 January 2010 – Power Direct electricity Account	$314.79
11	28 January 2010 – casual labour – (the casual labour was a Mr John Corcoran)	$70.00
12	3 February 2010 – Payment to my client for outstanding wages for 18 months	$15,600.00
13	17 February 2010 – Power Direct electricity bill	$200.00
14	2 March 2010 – Warren V Thibault Law Practice Trust Account on account of legal costs of Trustee in defending matter	$1,000.00

I note that these amounts total $29,319.55 and include the “repayment of loans” of $7,248.00 and the “outstanding wages” of $15,600.00.

CONSIDERATION

Purported appointment of Nicola’s Company as trustee.
Towards the end of the hearing, on 17 June 2010, Senior Counsel for Nicola and her Company announced that it was conceded that the purported appointment of Nicola’s Company as Trustee on 16 July 2008 had been invalid because Nicola’s Company fell within the definition of “the beneficiaries” in the Deed of Settlement. This point had been made by Ebsworths in their letter dated 21 August 2008 to Mr Thibault, the solicitor for Nicola and her Company – their first letter to him after they had been retained Tina and Phillipa. Notwithstanding this, Nicola’s Company had continued to assume the role of trustee down to 16 June 2010 and down to that time Nicola and her Company resisted the proposition that Moon Moon was still the trustee of the Trust.
The concession was made on the final day of the hearing – the evidence had been almost concluded at the end of the day on 16 June.
Nicola’s Company had made various payments to Nicola and others and Nicola had caused her Company to make them. Not being the trustee of the Trust, her Company lacked authority to pay away Trust money and to sell the cattle. Apparently some of these payments would not have been made by Moon Moon while others would have been.
Notwithstanding the purported appointment of her Company on 16 July 2008, Moon Moon remained trustee. On the board of directors of Moon Moon, Tina and Phillipa could outvote Nicola, two to one. Subject to offsets, Nicola and her Company are liable to reimburse the Trust for all Trust moneys expended, and to account to the Trust for all Trust property disposed of, by Nicola or by Nicola’s Company as trustee, except any that were expended or disposed of with the consent of Moon Moon, given through Tina and Phillipa (in effect, this means with the consent of Tina and Phillipa).
By para 12 of the Amended Cross-Claim, Nicola as cross-claimant seeks and order under s 85 of the Trustee Act 1925 (NSW) relieving her and her Company wholly from personal liability from any breach in relation to the administration of the Trust. Section 85 provides for a “trustee” to be relieved of liability. The present application should be made by Nicola’s Company, not by Nicola, and the relief sought should be expressed to be in favour of Nicola’s Company not in favour of Nicola. I will assume, without deciding, that if Nicola’s Company’s application were to succeed, Nicola would benefit indirectly.
I will pass over the irregularities. In my opinion, relief should not be given under s 85.
There is an initial question whether Nicola’s Company was “a trustee” within s 85. The expression “Trust” is defined in s 5 of the Trustee Act 1925 (NSW) to include a constructive trust and “Trustee” is defined to have a meaning corresponding with that of “Trust”. Nicola’s Company was a constructive trustee. It suffices to note that the Trust bank account with Westpac stands in its name as trustee for the Trust. Contrary to the plaintiffs’ submission, Nicola’s Company has standing to apply under s 85.
Relief under s 85 should not be granted.
In order for relief to be granted, it must appear to the Court that Nicola’s Company:-
(1) has acted honestly, and
(2) has acted reasonably, and
(3)ought fairly to be excused for the breach of trust and for omitting to obtain the direction of the Court.
There is virtually no evidence directed to the circumstances surrounding the purported removal of Moon Moon and appointment of Nicola’s Company on 16 July 2009, or the reasonableness of Nicola’s and her Company’s conduct associated with the removal and appointment.
When she executed the Deed of Removal and Appointment on 16 July 2008, Nicola understood and intended that its effect would be to deny her sisters their power to outvote her as directors of Moon Moon and, in effect, and would be to install her as sole controller of the Trust. She caused her Company immediately to request Perpetual to change its records to show her Company instead of Moon Moon as owner of the investment there.
Nicola’s objection was plainly to wrest control of the Trust and its assets from her sisters to herself. In my view her actions were not reasonable and ought not fairly to be excused.
If more were needed, reference need again only be made to the letter dated 21 August 2008 from Ebsworths to Mr Thibault specifically drawing attention to the fact that Nicola’s Company fell within the expression “the beneficiaries” as defined in the Deed of Settlement, and was not eligible to be trustee of the Trust. Nonetheless, Nicola caused her Company to persist in its role as trustee and to deal with Trust property.
There will be a declaration that subject to any offsets Nicola and her Company are jointly and severally liable to reimburse the Trust. Whether this should lead to an ultimate net liability and if so in what sum, will depend on the result of inquiries, including as to offsets, to be made by the new trustee, Mr Nicholls (see below).
Was Nicola bound to give effect to her written undertaking dated 19 October 2006 and her oral agreement to reinstate Moon Moon made on 17 and 18 July 2008?

The Pamela/Nicola Power of Attorney

The operative terms of the Power of Attorney dated 27 May 2003 executed by Pamela in favour of Nicola were as follows:
General Power of Attorney
Part 1
This power of attorney is made 27 May 2003 by
PAMELA JOAN SHEAFFE
Of “Rock Abbey” MANILLA NSW.
1. I appoint
NICOLA JOAN SHEAFFE
Of “Rock Abbey” MANILLA NSW.
To be my attorney to exercise, subject to any conditions and limitations specified in Part 2 of this instrument, the authority conferred on her by section 163B of the Conveyancing Act, 1919, to do on my behalf anything I may lawfully authorise an attorney to do.
2. In the exercise of the authority conferred on her by section 163B of the Conveyancing Act, 1919, my attorney is authorised to execute an assurance or other document, or do any other act, whereby a benefit is conferred on her.
3. This general power of attorney is given with the intention that it will continue to be effective notwithstanding that after its execution I suffer loss of capacity through unsoundness of mind.
Part 2
Conditions and Limitations
Nil
In witness whereof I the said PAMLEA JOAN SHEAFFE have hereunto set my hand and sell on the abovementioned date.
Section 163B of the Conveyancing Act, 1919 (NSW) referred to in the Power of Attorney provided:
163B Power conferred by prescribed form of instrument
(1) Subject to this section, an instrument (whether or not under seal) in or to the effect of the form in Schedule 7 confers on the attorney thereby appointed authority to do on behalf of the person executing the instrument anything the person executing the instrument may lawfully authorise an attorney to do.
(2) The authority conferred by an instrument referred to in subsection (1) does not include:
(a) authority to exercise or perform any power, authority, duty or function as a trustee conferred or imposed on the person executing the instrument, or
(b) unless it is expressly conferred by the instrument—authority to execute an assurance or other document, or do any other act, as a result of which a benefit would be conferred on the attorney appointed by the instrument.
(3) Where an instrument referred to in subsection (1) specifies any conditions or limitations to which the authority conferred by the instrument is to be subject, the authority is so conferred subject to compliance with those conditions or limitations.
The Power of Attorney granted by Pamela to Nicola was in or to the effect of the form in Schedule 7.
The Powers of Attorney Act 2003 (NSW) commenced on 16 February 2004. However, s 6(3) of that Act provided that subject to s 6(5), the provisions of Pt 16 of, and Sch 7 to, the Conveyancing Act 1919 (NSW) continued to apply to powers of attorney created before that commencement. Sub-section (5) of s 6 provided, relevantly, that Pt V (Review of powers of attorney) and Div 3 of Pt 6 (Registration of powers of attorney) extended to any such power of attorney.
It is not disputed that the Power of Attorney authorised Nicola on behalf of Pamela to exercise the power of removal and appointment given to Pamela by cl 8A of the Deed of Settlement. The plaintiffs submit, however, that by reason of the document dated 19 October 2006 and the oral agreement made on 17 and 18 July 2008 to reinstate Moon Moon, Nicola disabled herself from exercising that power as she has done. The document is relevant to both of the Deeds of Removal and Appointment, but since it is now conceded that the purported appointment of Nicola’s Company was invalid in any event, it and the oral agreement of 18 July 2008 to reinstate assume importance only in relation to the recent purported appointment of Mr Nicholls.
Many submissions were made in relation to the present question, not all of them to the point.

Renunciation of power under Power of Attorney

Nicola submits that she was not able effectively to renounce her Power of Attorney to the extent referred to because the principal, Pamela, lacked capacity to accept the renunciation. Senior Counsel for Nicola relies on Bowstead and Reynolds on Agency (18th ed, 2006) at para 10-023. The submission is that the remedy available, but not availed of in this case, was for an application to be made to the Court under Part 5 of the Powers of Attorney Act 2003 (NSW).
A power of attorney is a species of agency. Ordinarily an agent’s authority may be terminated by notice of renunciation given by the agent and accepted by the principal. In addition to the paragraph In Bowstead and Reynolds on Agency, reference may be made to the Restatement of the Law (3rd): Agency, vol 1 at § 3.10. Pamela’s mental condition was such that she lacked capacity to accept, or become aware of a manifestation, a renunciation by Nicola.
While acceptance by, or at least manifestation to, a mentally competent principal is an essential element of a termination of agency by renunciation, the fact is that Nicola did not purport to give any notice of, or otherwise manifest, a presently operative renunciation. What she did by the document dated 19 October 2006 was to “acknowledge and confirm” that she would not exercise the Power of Attorney in either of the respects mentioned in that document, and by the oral exchanges of 17 and 18 July 2008 was to agree to reinstate Moon Moon as trustee subject to her being fully protected. The issues that arise are to be resolved in the light of these facts.

The document of 19 October 2006 – contract or estoppel

The document of 19 October 2006 is to be read in the light of the Letter of Wishes dated 5 September 2006 (referred to at [32] above) and Pete’s revocation of the single Power of Attorney and his grant of two Powers of Attorney on 19 October 2006.
The Letter of Wishes was a unilateral expression of Pete’s hopes and wishes for the future, but nothing more than that. The document of 19 October 2006 was a unilateral statement by Nicola of her then current intention, but in my opinion it did not form part of a contract or give rise to an estoppel. Just as Pete was at liberty to change his mind, so was Nicola. Pete was at liberty to effect further revocations and appointments and Pamela (through Nicola) was at liberty to effect revocations and appointments too.
At most, Nicola could be seen to be giving some comfort to Pete. I do not accept, however, that she intended, or could be reasonably understood to be intending, to bind herself for the indefinite future, regardless of any change of circumstances.
Pamela, and therefore Nicola on her behalf, held the power of removal and appointment subject to a fiduciary obligations in favour of “the beneficiaries”. The plaintiffs submit that Nicola also held her power under the Pamela/Nicola Power of Attorney subject to a fiduciary obligation in favour of Pamela. Yet no attention was given on 19 October 2006 to the question whether the giving of a promise by Nicola of indefinite duration would be in the interests of “the beneficiaries” in general or of Pamela in particular.
The impossibility of Pamela’s participation is part of the background against which the document of 19 October 2006 is to be construed. By means of the Power of Attorney Pamela had invested Nicola with, inter alia, the power of removal and appointment. It ought not lightly to be inferred that without reference to Pamela’s position and the question of the fiduciary obligations at play, Nicola was agreeing to a permanent “freeze” on the power with which she had been entrusted, regardless of how “bad” the conduct in which Moon Moon (as trustee) might engage in the future.
If the document is to be regarded as a promise by Nicola to Pete rather than as a statement of Nicola’s present intention, there was no consideration for the promise. Pete is not shown to have conferred any benefit on Nicola or to have incurred any detriment, in either case as the price for Nicola’s promise.

Estoppel

The plaintiffs submit that Nicola and her Company are estopped from acting inconsistently with the document of 19 October 2006. Counsel for the plaintiffs submits:
‘The family arrangement’ was self-evidently entered [into] for the benefit of the whole family, including the plaintiffs, the second and third defendants. The defendants are therefore estopped from denying the effect of the undertaking.
This submission, expressed in the most general terms, fails to grapple with the elements of promissory estoppel.
There is no evidence that Tina and Phillipa relied to their detriment on the promise. It is said that Pete acted to his detriment in reliance on it by refraining from taking steps culminating in a variation of the Deed of Settlement to remove Pamela as an Appointor so as to deny to Nicola the possibility of exercising the power of removal and appointment as her attorney. First, there is no evidence that he gave any thought to this possibility. Second, neither he nor his legal personal representatives are parties. Third, his own powers under the Deed of Settlement were subject to fiduciary obligations and it is not clear in these circumstances, what “acting to his detriment” means. Fourth, I am not satisfied that, fully advised, he would have varied the Deed of Settlement in the manner mentioned. It is conceivable that he would have done so if his mind had been directed to the possibility of his dying virtually immediately and Nicola’s exercising Pamela’s power of appointment in favour of a company of her creation and under her control virtually immediately after his death. But what course would he have taken if his mind had been directed by legal advisers to the longer term and the possibility of a different course of future events, such as acrimony and disputation between his daughters and, in effect, the suspension of the power of appointment between his death and that of his mentally incapacitated wife. While he may have been content to accept that position thinking that Moon Moon should be in control, he may not have been.
In summary, I do not accept the plaintiffs’ submission that Nicola was either contractually bound not to act inconsistently with the document dated 19 October 2006 or was estopped from doing so.

Release of power under Power of Attorney

Counsel for the plaintiffs submits that the document of 19 October 2006 operated as a release in part of the Power of Attorney. He cites s 43 of the Powers of Attorney Act 2003 (NSW). That section, however, operates only where the attorney acts in the exercise of the power. Nicola did not do so by the document of 19 October 2006; rather, she acted in her personal capacity.
Counsel next relies on Re Evered [1910] 2 Ch 147 at 157 for the proposition that a contract not to exercise a power operates as a release of the power. He also refers to Foakes v Jackson [1900] 1 Ch 807 and Public Trustee v Brown [1939] Ch 944, and s 28 of the Conveyancing Act 1919 (NSW).
Section 28 is irrelevant. It provides that a person to whom is given any power may release the power or contract not to exercise the power or disclaim the power by deed, or in certain cases release or disclaim the power by a registrable dealing. Nicola did not execute any deed or registrable dealing.
In any event s 28 and the authorities relied on are not concerned with powers of attorney but with powers of appointment.
It is difficult to understand what counsel for the plaintiffs seeks to get from Re: Evered. In the first place it concerned a testamentary power of appointment, not the species of agency called a power of attorney. The case concerned a conflict between the exercise of the power of appointment in the donee’s will and four deeds of covenant which she executed after making her will. At most, of present relevance, the case recognises that the deeds of covenant prevailed and that the exercise of the power in the donee’s will was to be construed subject to them. This was so even though the power could be exercised by will only and not by deed.
It may be that consistently with Pamela’s fiduciary obligations, Nicola could bind herself permanently by contract to exercise or not to exercise the Power of Attorney and through it Pamela’s power as Appointor. For breach, the remedies for breach of contract would be available. But in my opinion she did not do so.
Foakes v Jackson also concerned a power of appointment, this time a joint power of husband wife and a separate power of the survivor of them. Again the case was one of a conflict – this time between an assignment by husband wife and those entitled in default of appointment, and a subsequent appointment by the surviving husband to different objects. It was held that the earlier assignment had released the husband’s separate power of appointment.

The decision has no bearing on the present case.
Finally, Public Trustee v Brown concerned a release by deed poll of a power of appointment exercisable by deed or by will. It was held that the release was valid and precluded the subsequent exercise of the power of appointment.
Public Trustee v Brown also has no bearing on the present case.
The oral agreement of 17 and 18 July 2008
The plaintiffs submit that the oral agreement of 17 and 18 July 2008 was supported by consideration in the form of the benefit of “securing [Nicola’s] own future at Rock Abbey, as well as the orderly management of the trust without any one sister dominating”. But there was no consideration for her causing her Company to cease to be trustee. On the assumption that the parties made that Nicola’s Company was trustee, she, through it, could determine whether and when to sell Rock Abbey and at what price and on what terms. I can see no agreed consideration moving from Tina and Phillipa to Nicola for her agreement of 17 and 18 July 2008 which was totally to her detriment.
In any event, the agreement then made was not intended to create legal relations. They were to be created only if and when a formal document was prepared and executed. The reference to Nicola’s being “fully protected” (see [57] above) emphasises the point.
Further, mere reinstatement of Moon Moon would not prevent Nicola on behalf of Pamela subsequently again removing Moon Moon and appointing Mr Nicholls.
Appointment of Mr Nicholls – the question of ex facie invalidity
The plaintiffs next submit that the appointment of Mr Nicholls was in its own terms invalid and contrary to the Deed of Settlement.
The plaintiffs first submit that by cl 2 of the Deed of Removal and Appointment dated 16 June 2010 the appointment of Mr Nicholls was expressed to “be effective immediately upon the execution of this Deed this day”, but, so it is submitted, s 52 of the Powers of Attorney Act 2003 (NSW) prevents it from having immediate effect. Reference may also be made to ss 9 and 12 of the Trustee Act 1925 (NSW).
The submission reveals a basic misconception. Section 52 presupposes two documents: a power of attorney and a later conveyance or other deed affecting land executed under the power. The section has nothing to say to the present circumstances in which there has not yet been a conveyance or other deed affecting land.
The plaintiffs next refer to a part of cl 3 of the Deed of Removal and Appointment dated 16 June 2010 which reads was follows:
… It is hereby acknowledged and agreed that the said Alan Richard Nicholls in accepting this position as Trustee shall be entitled to be paid for the professional services rendered by himself or his employees or sub-contractors on the basis of those charges set forth in his Affidavit filed in the Supreme Court in proceedings number 289040/2009 together with any reasonable administrative expenses and legal professional costs incurred by him and relating to the administration of the Trust.
Paragraphs 4 and 5 of Mr Nicholls’s affidavit dated 21 May 2010 filed in this proceeding are as follows:
4.I say that if I am appointed to be a trustee I will expect I will be directing appropriately qualified and experienced staff in my office to do the work of administration in winding up the Trust. Professionally if I did all the work I would be charging at the rate of $444.00 per hour plus GST plus disbursements. However cause of the nature of the work, I expect that a senior Manager and other skilled staff in my office would be quite capable of completing the administration and winding up of the Trust. Those persons’ work would be charged at the rate of $360.00 per hour plus GST in the case of the senior Manager and other assistance professional personnel at the rate of $228.00 per hour plus GST and disbursements. At this stage I am unable to give an estimate of disbursements as much depends upon what I discover when I take over the administration assuming the Court makes the Orders sought by the Applicants for my appointment.
5.My office at Tamworth is approximately 60 kilometres from the Manilla and is less than one kilometre from the office of the Messrs Wardle Osborne, Chartered Accountants, who I understand are the firm of Accountants who attend to the preparation of tax returns and other records pertaining to the Trust.
Clause 9 of the Deed of Settlement provides:
9.(a)The Trustee shall be entitled, if the Trustee so requires by way of remuneration for the Trustee’s services to such sum out of the income or capital of the trust fund whether by way of fixed periodical fee or salary or commission on the income or capital of the trust fund or otherwise as the Trustee shall nominate in writing PROVIDED ALWAYS that such remuneration shall not exceed the rate for the time being charged by the Public Trustee of New South Wales for acting as a Trustee of a settlement intervivos or (if none existing) of a deceased estate.
(b)The Trustee may pay all the costs charges and expenses of administering the trust fund out of the same whether from the capital or income thereof as the Trustee may in the Trustee’s absolute and unfettered discretion determine and any Trustee being an accountant, solicitor or other person engaged in any profession (but not being a copy corporate in which the Settlor may hold any interest) shall in addition to his her or its entitlement under sub-clause (a) hereof be entitled to charge and be paid from time to time all usual professional charges for business transacted time expended and acts done by the Trustee or any employee or partner in connection with the Trusts hereof including any acts which a Trustee not being in any profession could have done personally.
There is in evidence a document published by NSW Trustee & Guardian entitled ”Facts on Fees”, page 7 of which states under the hearing “What are the main costs of administration of ongoing Trusts?”:
An account keeping fee of $11.00 (incl. GST) per month is charged for the ongoing maintenance of the Trust fund. For the investigation and lodgement of tax returns a minimum fee of $220 (incl. GST) up to one hour applies, plus up to maximum $165 (incl. GST) per hour for extra hours required. Our Investment Planning Fee is $165 (incl. GST) per hour. Commission of 5.775% (incl. GST) is charged on income earned by the trust.
A long term trust fee comes into effect where a trust exceeds 2 years and, where charged, income commission ceases to apply. The fee is on a sliding scale (incl. GST) to an annual maximum of 0.55% on the 1st $250,000 to 0.825% on 2nd $250,000 to 1.1% on amounts over $500,000. The primary place of residence is not included in the capital value while the beneficiary of the trust is using it as their residence.
Long term trust fees do not apply to charitable trusts.
Counsel for the plaintiffs points out that the rates charged by NSW Trustee and Guardian are a maximum of $165 (incl. GST) per hour, whereas the rates to be charged by Mr Nicholls will, depending upon who does the work, be $228 per hour plus GST or $360 per hour plus GST or $444 per hour plus GST.
There is no merit in the submission. It concentrates on para (a) of cl 9 and ignores para (b) in cl 9. Paragraph (b) applies where the trustee is an accountant, solicitor or other person engaged in any profession. Mr Nicholls is a Chartered Accountant and a registered liquidator. Paragraph (b) has the effect that in these circumstances Mr Nicholls is entitled, in addition to his entitlement to “remuneration for the Trustee’s services” under para (a), to charge and be paid “all usual professional charges for business transacted time expended and acts done by [him] or any employee or partner …”. No attempt has been made to show that the rates referred to in para 4 of Mr Nicholls’s affidavit do not represent “usual professional charges” within para (b).
Counsel for the plaintiffs further submits that cl 9 and the “Facts on Fees” document issued by NSW Trustee & Guardian did not allow for indemnification for “administrative expenses”. Although counsel’s written submissions put that expression in quotation marks, it does not occur in para 4 or 5 of Mr Nicholls’s affidavit. In any event, para (b) of cl 9 of the Deed of Settlement provides that the Trustee may pay all of the costs, charges and expenses of administering the trust fund. There is no merit in this submission either.
Counsel’s final submission on the invalidity of the appointment of Mr Nicholls by reason of matters appearing on the face of the Deed of Removal and Appointment dated 16 June 2010, turns on cl 4 of that document which is as follows:
4.Finally, Alan Richard Nicholls pursuant to the provisions of clause 11 of the Original Trust Deed dated 10th August 1976 and having been appointed and having accepted the position of Trustee of Sheaffe Family Trust hereby amends the Original Trust Deed dated 10th August 1976 to incorporate into the provisions governing the Trust now known as the Sheaffe Family Trust the following additional clause 13 which amendment to the said Trust Deed dated 10th August 1976 shall be effective as and from this date and shall not be revocable.
13.Notwithstanding any other provision in the Deed of Settlement dated 10th August 1976 entered into between Eileene Osborne Atkinson and Moon Moon Pty Limited it is hereby provided that in no circumstances shall the Trustee for the time being or alternatively any prior Trustee or any subsequent Trustee whether holding the position of Trustee or having been removed or retired as Trustee be entitled to be a beneficiary of the Trust established by the Deed of Settlement made 10th August 1976 and this provision shall be irrevocable. Any attempt to amend or delete this provision shall be void.
Counsel’s argument is that Moon Moon is a “beneficiary” within the definition of “the beneficiaries” contained in cl 1(e) of the Deed of Settlement; that by reason of cl 11 of that Deed any amendment effected under it had to be for the benefit of the beneficiaries; and:
By attempting to deny the prior (or current) trustee its status and entitlement as a beneficiary, the amendment is contrary to the trust deed. By incorporating that purported amendment in the deed of appointment its validity is implicitly a condition of the appointment and its invalidity invalidates the appointment (if not otherwise invalid).
I referred to the definition of “the beneficiaries” in cl 1(e) of the Deed of Settlement at [12] above.
Certain difficulties arise from the fact that Moon Moon falls within the definition of “the beneficiaries” and is also the Original Trustee. Counsel for the plaintiffs says only that Moon Moon is “the only beneficiary entitled as the ‘Original Trustee’ to also be the trustee”. However, the expression “Trustee” is defined in cl 1(a) to mean both the Original Trustee and any other trustee or trustees for the time being. There is an element of equivocation in the plaintiffs’ position: they rely on the definition of “the beneficiaries” when it suits them, such as to invalidate the purported appointment of Nicola’s Company as trustee while treating the position of Moon Moon as a “special case”; but now treat Moon Moon as falling within the expression “the beneficiaries” for the purpose of invalidating the appointment of Mr Nicholls.
Clause 11 of the Deed of Settlement is as follows:
11.Prior to the vesting day or other earlier termination of the trusts hereby declared the Trustee may from time to time in its absolute discretion and notwithstanding anyting [sic] to the contrary herein contained by deed, memorandum, minute or appropriate instrument vary the trusts or provisions hereof in any manner whatsoever provided that any variation of the objects shall be in favour of all or any one or more of the following, namely, any relative by blood or adoption of the said James Campbell Sheaffe and Pamela Joan Sheaffe or any of the beneficiaries not so related (whether or not natural persons) or any trust or settlement in which any of the beneficiaries (being natural persons) have any estate of interest whether vested, contingent or expectant SUBJECT ALWAYS to no share or benefit from or interest in or under the trust funds at any time directly or indirectly being in any way acquired by or passing to the Settlor or the Trustee or the person paying money or transferring or disposing of property (otherwise than by way of loan) referred to in Clause 7 hereof, consequent upon or pursuant to any such variation aforesaid.
The first answer to counsel’s submission is that if the variation truly made the change that he suggests, the variation would be pro tanto in favour of the remaining persons within the expression “the beneficiaries”.
The second answer, however, is that although Moon Moon (like Nicola’s Company) falls within the expression “the beneficiaries”, cl 7 prevails over its inclusion within that expression. Clause 7, to which I referred at [15] above, provides:
7.Notwithstanding anything to the contrary hereinbefore expressed or implied no discretion or power by this settlement conferred on any person or on the Trustee shall be exercised and no provisions of this settlement shall operate so as to confer or be capable of conferring any benefit direct or indirect in or out of the trust fund on the Settlor or the Trustee (other than remuneration in accordance with Clause 9 hereof) and similarly no provisions of this settlement shall operate so as to confer or be capable of conferring any benefit direct or indirect in or out of the trust fund on any person (notwithstanding that he be otherwise within the description of beneficiaries) who has paid money or transferred or otherwise disposes of property (otherwise than by way of loan) to the Trustees to be held on the trusts created by this Deed as from the time when any such latter person pays money or transfers or disposes of property as aforesaid.
The opening words “Notwithstanding anything to the contrary hereinbefore expressed or implied” indicate that the exclusion of the trustee for the time being of the Trust from benefiting under it is to prevail over the inclusion of Moon Moon within the definition of “the beneficiaries” and therefore within the range of persons who might be benefited under the Trust.
It follows that although the addition of the new cl 13 could not be made “irrevocable” and the provision that any attempt to amend it or delete it should be void was itself ineffective, the operative part of the additional cl 13 adds nothing to what was inherent in cl 7 itself.
That this is so is confirmed by the proviso at the end of cl 11 of the Deed of Settlement which recognises the special position of the Settlor and the Trustee (the expression “the Trustee” is defined to include the Original Trustee, Moon Moon) as entities not entitled to benefit from the Trust.
A third answer is that if, as counsel submits, cl 4 of the Deed of Removal and Appointment dated 16 June 2010 is invalid, it is severable from the remainder of the document. In principle and by its express terms, it assumes that the appointment of Mr Nicholls has already taken place. It states:
Alan Richard Nicholls … having been appointed and having accepted the position of Trustee of the Sheaffe Family Trust hereby amends … .
There is nothing elsewhere in the document suggesting that the removal and appointment were to be dependent on cl 4 taking effect. The hypothesised invalidity of cl 4 leaves the earlier provisions of the document intact.
Breach of fiduciary obligation
The plaintiffs next submit that Nicola appointed Mr Nicholls in breach of fiduciary obligation. They submit that her action on 16 June 2010 was not for the benefit of Pamela or for the benefit of “the beneficiaries” but was for Nicola’s own benefit.
The plaintiffs’ reference to Hillcrest (Ilford) Pty Ltd v Kingsford (Ilford) Pty Ltd (No 2) [2010] NSWSC 285 may be put to one side. In that case the appointor removed a trustee and appointed a company in which he was the sole director and member in its place. The decision might have been relevant if Nicola and her Company had continued to support the latter’s appointment on 16 July 2008, but now it is only the appointment of the independent Mr Nicholls that is in issue.
There was a good deal of confusion in the plaintiffs’ submissions between two powers: the power of appointment given to Pamela by cl 8A of the Deed of Settlement and the power given by the Power of Attorney.
The fundamental power to which regard must be had is the power to remove and appoint a trustee given to Pamela by cl 8A of the Deed of Settlement.
Counsel began by citing Re Norris; Allen v Norris (1884) 27 ChD 333 which he summarises: “father invalidly appointing son as co-trustee”. However, that case concerned the trusts of a will that were being administered by the Court and Pearson J went to some trouble to distinguish other cases.
There were two trustees of a will and on the retirement of one of them, the continuing trustee, who was also the solicitor to the trustees appointed his son, who was his partner in his business, to be the new trustee. While not sanctioning the appointment, his Lordship said (at 341):
I am very far from saying, and I must not be understood to say, that, if there was a trust which was not being administered by the Court and the person who had the power of appointing new trustees had bona fide appointed as trustees a father and his son who were solicitors in partnership, it would be a bad appointment, so as to render any deed executed by the trustee so appointed null and void. I should be very sorry to hold that such an appointment outside the Court would be invalid. If such a case came before me, and I found that the appointment had been made bona fide outside the Court I should certainly hold that the trustees were validly appointed.
It follows that Re Norris is of no assistance to the plaintiffs.
Mr Burchett next cited Jacobs’ Law of Trusts in Australia (7th ed 2006) at para [1512] for the proposition that “[t]he power of appointment of a trustee is fiduciary”. In that paragraph the learned authors, Justice Heydon and Mr Lemming SC, note that in Re Newen [1894] 2 Ch 297 at 308 and Re Skeats’ Settlement (1889) 42 ChD 522 there are strong statements that the position of the appointor is a fiduciary one and that it would be an improper exercise of the power for the appointor to appoint himself or herself. The authors also refer to Re Burton (1994) 126 ALR 557 at 559-560. As to the latter aspect, reference must be made to the Trustee Act 1925 (NSW) s 6(2)(f) and (3) but no issue of the Appointor (Pamela) appointing herself arises in the present case.
I accept that the power of removal and appointment given to Pamela by cl 8A was to be exercised by her not for her own benefit but for the benefit of “the beneficiaries”: Re Skeats’ Settlement (1889) 42 ChD 522 at 526; Re Newen; Newen v Barnes [1894] 2 Ch 297 at 308-309; Inland Revenue Commissioners v Schroder [1983] STC 480 at 500; Fitzwood Pty Ltd v Unique Goal Pty Ltd (2002) 188 ALR 566 (reversed on other grounds at [2002] FCAFC 285) at [98]; Hillcrest (Ilford) Pty Ltd v Kingsford (Ilford) Pty Ltd (No 2) [2010] NSWSC 285 at [38], [39].
I also accept the general proposition that as Pamela’s agent, Nicola had fiduciary obligations to Pamela in relation to the exercise of the powers given by the Power of Attorney: see Klotz v Neubauer [2001] SASC 454 at [33] – [35]; Watson v Watson [2002] NSWSC 919 at [48], [49].
However, Pamela cannot be in a position more beneficial to herself than she would be if she were of full mental capacity and were contemplating exercise of the power of removal and appointment. As Appointor, Pamela was obliged not to exercise the power of removal and appointment for her own benefit but to exercise it for the benefit of “the beneficiaries” (it would be necessary for her to regard them as a whole, in view of the nature of the Trust as a discretionary trust). This position is not altered by the fact that she had appointed Nicola her attorney. The foundation platform for consideration of the present question is the Deed of Settlement, the power of removal and appointment given to Pamela by cl 8A of that document, and the fiduciary obligations incumbent on Pamela attached to any exercise of that power. Prior to appointing Mr Nicholls on 16 June 2010, Nicola had to ask herself what was the benefit of “the beneficiaries”, including but not limited to Pamela.

Although Nicola may not have been entitled, vis-à-vis Pamela, to exercise the power of appointment exclusively for her own benefit and not for Pamela’s at all, I do not see what scope this constraint would have to operate in view of the nature of Pamela’s overarching fiduciary obligation to exercise the power of appointment for the benefit of “the beneficiaries”.
For these reasons I do not find it necessary to consider to finality the extent to which Nicola was at liberty under the Power of Attorney to act in her own interests, or the difference of view on this question as between Austin J and Hammerschlag J as to the proper construction of s 163B of the Conveyancing Act 1919 (NSW) and the form of power of attorney contained in Schedule 7 to that Act (which was the form of the power of attorney executed by Pamela in favour of Nicola): see Spina v Conran Associates Pty Ltd; Spina v M & V Endurance Pty Ltd [2008] NSWSC 326 (Austin J) and Spina v Permanent Custodian Limited [2008] NSWSC 561 (Hammerschlag J). In oral submissions counsel for the plaintiffs also referred to Sweeney v Howard [2007] NSWSC 852 (Windeyer J), Wong v Wong [2008] NSWSC 300 (White J) and Siahos v J P Morgan Trust Australia Ltd [2009] NSWCA 20.
Another source of confusion in the plaintiff’s submissions relates to timing. The submissions referred to various aspects of Nicola’s earlier conduct which are irrelevant to the question whether, on 16 June 2010, she breached her fiduciary obligation by removing whatever trustee was in office (Moon Moon or her Company) and appointing Mr Nicholls in its place.
In support of their submission that the appointment of Mr Nicholls was tainted by a breach of fiduciary obligation, the plaintiffs make the following submissions (references to transcript and Court Book omitted):
31.The inference as to the 2nd Defendant’s improper purpose is available from:
a) her making the previous invalid appointment:
i)upon objection to her accessing the Trust’s Perpetual investment account without obtaining the co-signature of another director of Moon Moon P/L, as previously agreed.
iii)intending “always”, as admitted by her in cross-examination …, to pay herself a wage in an amount designed to ‘spite’ her sisters … and reimburse herself purported loans by use of the power of appointment … .
iii)admittedly (in various affidavits) to supposedly protect her operation of the farm, which has never turned a profit and was only ever for her benefit, and the property, Rock Abbey, in which she resides rent free, from the possibility of sale without her approval.
b) her actions on the basis of that invalid appointment
i)promptly and repeatedly attempting to secure to herself the access to the investment with Perpetual, dishonestly representing to it, that she had authority on the behalf of Moon Moon P/L, to transfer it to her own company, when she knew she had neither the approval nor the authority of Moon Moon P/L … .
ii)selling the farm’s stock without notice to the plaintiffs, despite their agreement to pay for its feed upon presentation of accounts and then failing to disclose that fact, while she helped herself to the proceeds, contrary to the interests of the trust.
iii)paying herself supposed retrospective wages and reimbursement of ‘loans’, when she is shown to owe the trust a substantial amount in its accounts, and
iv)withholding financial statements and information from beneficiaries.
c)her Cross-Summons for the appointment of Mr Nicholls specifically for the purpose of winding up the trust, selling and distributing its assets, substantially to herself, contrary to its terms and despite her past claims of seeking to uphold the wishes of the late Mr Sheaffe and give priority to the interests of her mother, both of which would require the maintenance of the trust and particularly, the property, Rock Abbey. She was incapable in cross-examination of explaining how this course was of benefit to her mother, as asserted, although in truth if her mother has been excluded from any benefit by the contribution of her loan account to the trust fund, as it appears, then the stated purpose of benefiting a person so excluded would also be improper.
d)the affidavits of Mr Nicholls filed in support of her Cross-Summons, in which:
i)he expresses an expectation only of doing “the work of administration in winding up the trust” … , as proposed by the 2nd defendant.
ii)he plans to charge far in excess of the rates authorised by the trust deed … .
iii)his claims in his recent affidavits of not having any arrangement as to how to administer the trust or having no dealings with any members of the Sheaffe family plainly do not include his arrangement and dealing with the defendants’ solicitor, whereby he gave his first affidavit.
e)the timing of her appointment of Mr Nicholls only upon her appointment of her own company being fully accepted by her to be invalid.
I agree that Nicola’s past conduct is open to strong criticism. I also accept that but for her late acceptance that her appointment of her Company was invalid, she would never have appointed Mr Nicholls. It is important, however, to appreciate that the issue presently being considered is simply whether her appointment of Mr Nicholls was itself in breach of fiduciary obligation.
The appointment of the independent and experienced Mr Nicholls was a perfectly reasonable course for Pamela (acting through Nicola) to take. It is a course that I would have taken if Nicola on behalf of Pamela had not had power to take it and the power had been available to me.
I will address below the plaintiffs’ particular claim that Mr Nicholls is not a suitable person to be appointed. It is sufficient to note here that Mr Nicholls is a Chartered Accountant and registered liquidator and has previously been appointed by this Court to act as trustee on the sale of assets held by trusts. He consents to being appointed by the Court as trustee of the Trust. I accept that Mr Nicholls’s qualifications and experience make him an appropriate person to be trustee of the Trust. I accept at [184] ff below that he is independent of all the parties.
In the light of this it is difficult to understand on what basis it can be said that the appointment of Mr Nicholls was a breach of fiduciary obligation.
The plaintiffs’ submission in sections (a), (b) and (c) above all relate to Nicola’s past conduct and need not be addressed in detail. They do not impinge on her act of appointing Mr Nicholls on 16 June 2010. Only the following observations seem to be called for.
The flavour of the passage in the transcript to which reference is first made in the above submission is as follows:
Q:You don’t think there’s a problem with paying yourself money out of a trust for other people without their approval?
A:It was a running account for the trust. I had to pay workmen out of that account, that was the normal trading account. I had always intended to be able to pay myself a small wage that’s $200 a week. My sisters previously had agreed to $25 a week and they decided that was too much. So I had to negotiate a 3 months trial.
Q:Sorry, you think they decided $25 was too much. When do you say that happened?
A:It’s in one of my brother-in-law’s affidavits. In fact, what happened is they went to bed, woke up the next morning and said, “No, it’s too much, they don’t want to pay you anything.” I said to Percy, “How about a 3 months trial?” And then I thought how silly.
Q: So they agreed to $25 a week at that time?
A: A 3 months trial on that.
Q:That was on the basis that you were told by your sisters that the cattle operation would have to be able to show a profit to pay you a wage. Is that right?
A:There would have to have been bends in the working account to be able to pay. By this stage I was owed $7,000. There was a drought. To about August we’d had roughly 13, 14 inches of rain which is really bad for us because our normal rainfall is about 26 inches, so a shocking drought and unfortunately we had a kangaroo plague and I got the roo shooters on. They shot 60 roos over 2 nights. A kangaroo eats about as much as three quarters of a cow. That doubled our stocking quantities. In a dry time they go where ever. They jump fences. I had the roos shot, but we’d run out of feed basically, so then I had to buy feed and so I did this. My sisters were there and they helped me fee out bales and I got them to help. And also pellets. So they knew all this.
Tina said to me, “We don’t want you to be personally out-of-pocket”, and I said, “How do you think I’m paying for it?” She said, “Let me know and I’ll get the money for you out of Perpetual.” This is for a roughly $800 bag of pellets. So I said, “How can you access Perpetual?” and she said, “I know the person to talk to. If we all sign, they’ll give us the money” because I said to her the money is frozen. She said she would pay me back which was good because I had completely run out of money. Just before Christmas they were begging me to sell the cattle, and so by December I really had to sell the cattle, there’d been no rain and we'd run out of feed and I ran out of money. I rang Tina and said, "Please, the cattle haven't sold. So please send me some money", and she said, "We haven't got those things, you haven't sent us proof. Until you do that, we won't do it." Warren and I had sent all those documents about seven times, probably three. They are amongst the subpoenaed documents, they've had those all along. [my emphasis]
It is a misreading of the evidence contained in the second passage of transcript referred to to say that Nicola agreed that she had paid herself a wage in an amount designed to “spite” her sisters. It is plain that Nicola was tongue in cheek in her first answer in the following passage:
Q:So you decided to pay yourself $200 a week just to spite them, is that right?
A:Yep, it’s a high wage. If I get a workman on the place it’s $200 a day.
Q:But you didn’t tell them you were proposing to repay yourself the loans, did you?
A:No. [my emphasis]
There is no question but that in the light of the invalid appointment of her Company, Nicola was not entitled to cause it to pay away the moneys that it paid. It is therefore not necessary to consider whether, if the appointment of her Company had been valid, the payments would still have been unlawful for other reasons, notably, as being a breach of fiduciary obligation.
However, the dynamic that was operating between the three sisters should be understood. I accept, and her sisters do not dispute, that Nicola had worked hard over the years on the farm and in caring for her parents there, while holding down her part-time job at Horseland Saddlery in Tamworth, for no payment from the Trust. (It is unhelpful to make the gratuitous assertions that the operation of the farm was only ever for Nicola’s benefit or that Nicola’s purpose in appointing Mr Nicholls was to ensure a sale by him of the Trust’s assets substantially to herself.) What seems to have occurred is that Nicola ultimately bridled at the need to provide to her sisters documentary support for her claims for funds to pay farm-related outgoings and to get the approval of her sisters in Sydney to a release of funds for the making of payments. As well, she may have come to regret the years that she had spent on Rock Abbey for virtually no financial reward. On the other hand, she was unwilling to recognise, as she was bound to do, that no matter how she may have felt, Rock Abbey and the business were Trust property: they were not Nicola’s to do with as she pleased. All three sisters were “beneficiaries” and all three were directors of Moon Moon.
Nicola acknowledged that two signatures were required before Moon Moon could access the Perpetual account and that her sisters did not approve of her accessing that account unilaterally, purporting to do so as a director and secretary of Moon Moon.
I am not satisfied that in her act of appointing the independent chartered accountant, Mr Nicholls, Nicola breached the fiduciary obligation owed by Pamela to “the beneficiaries”. In my opinion the appointment of an independent person is, in one way or another, inevitable, in view of the inability of the three sisters to co-operate.
Order by way of review under s 36(4) of the Powers of Attorney Act 2003 (NSW)
One of the alternative forms of relief sought by the plaintiffs in their Third Further Amended Summons is an order by way of a review of the making or the operation and effect of the Power of Attorney under s 38 of the Powers of Attorney Act 2003 (NSW). However, s 38 refers to an application by an attorney for advice or directions by a review tribunal (the expression “review tribunal” is defined in s 26 of the Act to mean for the purposes of Pt 5 of the Act, the Guardianship Tribunal or this Court). Section 38 seems totally inappropriate to the case.
In his written submissions, however, counsel for the plaintiffs seeks an order under s 36(4) of the Act, which provides:
A review tribunal may, if satisfied that it would be in the best interests of the principal to do so or that it would better reflect the wishes of the principal, make any one or more of the following orders relating to the operation and effect of a power of attorney:
(a)an order varying a term of, or a power conferred by, the power of attorney,
(b)         an order removing a person from office as an attorney,
(c)an order appointing a substitute attorney to replace an attorney who has been removed from office by a review tribunal or who otherwise vacates the office,
(d)an order reinstating a power of attorney that has lapsed by reason of any vacancy in the office of an attorney and appointing a substitute attorney to replace the attorney who vacated office,
(e)an order directing or requiring any one or more of the following:
(i)that an attorney furnish accounts and other information to the tribunal or to a person nominated by the tribunal,
(ii)that an attorney lodge with the tribunal a copy of all records and accounts kept by the attorney of dealings and transactions made by the attorney under the power,
(iii)that those records and accounts be audited by an auditor appointed by the tribunal and that a copy of the report of the auditor be furnished to the tribunal,
(iv)that the attorney submit a plan of financial management to the tribunal for approval,
(f)          an order revoking all or part of the power of attorney,
(g)         such other orders as the review tribunal thinks fit.

In my opinion an order should not be made under s 36(4). There is no evidence that Nicola will not, with whatever property or money may be available to Pamela, act in her interests. Indeed, one order proposed by Nicola is an order that from the proceeds of sale of Rock Abbey, a lump sum be set aside for Pamela which, it is suggested, will not affect her pension.
There was evidence from Janet Lesley Allen, the Clinical Nurse Manager, at the Manilla Community Hospital, and from Pamela’s sister, Nancy Elizabeth McMaster, testifying to the care and attention that Nicola has devoted to Pamela over the years. I accept that Nicola will continue to act in Pamela’s interests.
The plaintiffs seize on the fact that Nicola, as attorney for Pamela, joined with her father in signing the document dated 21 April 2006 (see [26] above). They submit that by reason of the gift of $57,035, Pamela became disentitled to receive any benefit from the Trust by reason of cl 7 of the Deed of Settlement (cl 7 is set out at [137] above). A similar observation would apply to Pete.
Mr Peter Rayner, however, gave evidence to the effect that the document may have been signed to overcome an error in the accounts of the Trust. The minutes of the meeting of directors held on 26 December 2006 (referred to at [40] – [41] above) suggest that it was a mistake in the balance sheet that Mr Osborne had prepared as at 30 June 2005, which had apparently shown that Pete and Pamela were owed $57,035, and that the document dated 21 April 2006 was intended somehow to justify the elimination of that item from the balance sheet.
The evidence left the matter unclear. As Mr Rayner said, it would be necessary to explore the matter with Mr Osborne to get to the bottom of it.
In the state of the evidence, I am not satisfied that by joining with Peter in signing the document of 21 April 2006, Nicola brought about a position in which Pamela “paid money or transferred or otherwise dispose[d] of property … to [Moon Moon] to be held on the trusts created by [the Deed of Settlement]” within cl 7 of the Deed of Settlement. Moreover, if, contrary to my view, the document of 21 April 2006 did have the effect of excluding Pamela (and Pete) from benefiting from the Trust, I would have no doubt that it was through inadvertence that this occurred. That inadvertence would not be a reason to review the Pamela/Nicola Power of Attorney in the manner sought by the plaintiffs.
It will be a matter for Mr Nicholls as trustee to determine what is to happen as regards the assets of the Trust and as between the respective beneficiaries. It seems that Nicola’s role as attorney for her mother, Pamela, will be relatively minor. If circumstances change, it will be open to Tina and Phillipa to make a fresh application for an order under s 36(4).
Removal and replacement of trustee by the Court
An alternative form of relief sought by the Nicola and her Company is an order of the Court removing the existing trustee and appoint Mr Nicholls in its place. The Court’s inherent jurisdiction and s 70 of the Trustee Act 1925 (NSW) are relied on. If I should be wrong in thinking that Nicola’s removal of the existing trustee and appointment of Mr Nicholls was valid, I would, if the power were available to me, remove Moon Moon and appoint Mr Nicholls as trustee of the Trust in substitution for Moon Moon.
There is insoluble conflict between the directors of Moon Moon. The position is analogous to that in Crowle Foundation v NSW Trustee & Guardian [2010] NSWSC 657: see [39] per Ball J. Apparently Tina and Phillipa wish to keep Rock Abbey intact until Pamela dies. Their reasons are that they would like to have a place in Manilla where they can stay when they visit their mother and that they wish to see Pamela’s pension preserved, no doubt indirectly for the benefit of “the beneficiaries”. Nicola, on the other hand, wishes Rock Abbey to be sold and a lump sum put aside for her mother out of the proceeds of a size that will not affect her pension, with the balance being divided equally between the three sisters.
It is desirable that an independent person such as Mr Nicholls be appointed to the office of trustee, not only to decide if and when Rock Abbey is to be sold and by what means and at what price, but also to investigate the past dealings by Nicola and her Company with the Trust’s moneys and property.
It is not, however, necessary or expedient for the Court to remove and appoint. It is common ground that Pamela has the power to do so. Through Nicola, her attorney, she has done what the Court would propose. It is therefore inappropriate for the Court to make an order.
If Mr Nicholls should contemplate selling Rock Abbey, he will no doubt consult Tina, Phillipa and Nicola.
Although the size of the Trust estate is not large, the position sought to be attained by Tina and Phillipa of retaining the property so that they will have accommodation in Manilla when they visit their mother there seems hardly tenable in the long term.
The plaintiffs submit that a sale of Rock Abbey “may significantly compromise the pension of Mrs Sheaffe.” That is a matter appropriate to be considered by Mr Nicholls. It is not clear that a trustee of the Trust, properly instructed, would place the preservation of Pamela’s pension above all other considerations, including a bringing to an end the acrimonious dealings between the three sisters.

The plaintiffs attack the suitability of Mr Nicholls to be trustee in para 31 (d) of their counsel’s submissions set out at [156] above. I will deal with the criticisms in turn.
(i) It is readily understandable that Mr Nicholls referred to the winding up of the Trust. An alternative is not obvious. I referred to the plaintiffs’ reasons for opposing the sale above. Apparently the plaintiffs envisage that Nicola will continue to live on Rock Abbey and care for the place without payment in order that those objectives can be achieved. It will be for Mr Nicholls to determine what course should be followed. No doubt he will consider the representations made by the three sisters and will take into account Pamela’s needs and her pension situation.
I am not persuaded to think that just because Mr Nicholls referred in his affidavit to a winding up, he would not fairly consider any practicable alternative formulated by Tina and Phillipa.
(ii)I dealt with the rates of professional fees Mr Nicholls proposes to charge at [124] – [130] above. As noted there, cl 9(a) of the Deed of Settlement presents no difficulty for the charging of these rates because of cl 9(b).
(iii)Mr Nicholls made his affidavit of 21 May 2010 at a time when the relevant relief being sought was an order of the Court appointing him. Subsequently, after Pamela (through Nicola) appointed him on 16 June 2010, he made two further affidavits of 18 and 22 June 2010, stating that he did not know and had not dealt with any members of the Sheaffe family and that he had no agreement or arrangement with any person regarding how he would administer the Trust. Both affidavits were made before Mr Thibault, the solicitor for Nicola and her Company. I infer that Mr Thibault either knew or knew of Mr Nicholls and asked him to agree to be appointed as trustee. There is nothing untoward in the two recent affidavits having been silent on the question of any arrangement or dealing with Mr Thibault himself.
It is true that it is unfortunate that a family discretionary trust should be administered by an outsider but it is worse that it should be administered by, in effect, Tina and Phillipa against the acrimonious opposition of Nicola, or by Nicola against the opposition acrimonious of Tina and Phillipa.
General
Ownership of the cattle
Nicola and her Company submit that there is insufficient evidence on which the Court can decide that the cattle was Trust property. I have no hesitation in disagreeing, although ultimately it will be a matter for Mr Nicholls to decide whether the cattle was Trust property.
The submission is based on a statement made by Nicola in the course of cross-examination. She said that the money for the re-stocking in 2003 came from Pete’s and Pamela’s pensions and her own carer’s pension and apparently from the sale of Pete’s and her own shares in NRMA.
In none of her seven affidavits had Nicola mentioned this.
An affidavit of Ben Marshall Geoffrey Osborne filed in Nicola’s own case showed that Mr Osborne’s firm and its predecessor had prepared the financial statements and income tax returns for the Trust since the financial year ended 30 June 2005 and attached copies of the Trust’s financial statements for the years ended 30 June 2005, 30 June 2006, 30 June 2007 and 30 June 2008, which show the Trust as having “cattle” and “livestock”. Nicola was cross-examined in relation to the number of head of cattle shown, but at no time protested that it was all a terrible mistake for them to have been shown in the Trust’s financial statements at all.
Nicola deposited the proceeds of the sale of the cattle in the Trust’s bank account.
In his letter dated 23 February 2010 to Ebsworths, Mr Thibault, the solicitor for Nicola and her Company, justified the payment of $15,600 that Nicola had taken from the proceeds of sale as being “wages for running the Trust”.
Similarly, Nicola repaid herself “loans” totalling $7,248.00 (see [72] and [75] above) out of the Trust’s bank account because necessity had forced her to buy feed for the cattle out of her own money. If the cattle did not belong to the Trust, her reimbursing herself out of the Trust’s bank account would have been insupportable.
If the claim made by Nicola in cross-examination and taken up in her submissions that the cattle was never Trust property is to be taken seriously, the consequences would be far reaching. Apparently the cattle would have been owned in some undefined proportions by Peter, Pamela and Nicola. Did their individual income tax returns reflect this fact? Did Nicola seek the consent of Pete’s executors (Tina, Phillipa and herself) to the sale? What was the amount payable by Pete, Pamela and Nicola to the Trust for agisting their cattle on Rock Abbey?
Nicola did not adduce any documentary evidence to support her claim made in the witness box, and counsel for Nicola did not refer to any.
I am not satisfied that the cattle was anything other than Trust property. Even if Nicola could support by evidence her contention that the cattle was bought by Pete, Pamela and herself, she may well be estopped by her conduct from denying that the cattle was property of the Trust, and the new trustee Mr Nicholls would have the benefit of such an estoppel.
If it be assumed that the cattle was property of the Trust, neither Nicola nor her Company had title to it – Moon Moon did. Nicola and her Company submit that her sisters agreed to a sale of the cattle, so that the sale was not a wrong of which they can complain. Mr Nicholls will have to decide this question. But even if he decides against Nicola, the question arises whether the Trust suffered any loss as a result of the sale. Nicola paid the proceeds of sale into the Trust bank account. Will it be suggested that the sale was at an undervalue? Clearly Nicola (or Nicola and her Company) must be credited with the sum of $30,200.00. It may be that ultimately the sale of the cattle caused the Trust no loss and that Mr Nicholls may decide to leave things where they lie.
Payment of wages to Nicola
Nicola submits that there was an agreement between her and her sisters that she was entitled to be paid. In written submissions counsel for Nicola refers to the hard work Nicola performed on Rock Abbey. It will be recalled (see [73] and [75] above) that on 3 February 2010 Nicola paid herself the proceeds of sale of the cattle $15,600 representing 78 weeks’ salary at the rate of $200 per week. Nicola gave evidence that her sisters had agreed that she should be paid $25.00 per week on a three-month trial basis. She also said that she would have to pay a workman $200.00 per day to do the work that she was doing.
Piecing together these pieces of evidence, counsel for Nicola submits that there was a contract under which Nicola was entitled to be paid, the only question being at what rate, and that the evidence shows $200.00 per week to be reasonable.
There are, however, several matters that the submission leaves untouched. What period of work did the contract cover? If it was entirely in respect of a past period, what was the consideration furnished by Nicola for the promise that she should be paid? In the absence of agreement on a rate and a period, was the supposed contract void for uncertainty? Does Nicola have an entitlement based on restitutionary grounds? What allowance, if any, was to be made for the value of the accommodation that Nicola had on Rock Abbey?
These questions, and perhaps others, will have to be considered and determined by Mr Nicholls.
Repayment of loans
The three loans totalling $7,248.00 were referred to at [72] and [75] above. Nicola gave evidence in general terms that she had to buy feed for the cattle out of her own money because there had been insufficient funds in the Trust’s bank account, so that after the proceeds of the sale of the cattle were deposited into that account, she reimbursed herself. The evidence does not establish when, from whom and for what amounts Nicola bought the feed. No doubt if she bought feed out of her own funds to keep the Trust’s cattle alive, she would be entitled to be reimbursed by the Trust. Mr Nicholls will need to resolve this question.
Taking of an account
The plaintiffs seek an order that Nicola and her Company account to the plaintiffs for their dealings with the property of the Trust and that it be referred to an Associate Justice to take an account and certify the amount owed, and an order that they pay the amount certified.
Pamela, acting through Nicola, has validly appointed Mr Nicholls as trustee and it will fall to him to undertake the task of working out what net amount, if any, proves to be payable by Nicola and her Company to the Trust. I say “if any” because of the possibility that notwithstanding the fact that payments and dispositions of property (the cattle) were effected otherwise than by Moon Moon, the existence and extent of any offsets may extinguish the liability of Nicola and her Company.
Costs
Nicola and her Company should pay the plaintiffs’ costs of challenging the appointment of Nicola’s Company as trustee and in connection with the proceeding to recoup the Trust in respect of all Trust moneys that Nicola’s Company paid away. Most of the costs of the parties were directed to those issues. Nicola and her Company ultimately conceded that her Company had been invalidly appointed as trustee on the ground that her Company fell within the definition of the expression “the beneficiaries”. Other grounds of attack on the appointment of Nicola’s Company did not need to be resolved.
The plaintiffs failed in their resistance to the appointment by Pamela (through Nicola) of Mr Nicholls. He was appointed only as recently as 16 June 2010, towards the end of the hearing. The plaintiffs relied in opposing his appointment on the evidence that they had led in attacking the appointment of Nicola’s Company. That evidence did not sustain their attack on Mr Nicholls’s appointment. The costs of leading that evidence had already been incurred.
The plaintiffs should have their costs down to 16 June 2010. Arguably they should have those costs on an indemnity basis in view of Ebsworths’ letter. Nicola should have her costs on the appointment of Mr Nicholls. The plaintiffs’ reliance on the work that had been already done to attack the appointment of Nicola’s Company to attack the appointment of Mr Nicholls complicates matters.
If the plaintiffs had conceded the validity of the appointment of Mr Nicholls when it was announced, an order for costs in their favour would have been made, possibly on the indemnity basis.
All things considered, the appropriate order is that Nicola and her Company pay three quarters of the plaintiffs’ costs on the usual party and party basis of the proceeding.

ORDERS

There will be declarations, directions and orders as follows:
THE COURT
1.DECLARES that the purported removal by the third defendant, through her attorney, the second defendant, of the third plaintiff as trustee of the Sheaffe Family Trust (the Trust) and the appointment of the first defendant as the trustee of the Trust in its place by Deed dated 16 July 2008 was invalid and of no effect.
2.DECLARES that notwithstanding the purported removal and appointment referred to in para (1), the third plaintiff remained in office as trustee of the Trust.
3.DECLARES that subject to any offsets, the first and second defendants are jointly and severally liable to reimburse the Trust for all and any Trust moneys expended, and to account to the Trust for all and any Trust property disposed of, since 16 July 2008 without the consent of the third plaintiff given through the first and second plaintiffs.
4.DECLARES that the purported removal by the third defendant through her attorney, the second defendant, of the trustee of the Trust and the appointment of the fourth defendant as trustee of the Trust in its place by Deed dated 16 June 2010 was valid and effective.
5.ORDERS that the first and second defendants pay three quarters of the plaintiffs’ costs of the proceeding.
6.ORDERS that the costs, if any, of the third and fourth defendants be paid out of the funds of the Trust.

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LAST UPDATED:
27 July 2010