Re Gengoult-Smith Family Trus
[2024] VSC 189
•23 April 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2024 00158
| HUGH GENGOULT-SMITH and Another | Plaintiffs |
| v | |
| PETELA NOMINEES PTY LTD (ACN 005 747 866) (which is sued as the trustee of the Gengoult-Smith Family Trust) and others | First Defendant |
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JUDGE: | Moore J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 17 April 2024 |
DATE OF JUDGMENT: | 23 April 2024 |
CASE MAY BE CITED AS: | Re Gengoult-Smith Family Trust |
MEDIUM NEUTRAL CITATION: | [2024] VSC 189 |
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TRUSTS – Application to vary provisions of discretionary trust – Where all sui juris beneficiaries consent to variation – Consideration of interests of existing minor and potential unborn beneficiaries – Application approved – Section 63A of the Trustee Act 1958 – Section 5 of the Perpetuities and Accumulations Act 1968 – Perpetual Trustees Victoria Ltd v Barns (2012) 34 VR 387 – Re Christmas’ Settlement Trusts [1986] 1 Qd R 372 – Re Munro’s Settlement Trusts [1963] 1 WLR 145 – Re The Pickering Family Trusts [2024] VSC 5 – Re Whigham’s Settlement Trusts [1971] 1 WLR 83.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M T Flynn KC | KCL Law |
| For the First Defendant | Ms B Ridgeway | KCL Law |
HIS HONOUR:
Introduction
The Gengoult-Smith Family Trust (the Trust) is a discretionary trust established by a trust deed dated 29 April 1974 (the Trust Deed). The Trust owns approximately $80 million worth of investments, mostly in real estate, and generates an annual net income of approximately $700,000. The trustee of the Trust, Petela Nominees Pty Ltd (the Trustee), which is the first defendant in this proceeding, distributes the Trust’s income to its beneficiaries each year at its discretion. The current beneficiaries of the Trust include members of the Gengoult-Smith family, as well as related trusts, related corporations and charities. For clarity, and without intending any disrespect to the parties, I will generally refer to the members of the Gengoult-Smith family by their first names.
Hugh and Edward Gengoult-Smith, who are beneficiaries of the Trust, are the plaintiffs in this proceeding. They have applied to the Court under s 63A of the Trustee Act 1958 to approve an arrangement varying certain provisions of the Trust Deed so that, instead of vesting on 29 April 2024, the Trust would vest on 29 April 2054. If the Trust vests on 29 April 2024, the Trustee will hold the Trust assets for only a certain few individuals who form part of a larger class of beneficiaries. Hugh and Edward have also been advised that, if the Trust vests on 29 April 2024, the Trust will incur a capital gains tax liability of up to $10 million.
The Attorney-General for the State of Victoria was joined to the proceeding as the second defendant to represent the charitable beneficiaries of the Trust. The Court was informed by the Attorney-General’s legal representatives that she did not oppose the plaintiffs’ application and did not propose to take an active part in the proceeding.
The third and fourth defendants, Jillian and Alexandra, are the directors of the Trustee and are also beneficiaries of the Trust.
All of the sui juris beneficiaries, as well as the corporate and trust beneficiaries of the Trust, have provided their consent to the application.
At the conclusion of the hearing of the application, I indicated that I would approve the arrangement proposed by Hugh and Edward, and relevantly ordered as follows:
1.The plaintiffs have leave under r 45.03(3) of the Rules to rely upon the affidavit of Hugh Gengoult-Smith sworn on 6 February 2024 and the affidavits of Samuel Jonathan Frey sworn on 22 March 2024 and 15 April 2024.
2.The Court approves, on behalf of all minors and persons unborn who may become beneficially interested, an arrangement varying the trust of the Deed of Trust dated 29 April 1974 made between Marjorie Annie Smith as settlor and Rodney Disney Davidson as trustee, and exhibited to the affidavit of Samuel Jonathon Frey dated 11 January 2024 (the Trust), so that:
(a)clause 2(b) (as varied by the Deed of Acknowledgement and Declaration dated 30 June 1993) is varied by replacing the words “29th day of April 2024” with the words “29th day of April 2054”;
(b)clause 3 is varied by deleting the word “fifty” and replacing it with the number “80”; and
(c)inserting a new clause 3A, which reads “The period of 80 years commencing on the date of execution of this trust is the perpetuity period applicable to this trust under the rule against perpetuities.”
These are my reasons for judgment in making these orders.
The Trust
The Trust Deed was executed on 29 April 1974 by Marjorie Smith as settlor and by Rodney Davidson as the then-trustee. Ms Smith, who died in 1985, was the aunt of Norman Gengoult-Smith who was married to Jillian Gengoult-Smith.
Originally, the children of Norman and Jillian were the only beneficiaries of the Trust. The class of beneficiaries was, however, expanded by a deed dated 1 July 1982. That deed has been lost, but it is referred to in Recital C of a deed entitled ‘Gengoult-Smith Family Trust Acknowledgement and Declaration’ dated 30 June 1993 (the Deed of Acknowledgment). According to that recital, the Trustee, with the consent of Ms Smith as settlor, resettled the Trust as to both capital and income with effect from 1 July 1982.
The resettlement of the Trust expanded the class of eligible beneficiaries to include:
(a) Norman and Jillian;
(b) the children and remoter issue of Norman and Jillian,
(collectively, ‘the natural beneficiaries’);
(c) the trustees of any other trust, the capital or income of which is held for one or more of the natural beneficiaries;
(d) any corporation at least one share in which is beneficially owned or held by one or more of the natural beneficiaries; and
(e) any body established or maintained wholly for charitable purposes.
Norman passed away on 11 August 2023. At the hearing of the application, there were eleven natural beneficiaries of the Trust:
(a) Jillian;
(b) Norman and Jillian’s three children: Alexandra, Hugh and Edward; and
(c) Norman and Jillian’s seven grandchildren (being the children of Alexandra and Hugh).
Only one of the grandchildren, Jessica, is sui juris. The remaining six grandchildren are minors.
The related trustee beneficiaries of the Trust are as follows:
(a) Clarinda Road Pty Ltd as trustee for the Clarinda Road Class Discretionary Trust. Jillian and Hugh are the directors of Clarinda Road Pty Ltd, with Jillian its sole shareholder.
(b) McDonald’s Hamburgers Pty Ltd as trustee for the NJGS Trust. Jillian and Alexandra are the directors of McDonald’s Hamburgers Pty Ltd, and Jillian and the Trustee each have a 50% shareholding in the company.
(c) Louisville Enterprises Pty Ltd as trustee for the L L Vale Trust and also as trustee for the N & J Gengoult Smith Family Trust. Jillian and Hugh are the directors of Louisville Enterprises Pty Ltd and Jillian is the sole shareholder.
(d) Grandview Verdant Pty Ltd as trustee for the Verdant Avenue Trust. Jillian and Alexandra are the directors of Grandview Verdant Pty Ltd and Jillian is the sole shareholder.
The related corporate beneficiary of the Trust is G-S Pastoral Company Pty Ltd. Jillian and Hugh are the directors of G-S Pastoral Company Pty Ltd. The Trustee owns 99% of the shares in the company, with the remainder held by Jillian.
Clauses of the Trust Deed and proposed variations
Clause 3 of the Trust Deed provides for what is to happen to the assets of the Trust when it vests:
SUBJECT always to the exercise by the Trustee of the powers and discretions given to him in clauses 5 and 6 hereof the Trustees shall stand possessed of the Trust Fund UPON TRUST for such of the children of the said NORMAN HAROLD GENGOULT SMITH and the said JILLIAN LEE GENGOULT SMITH as shall be living fifty years from the date hereof and if more than one as tenants in common in equal shares PROVIDED THAT in the event of any child of the said NORMAN HAROLD GENGOULT SMITH and the said JILLIAN LEE GENGOULT SMITH predeceasing the vesting of the trust leaving a child or children him or her surviving then such child or children if more than one as tenants in common in equal shares shall take by substitution the share of the Trust Fund that the said deceased child would have taken had he or she survived and obtained a vested interest. PROVIDED FURTHER that in the event of the previous provisions in this clause failing to vest then to hold the same UPON TRUST as to one half thereof for the beneficiaries entitled to the residuary estate of the said NORMAN HAROLD GENGOULT SMITH other than the said JILLIAN LEE GENGOULT SMITH should she be a beneficiary of the said residuary estate and as to the other half for the beneficiaries entitled to the residuary estate of the said JILLIAN LEE GENGOULT SMITH other than the said NORMAN HAROLD GENGOULT SMITH should he be a beneficiary of the said residuary estate.
It is apparent that, by operation of clause 3, the Trust will vest on 29 April 2024, being the date 50 years after its creation. Importantly, on that day, the Trust is to benefit the children of Norman and Jillian who are alive, in equal shares, with a gift over to the children of any child who predeceases the vesting day. In practical terms this means that, assuming they are then still alive, on 29 April 2024, the Trust will vest in Hugh, Alexandra and Edward in equal shares.
The power to alter the terms of the Trust is contained in clause 5(d) of the Trust Deed which provides as follows:
[The Trustee] may at any time and from time to time by Deed vary any of the provisions contained in clauses 5 to 10 hereof, provided that no such variation shall increase the rate of commission prescribed by clause 7 hereof or diminish the liability of the Trustee prescribed by clause 10 hereof or otherwise operate to the personal advantage of the Trustee.
It is apparent that this clause does not authorise the Trustee to vary clause 3.
The variations to the Trust Deed proposed by Hugh and Edward, which accorded with the orders ultimately made by the Court, were as follows:
(a) replacing the words ‘29th day of April 2024’ in clause 2(b) with the words ‘29th day of April 2054’;
(b) deleting the word ‘fifty’ in clause 3 and replacing it with the number ‘80’; and
(c) inserting a new clause 3A as follows: ‘The period of 80 years commencing on the date of execution of this trust is the perpetuity period applicable to this trust under the rule against perpetuities.’
It was submitted that these variations were necessary because:
(a) The first variation referred to above would ensure that the Trustee’s discretionary power over income continued until 29 April 2054, while the second variation defers the vesting date of the capital of the Trust.
(b) The first and second variations together ensure that the Trustee’s discretionary powers will continue until 29 April 2054.
(c) The third variation, adopting a new perpetuity period, is necessary to give effect to the first and second variations. The perpetuity period is the maximum period during which the Trustee can exercise discretionary powers.
Perpetuities and Accumulations Act 1968
In relation to the adoption of a new perpetuity period, s 5(1) of the Perpetuities and Accumulations Act 1968 (the Perpetuities Act) allows a settlor to specify ‘such number of years not exceeding eighty as is specified in the instrument as the perpetuity period applicable to the disposition’. The Trust does not include a provision nominating a fixed period of years to be the perpetuity period, but clause 3 of the Trust Deed provides for the Trust to vest 50 years after it was settled. The latter provision engages s 5(3) of the Perpetuities Act which has the effect of deeming the Trust’s perpetuity period to be 50 years.[1]
[1]Section 5(3) of the Perpetuities Act provides: ‘If no period of years is specified in an instrument by which a disposition is made as the perpetuity period applicable to the disposition but a date certain is specified in the instrument as the date on which the disposition shall vest the instrument shall, for the purposes of this section, be deemed to specify as the perpetuity period applicable to the disposition a number of years equal to the number of years from the date of the taking effect of the instrument to the specified vesting date’.
As I have noted, the power of variation in clause 5(d) of the Trust Deed does not authorise the Trustee to vary clause 3. Furthermore, the perpetuity period could not be extended by exercising a power of variation or a power of advancement because, as stated by Megarry J in Re Holt’s Settlement:[2]
The power is conferred by the settlement, and the person exercising the power can do so only within pre-ordained limits. The power indeed "belongs" to the old settlement, if I may respectfully adopt the language of Lord Radcliffe in the Pilkington Case.[3]
[2][1967] 1 Ch. 100, 120B (’Re Holt’s Settlement’).
[3]Pilkington v Inland Revenue Commissioners [1964] A.C. 612.
However, as Megarry J explained, referring to Saunders v Vautier,[4] a variation of trust owes its authority, not to anything in the initial settlement, but to the relevant statute[5] and the consent of the adult beneficiaries.[6] His Honour determined that an arrangement made after the commencement of the Perpetuities and Accumulations Act 1964 (UK), coupled with an order of the court, was an ‘instrument’ within s 15(5) of that Act, and it was therefore permissible to insert in the arrangement a provision adopting a fixed number of years under that Act.[7] The same conclusion applies under the Perpetuities Act, in which s 3(1) refers to an ‘instrument’ and is the equivalent provision to s 15(5) of the Perpetuities and Accumulations Act 1964 (UK).
Section 63A of the Trustee Act 1958
[4](1841) Cr. & Ph 240.
[5]Perpetuities and Accumulations Act 1964 (UK).
[6]Re Holt’s Settlement (n 2), 120.
[7]Ibid 120D-E.
The application is brought under s 63A of the Trustee Act 1958 which gives the Court jurisdiction to approve ‘any arrangement’[8] varying or revoking a trust on behalf of a number of different classes of persons not capable of providing consent, including underage persons[9] and unborn persons.[10]
[8]An ‘arrangement’ includes ‘any proposal which any person may put forward for varying or revoking the trusts’: Re Steed’s Will Trusts [1960] Ch 407, 419.
[9]Pursuant to s 63A(1)(a).
[10]Pursuant to s 63A(1)(c).
As I have noted,[11] there are six minors who are beneficiaries of the Trust. As to the possibility of unborn beneficiaries, in an affidavit made on 6 February 2024, Hugh deposed that it was ‘extremely unlikely’ that he or his siblings would have any further children before 29 April 2024. By the time of the hearing of the application, this possibility had become, as Hugh’s counsel described it, vanishingly unlikely.
[11]See [10] above.
Section 63A(1) of the Trustee Act 1958 provides as follows:
Where property, whether real or personal, is held on trusts arising, whether before or after the commencement of this Act, under any will settlement or other disposition, the Court may if it thinks fit by order approve on behalf of—
(a) any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts who by reason of minority or other incapacity is incapable of assenting; or
(b)any person (whether ascertained or not) who may become entitled, directly or indirectly, to an interest under the trusts as being at a future date or on the happening of a future event a person of any specified description or a member of any specified class of persons, so however that this paragraph shall not include any person who would be of that description, or a member of that class (as the case may be) if the said date had fallen or the said event had happened at the date of the application to the Court; or
(c) any person unborn; or
(d) any person in respect of any discretionary interest of his under protective trusts where the interest of the principal beneficiary has not failed or determined—
any arrangement (by whomsoever proposed and whether or not there is any other person beneficially interested who is capable of assenting thereto) varying or revoking all or any of the trusts, or enlarging the powers of the trustees or managing or administering any of the property subject to the trusts:
Provided that except by virtue of paragraph (d) of this subsection the Court shall not approve an arrangement on behalf of any person unless the carrying out thereof would be for the benefit of that person.
The approach to be adopted to an application under s 63A of the Trustee Act 1958 and the relevant principles which guide the exercise of the Court’s discretion in respect of such applications were recently the subject of careful consideration by Lyons JA in Re The Pickering Family Trusts[12] (Pickering). His Honour referred to the adoption by the Court of Appeal in Perpetual Trustees Victoria Ltd v Barns[13] (Barns) of a two-stage approach to considering applications under s 63A whereby, before granting approval under s 63A, the Court must be satisfied of two things:[14]
First, that the carrying out of the arrangement ‘would be for the benefit of’ the relevant person (the first stage or the proviso). Second, once the proviso has been satisfied, the Court may approve the arrangement if, in its nature, it is a proper and fair one (the second stage).
[12][2024] VSC 5.
[13](2012) 34 VR 387 [36].
[14]Pickering (n 12) [7], emphasis in original.
Justice Lyons identified three principles in relation to the first stage:
(a) First, the Court is required to consider ‘how the arrangement or proposal will or will likely be carried out or to operate in fact’.[15]
[15]Ibid [10].
(b) Secondly, a benefit must be established.[16] The ‘benefit’ is not limited to a financial benefit, but may include a benefit of any other kind including ‘social, familial, moral or educational benefits’[17] and must be considered:[18]
[16]Ibid [11].
[17]Ibid [11], omitting citations.
[18]Ibid [12].
… in the context of the particular trust to which the proposed arrangement relates. Thus, in the context of an object of a discretionary trust, any ‘benefit’ said to arise from the proposed arrangement must be considered in light of the present rights of such an object.
However, ‘if the arrangement or the carrying into effect of the arrangement involves such risk that any purported benefit is theoretical or illusory, it is not a ‘benefit’ for the purpose of the proviso’. [19]
(c) In relation to arrangements which may involve a risk from the point of view of infants or unborn children, for the purpose of satisfying the proviso and the requirement of a ‘benefit’, Lyons JA expressed reservations[20] about the appropriateness of asking whether ‘the risk [is] one that an adult would be prepared to take?’, as posed by Hansen J in George v Kollias.[21]
(d) Thirdly, in relation to non-financial benefits, Lyons JA referred to limitations in the reliance able to be placed on familial benefits connected with the promotion of family harmony and the avoidance of jealousies and conflict.[22]
[19]Ibid [16].
[20]Ibid [17].
[21][2007] VSC 46.
[22]Pickering (n 12), [24].
The second stage requirement, that the arrangement is a proper and fair one, involves:[23]
… a consideration of the arrangement as a whole. Courts should engage in a ‘businesslike consideration of the arrangement, including the total amounts of the advantages which the various parties obtain, and their bargaining strength’.[24] Courts may take into account the purpose of the trust and the intention of the settlor,[25] and the attitude of other beneficiaries or interested persons.[26]
[23]Ibid [25].
[24]Barns (n 13), [36] (Buchanan and Bongiorno JJA and Williams AJA), quoting Re Van Gruisen’s Will Trusts [1964] 1 WLR 449, 450 (Ungoed-Thomas J).
[25]Ibid.
[26]Ibid [40]. It is also observed that the attitude of the Attorney-General is considered ‘significant’ in respect of proposed variations to a charitable trust.
Representation of the interests of unborn and minor beneficiaries
As noted above, the Court’s approval of the variations to the Trust Deed proposed by Hugh and Edward was sought on behalf of the minor beneficiaries of the Trust and the potential unborn beneficiaries of the Trust. Before the hearing of the application, I invited the parties to make submissions as to whether or not the interests of these classes of beneficiaries ought be separately and exclusively represented by counsel.
There is authority for the proposition that, in a straightforward case, the trustee may properly represent the interests of beneficiaries who are in existence, as well as those who are not. In Re Munro’s Settlement Trusts,[27] which concerned an application under the equivalent of s 63A of the Trustee Act 1958,[28] Wilberforce J (as he then was) stated as follows:[29]
There may be the cases where, after looking at the trusts in question and the variation proposed, it is possible to see that some distinction of interest may arise as between the beneficiaries in existence and those not in existence. In such a case, it would be proper to insist upon separate representation of existing interests … But without expressing or laying down any general view, it seems to me there may be many cases such as I have just mentioned – and I think this one where separate representation would be useless and unnecessarily add to the expense.
In this case, it seems to me both procedurally correct, and in accordance with common sense, to look to the trustees, who generally, and in relation to protective trusts, may be regarded as responsible in equity for the protection of interests which may arise under the trusts, as the persons responsible for putting forward any arguments which the court should consider. It seems to me there is no argument whatever which can be put by persons representing the discretionary beneficiaries against supporting this scheme, and the advantages of sanctioning it are only too evident.
[27][1963] 1 WLR 145 (‘Re Munro’s’).
[28]Variation of Trusts Act 1958 (UK).
[29]Re Munro’s (n 27), 150-151.
However, some 20 years after Wilberforce J’s remarks, McPherson J in Re Christmas’ Settlement Trusts[30] expressed the view that the approach outlined by his Honour did not accord with the then current English practice in relation to applications under the Variation of Trusts Act 1958.[31] Instead, ‘at least in a case where such a large amount of money is involved’,[32] he endorsed the observations of Ungoed-Thomas J in Re Whigham’s Settlement Trusts[33] as embodying the more recent approach adopted in the United Kingdom.
[30][1986] 1 Qd R 372.
[31]Ibid 374.
[32]Ibid 375.
[33][1971] 1 WLR 831 (‘Re Whigham’s’).
In Re Whigham’s, Ungoed-Thomas J stated that it was not desirable that counsel ‘instructed to support the scheme on behalf of parties sui juris should also appear on behalf of an infant or other parties not sui juris when the court's approval on their behalf is being sought’.[34] This situation was more ‘intractable’ where, ‘not only does counsel represent parties sui juris as well as parties not sui juris, but his instructing solicitors also represent the applicant and maybe all other parties to the application’. Although it could be expected that counsel and solicitors in this situation would appreciate that their ’overriding duty is to the parties not sui juris’:[35]
… it is most important that justice should not only be done, but should, as is often said, manifestly be seen to be done. Therefore, the proper course is, in my view, that on such applications as these, parties not sui juris should, in general at any rate, be separately and exclusively represented by their own counsel.
[34]Ibid 832.
[35]Ibid.
A consistent approach to the representation of minor and unborn beneficiaries is unable to be discerned in more recent authorities. This is unsurprising because what is necessary and appropriate in relation to the representation of minor and unborn beneficiaries will depend upon the circumstances of each case. This is exemplified by the result in Re Whigham’s: notwithstanding the general principles set out by Ungoed-Thomas J, ultimately his Honour decided that, in all the circumstances of the case, it was not necessary for the minor beneficiary to be separately represented.
I reached the same conclusion in respect of the minor and the potential unborn beneficiaries of the Trust. Although the Trust’s substantial wealth meant that costs could not be an impediment to separate representation, there were several features of the application which led me to conclude that it was unnecessary for those classes of beneficiaries to be separately represented, whether by requiring the appointment of separate legal representatives, or by the provision of an independent advice from counsel.
Although the parties were represented by the same solicitors, the Trustee retained its own counsel and provided comprehensive oral and written submissions which, mindful of its responsibility to protect the interests of the existing minor and any potential unborn beneficiaries, were explicitly directed at considering the interests of those classes of beneficiaries by reference to the relevant legal principles. There is no relevant difference in the interests of the minor beneficiaries and the interests of any potential unborn beneficiaries, and the Trustee’s submissions were directed exclusively at the interests of this collective group. Unlike Re Whigham’s where the same counsel represented all the beneficiaries, one of whom was not sui juris, the Trustee did not seek to represent the interests of the adult beneficiaries, or any other group of beneficiaries.
The nature of the interest in the Trust held by the minor and unborn beneficiaries is also important. Like the beneficiaries of the discretionary trust in Re Munro’s, their interest in the Trust is a mere expectancy. They do not have an interest in the assets of the Trust, only a right to be considered as an object of the Trust. The position was otherwise in Re Christmas’ Settlement Trusts and Re Whigham’s where the beneficiaries had more material interests which would likely be affected by the decision of the Court. I was persuaded by the submissions advanced on behalf of Hugh and Edward that their application to extend the vesting date appeared to have a clear benefit for the minor and unborn beneficiaries in circumstances where, if the Trust vests on 29 April 2024, all of its the assets and income would be held only for the benefit of the three adult children of Jillian and Norman: Hugh, Alexandra and Edward.
For these reasons, I determined that it was unnecessary for the minor and unborn beneficiaries to have separate representation.
Consideration
I accept the parties’ submissions that the carrying out of the variations to the Trust Deed proposed in the application would be for the benefit of the minor and potential unborn beneficiaries. The central proposition on which that conclusion rests is that, if the Trust vests on 29 April 2024, those beneficiaries (other than Hugh, Alexandra and Edward) will no longer be able to benefit under the Trust, whereas, if the Court approves the arrangement, those beneficiaries will potentially benefit during the extended life of the Trust. In this way, the making of the proposed variations will result in the continuation of their rights and expectations as beneficiaries beyond 29 April 2024, at which point they would otherwise cease under the existing terms of the Trust Deed.
Additionally in relation the potential unborn beneficiaries, extending the duration of the Trust would provide an opportunity for more individuals to be born who could qualify as beneficiaries. The point was made by Habersberger J in Thomas Hare Investments Ltd v Hare[36] in an application under s 63A of the Trustee Act 1958 for approval of variations to a trust deed which would extend the vesting date of the Hare Family Trust. His Honour stated:[37]
The extension of the vesting day for the Hare Family Trust could only benefit the unascertained class of potential beneficiaries because there would then be a longer period of time by which they could become a beneficiary.
More broadly, as discussed further below, the prospect of utilising the Trust for the benefit of the next generation of the Gengoult-Smith family is conducive of familial benefits which are consonant with the purpose of the Trust.
[36](2012) 34 VR 656.
[37]Ibid [39].
The possibility that the minor or unborn beneficiaries might suffer detriment from the making of the proposed variation is extremely remote. Two possibilities may be identified.
First, by operation of clause 3 of the Trust Deed, in the event that either Alexandra or Hugh (being the only children of Norman and Jillian who themselves have had children) pass away before 29 April 2024, the share that they would expect to receive on the vesting of the Trust will vest in their children who survive them. At the time of the hearing of the application, there was accordingly a very remote possibility that, should either Alexandra or Hugh die in the twelve days before 29 April 2024, their children would expect their deceased parent’s share to vest in them on the vesting date. The approval of the arrangement would extinguish that possibility and instead the entitlement of family members to the assets of the Trust upon vesting would be determined on 29 April 2054.
I agree with the parties’ submissions that this remote possibility is insufficient to outweigh the tangible and clear benefit that the minor and potential unborn beneficiaries will receive should the vesting date be extended as explained in [36]-[37] above.
The second way in which the minor or potential unborn beneficiaries might suffer detriment is by way of the possible expansion of the class of beneficiaries in the event the vesting date is extended, which could lead to a theoretical dilution in the potential amounts that would otherwise be available to those beneficiaries. The answer to this concern lies in a recognition of the nature of the interests in the Trust held by the unborn and minor beneficiaries. They are discretionary objects who may, or may not, receive an income distribution from the Trust; they do not have fixed entitlements to income or capital which could be diluted by new beneficiaries being born into the class. If the arrangement is not approved, their interests of in the Trust will be extinguished. The potential disadvantage of being a member of a wider class of beneficiaries if the vesting date is extended is therefore clearly outweighed by the alternative scenario in which their interests cease to exist.
Having determined that the carrying out of the proposed variations to the Trust Deed would be for the benefit of the minor and potential unborn beneficiaries, I also consider that the proposed arrangement is proper and fair.
The evidence before the Court demonstrates that the Trust has for many years provided a suitable vehicle for the Gengoult-Smith family to hold substantial investments and to distribute the income of the Trust to family members. Although the Trust is discretionary, the Trustee has deposed that it is anticipated that future distributions of the Trust will be made to family members, or entities controlled by family members. If the Trust vests on 29 April 2024, the Trustee would lose the ability to distribute income and capital at its discretion to the beneficiaries and the Trust would no longer be suitable for holding investments.
A consideration of the purpose of the Trust, the settlor’s intention and the attitude of other beneficiaries, leads inexorably to the conclusion that the proposed arrangement is a proper and fair one. The Trust Deed records the settlor’s intention ‘to make provision herein for the children of her nephew [Norman] and his wife [Jillian]’. Strikingly however, it is only those persons - Alexandra, Hugh and Edward - whose interests would be detrimentally affected by the approval of the proposed arrangements through the deferral of their imminent entitlement to a share in the Trust. Critically though, they have each consented to the proposed arrangement.
In appraising whether the proposed arrangement is proper and fair, not only is it significant that all the legally capable beneficiaries of the Trust have consented to it, the decisive consideration is the fact that Alexandra, Hugh and Edward, being the persons who the settlor wanted to provide for by establishing the Trust and whose interests are adversely affected by the proposed arrangement, have provided their consent to it. In those circumstances, I am satisfied that the arrangement is aligned with the settlor’s intentions to benefit Alexandra, Hugh and Edward, notwithstanding the deferral of their imminent entitlement. Hugh has deposed to the siblings’ shared desire that the capital gains tax liability that will arise from the vesting of the Trust be deferred, and that the Trust be used for the benefit of the grandchildren of Norman and Jillian. It has been repeatedly affirmed that a court should not hesitate to approve an arrangement for the extension of a trust’s vesting date merely because one of the purposes of the arrangement is to avoid, reduce or defer taxation consequences. [38]
[38]As stated by McMillan J in Re Perenna Nominees Pty Ltd [2022] VSC 193, [101].
The Court accordingly approved the arrangement proposed by Hugh and Edward.
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CERTIFICATE
I certify that the 15 preceding pages are a true copy of the reasons for judgment of Moore J of the Supreme Court of Victoria delivered on 23 April 2024.
DATED this 23rd day of April 2024.
Associate
SCHEDULE OF PARTIES
| HUGH GENGOULT-SMITH | First Plaintiff |
| EDWARD GENGOULT-SMITH | Second Plaintiff |
| - and - | |
| PETELA NOMINEES PTY LTD (ACN 005 747 866) (as the trustee of the Gengoult-Smith Family Trust) | First Defendant |
| ATTORNEY-GENERAL FOR THE STATE OF VICTORIA | Second Defendant |
| JILLIAN LEE GENGOULT-SMITH | Third Defendant |
| ALEXANDRA GENGOULT-SMITH | Fourth Defendant |