Re Owies Family Trust

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST

S ECI 2018 02534

PAUL ANDREW OWIES	First Plaintiff
and
DEBORAH OWIES	Second Plaintiff
v
JJE NOMINEES PTY LTD (ACN 004 856 366) (in its capacity as the trustee for the OWIES FAMILY TRUST)	First Defendant
and
MICHAEL BENJAMIN OWIES	Second Defendant

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JUDGE:	MOORE J
WHERE HELD:	Melbourne
DATE OF HEARING:	10, 11, 12, 13, 26 February 2020 (and further written submissions provided on 4, 7 September 2020)
DATE OF JUDGMENT:	28 October 2020
CASE MAY BE CITED AS:	Re Owies Family Trust
MEDIUM NEUTRAL CITATION:	[2020] VSC 716

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TRUSTS – Validity of resolutions purporting to amend trust deed – Whether trustee had power to vary identity of guardian and appointor by deed – Where trust deed permits addition to or variation of existing trusts and declaration of new trusts and powers – Question of validity turns on construction of specific terms of trust deed – Trust deed does not permit variation to identity of guardian and appointor – Byrnes v Kendle (2011) 243 CLR 253, applied – Scaffidi v Montevento Holdings Pty Ltd (2012) 246 CLR 325, applied – Australian Broadcasting Commission v Australian Performing Right Association Ltd (1973) 129 CLR 99, applied – Schreuders v Grandiflora Nominees Pty Ltd [2016] VSCA 93, applied – Kearns v Hill (1990) 21 NSWLR 107, applied – Mercanti v Mercanti (2016) 50 WAR 495, applied – Re Scott (dec’d) [1948] SASR 193, considered.

TRUSTS – Distribution of income – Whether trustee failed to properly exercise discretion to distribute income – Where class of beneficiaries limited to five natural persons who are members of the same family – Where trustee did not distribute income to plaintiffs on last 10 occasions – Plaintiffs time-barred in relation to some occasions on which discretion was purportedly exercised – Whether trustee gave genuine consideration to distributing income to plaintiffs – Knowledge of identity of beneficiaries insufficient to constitute genuine consideration of exercise of discretion – Where trustee had no knowledge of plaintiffs’ circumstances on some occasions on which it exercised its discretion – Trustee failed to properly exercise discretion on those occasions – Limitation of Actions Act 1984, s 21 – Karger v Paul [1984] VR 161, applied – Wareham v Marsella [2020] VSCA 92, applied – Sinclair v Moss [2006] VSC 130, applied – Finch v Telstra Super Pty Ltd (2010) 242 CLR 254, applied – Telstra Super Pty Ltd v Flegeltaub (2000) 2 VR 276, applied.

TRUSTS – Removal of trustee – Whether trustee should be removed – Where trustee has acted in breach of trust – Where breaches of trust occurred when trustee was under control of previous directors – Whether trustee is incapable of acting impartially – Where trustee has recently distributed capital to one of the plaintiffs – Court not satisfied that trustee will fail to act impartially – Welfare of beneficiaries not opposed to trustee continuing to fulfil office – Trustee Act 1958, ss 41 and 48 – Miller v Cameron (1936) 54 CLR 572, applied – Monty Financial Services Ltd v Delmo [1996] 1 VR 65, applied – Nicholls v Louisville Investments Pty Ltd (1991) 10 ACSR 723, considered – Re Whitehouse [1982] Qd R 196, considered.

TRUSTS – Removal of guardian and appointor – Where not established guardian and appointor of trust are fiduciaries – Court does not have jurisdiction to remove guardian or appointor – Blenkinsop v Herbert (2017) 51 WAR 264, applied.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Dr K P Hanscombe QC with Mr A P Dickenson	KCL Law
For the First Defendant	Mr J Evans QC with Ms R Grayson Morison	Tisher Liner FC Law
For the Second Defendant	Ms L Martin	McKean Park

TABLE OF CONTENTS

Background - the trustee................................................................................................................... 2

Purported variations of the trust deed........................................................................................... 2

Issue 1: Trustee’s power of amendment....................................................................................... 2

Parties’ submissions...................................................................................................................... 2
Paul and Deborah’s submissions...................................................................................... 2
Trustee’s submissions......................................................................................................... 2
Michael’s submissions........................................................................................................ 2

Principles of construction............................................................................................................ 2
Consideration................................................................................................................................ 2

Issue 2: Validity of resolutions amending the trust deed......................................................... 2

The 2002 and 2010 variations...................................................................................................... 2
The presumption of regularity.......................................................................................... 2
Consideration....................................................................................................................... 2

The 2017 variation......................................................................................................................... 2

Issue 3: Consent of the Guardian to the 2010 and 2017 variations.......................................... 2

2010 variation................................................................................................................................. 2
Submissions.......................................................................................................................... 2
Consideration....................................................................................................................... 2

2017 variation................................................................................................................................. 2

Issue 4: Execution of the 2017 variation........................................................................................ 2

Issue 5: Trust income........................................................................................................................ 2

The trustee’s general approach in relation to trust income.................................................... 2
Evidence of income distribution by trustee: 2010–2017.......................................................... 2
2010 Income.......................................................................................................................... 2
2011 Income.......................................................................................................................... 2
2012 Income.......................................................................................................................... 2
2013 and 2014 Income......................................................................................................... 2
2015 Income.......................................................................................................................... 2
2016 Income.......................................................................................................................... 2
2017 Income.......................................................................................................................... 2

Consideration................................................................................................................................ 2

Issue 7: Claims barred by Limitation of Actions Act 1958 or by laches................................... 2

Issue 6: Genuine consideration of the objects of the trust........................................................ 2

Findings of fact.............................................................................................................................. 2
Paul’s circumstances........................................................................................................... 2
Deborah’s circumstances.................................................................................................... 2
Relationships between Paul, Deborah and Michael....................................................... 2
2018 and 2019 income resolutions..................................................................................... 2

Paul and Deborah’s submissions................................................................................................ 2
Trustee’s submissions................................................................................................................... 2
Michael’s submissions.................................................................................................................. 2
Consideration................................................................................................................................ 2

Issue 8: Whether the trustee ought be removed.......................................................................... 2

Lack of impartiality....................................................................................................................... 2
Submissions on removal.............................................................................................................. 2
Paul and Deborah’s submissions...................................................................................... 2
Trustee and Michael’s submissions.................................................................................. 2

Consideration................................................................................................................................ 2

Issue 9: Whether Michael ought be removed as Guardian and Appointor........................... 2

Disposition.......................................................................................................................................... 2

HIS HONOUR:

This proceeding concerns a dispute between the children of Dr John Joachim Owies and Dr Eva Owies over the control of the Owies Family Trust (the trust) and the entitlement to the trust’s substantial income over the past 10 years.

Eva died on 27 November 2018, two days before the proceeding was commenced, at 89 years of age.[1] John died on 23 January 2020, less than three weeks before the commencement of the trial of the proceeding, at the age of 96.[2] A witness statement signed by John on 10 September 2019 was admitted as evidence in the proceeding.[3]
[1]Eva was born on 13 June 1929.
[2]John was born on 1 July 1923.
[3]Pursuant to s 63(2)(a) of the Evidence Act 2008. The witness statement was admitted into evidence subject to certain redactions. No evidence by Eva was sought to be admitted.

John and Eva had three children: Paul Andrew Owies and Deborah Owies, who are the plaintiffs in the proceeding, and Michael Benjamin Owies, the second defendant in the proceeding.[4]
[4]Without any disrespect to the parties, in the interests of clarity, I refer to the parties and their parents by their first names.

The first defendant, JJE Nominees Pty Ltd (the trustee), has at all times been the trustee of the trust. The trust was settled by deed executed by Eva’s sister, Agatha Getzler, on 30 November 1970 (the trust deed). John and Eva’s children are the primary beneficiaries of the trust. John and Eva are also general beneficiaries of the trust. The trust deed specifies 30 June 2050 as the vesting day.

In broad terms, Paul and Deborah bring three claims in the proceeding. First, they challenge, on various grounds, the validity of deeds of variation to the trust deed purportedly executed in 2002, 2010 and 2017.[5] Those variations sought to change the persons identified in the trust deed as ‘Guardian’ and ‘Appointor’. Before the first of those variations, the trust deed identified John and then, after his death, Eva, as Guardian and Appointor. If all of the variations are valid, Michael is the Guardian and Appointor under the trust deed. If they are all invalid, those positions were held by John until his death.
[5]Referred to below respectively as the 2002 variation, the 2010 variation and the 2017 variation.

The determination of the true holder of the positions of Guardian and Appointor is important because of the powers vested in those positions under the trust deed as I will further outline. It is also potentially important (in respect of the position of Guardian) because it may affect the default position as to who will take the corpus of the trust upon its vesting.

The second aspect of the challenge brought by Paul and Deborah concerns the income of the trust between 2010 and 2019. The trust has substantial assets with an estimated value at trial in excess of $23 million.[6] Those assets comprise real properties and investments in publicly listed companies which pay dividends each year. In the years between 2010 and 2019, substantial distributions were made to John, Eva and Michael; no distributions were made to Paul or Deborah.
[6]Paul and Deborah submitted that the value of the trust’s net assets was in fact likely to be in the order of $40 million.

Paul and Deborah contend that the trustee in fact failed to make any resolution distributing the income of the trust for any of the financial years between 2010 and 2017. If that is correct, they submit that the net income for each of these years is held on trust for them and Michael in equal shares.

Paul and Deborah also contend that the resolutions of the board of directors of the trustee which purported to resolve the distribution of income for each year between 2010 and 2017 were made in breach of trust because they were made without the trustee giving any genuine consideration as to whether, in the exercise of its discretion, a distribution should be made to them.

The third aspect of the challenge brought by Paul and Deborah is whether the trustee should be removed as the trustee of the trust because of its alleged failure to properly execute and administer the trust and whether, if the Court has jurisdiction to do so, Michael should be removed as Guardian and Appointor of the trust because he is not a fit and proper person to undertake those roles.[7]
[7]This question is predicated on the validity of at least the 2010 variation and/or the 2017 variation.

These challenges require me to address the following nine issues:

Purported variations of the trust deed
1.Whether, properly construed, the trust deed gives power to the trustee to amend the description of the persons identified as ‘Guardian’ and ‘Appointor’.
2.Assuming that the trustee had power to amend the description of the persons identified in the trust deed as ‘Guardian’ and ‘Appointor’, whether the 2002 variation, the 2010 variation and the 2017 variation are void because the Court cannot be satisfied that the board of directors of the trustee resolved to authorize the trustee to execute the variations.
3.Assuming that the trustee had power to amend the description of the persons identified in the trust deed as ‘Guardian’ and ‘Appointor’ and assuming that the 2002 variation was valid, whether the 2010 and 2017 variations are void because Eva Owies, as a joint Guardian appointed pursuant to the 2002 variation, did not consent to their making.
4.Assuming that the trustee had power to amend the description of the persons identified in the trust deed as ‘Guardian’ and ‘Appointor’, whether the 2017 variation is void because it was not properly executed by the trustee as the meeting of the board of directors in relation to the making of the variation was inquorate.[8]
[8]It is contended by Paul and Deborah that the meeting was inquorate because the resolution of the meeting of members of the trustee on 14 December 2017 appointing Neville Sampson as a director was void. That resolution is in turn contended to be void because, in breach of cls 42 and 44 of the trustee’s Articles of Association, Michael voted at the meeting as Eva’s attorney without being registered.

Trust income
5.Whether the trustee failed to make any resolution regarding the income of the trust within the financial year for any of the financial years between 2010 and 2017.
6. Whether the resolutions of the board of directors of the trustee which purported to resolve the distribution of income for each financial year in and between 2010 and 2019 were made in breach of trust because they were made without the trustee giving any genuine consideration to whether, in the exercise of its discretion, a distribution should be made to Deborah Owies and/or Paul Owies.
7.Whether Paul and Deborah’s claims regarding income distributions of the trust in 2010, 2011 and 2012 are barred by operation of s 21(2) of the Limitation of Actions Act 1958 or by virtue of their laches in commencing the proceeding.

Removal
8.Whether the trustee should be removed as the trustee of the trust.
9.If the Court has jurisdiction to do so, whether Michael Owies should be removed as the Guardian and Appointor of the trust because he is not a fit and proper person to undertake those roles.

Background - the trustee

The trustee was registered in Victoria on 30 November 1970. Until 30 July 2019, one of the two shares in the trustee was held by Eva[9] and the other held by John. On 30 July 2019, the share held by John was transferred to Michael.
[9]Or Eva’s legal personal representative.

John and Eva were directors of the trustee from its registration until their deaths in 2020 and 2018 respectively.

Paul and Michael were also appointed as directors of the trustee on 23 June 1998. They were both removed as directors on 30 March 2013. In the period that they held office as directors, neither Paul or Michael took any part in the management of the trust and did not actually act as directors.

Neville Sampson, who had been John and Eva’s solicitor for many years,[10] was purportedly appointed a director of the trustee in December 2017. The validity of that appointment is in issue in this proceeding.[11]
[10]Mr Sampson is the executor of Eva’s estate and was granted probate of Eva’s will on 26 April 2019.
[11]In relation to Issue 4. See n 8 above.

Michael was appointed a director of the trustee on 20 November 2019. As at the trial of the proceeding, he and Mr Sampson (assuming his appointment is valid) were the directors of the trustee.

Purported variations of the trust deed

Sub-clauses 1(6) and 1(7) of the trust deed provide respectively that the ‘the Guardian’ and ‘the Appointor’ mean ‘successively the person or persons named and described as such in the Schedule’.

In its original form, the schedule of the trust deed identified the Appointor and Guardian of the trust in the following terms:

Guardian: The said John Joachim Owies during his lifetime and after his death the said Eva Owies
Appointor: The said John Joachim Owies during his lifetime and after his death the said Eva Owies

On 28 May 2002, the trustee purported to execute a Deed of Variation (the 2002 variation) recording a variation to the trust deed to alter the description of the Guardian and the Appointor in the schedule. It was prepared by Mr Sampson at Eva’s request and relevantly provided as follows:

…
AND WHEREAS Clause 20 of the deed of settlement provides that the Trustee may by deed with the consent of the guardian revoke, add to or alter all or any of the trusts

AND WHEREAS the guardian of the trust is JOHN JOACHIM OWIES
NOW THIS DEED WITNESSETH that the Trustee pursuant to Clause 20 of the deed of settlement with the consent of the said JOHN JOACHIM OWIES as guardian of THE OWIES FAMILY TRUST alters the description of guardian and appointor in the schedule to the deed of settlement to read as follows:-
“Guardian – The said JOHN JOACHIM OWIES and the said EVA OWIES jointly. In the event of the death of either JOHN JOACHIM OWIES or EVA OWIES the survivor of them together with PAUL ANDREW OWIES and MICHAEL BENJAMIN OWIES. In the event of the death of both JOHN JOACHIM OWIES and EVA OWIES then PAUL ANDREW OWIES and MICHAEL BENJAMIN OWIES.
“Appointor – The said JOHN JOACHIM OWIES and the said EVA OWIES jointly. In the event of the death of either JOHN JOACHIM OWIES or EVA OWIES the survivor of them together with PAUL ANDREW OWIES and MICHAEL BENJAMIN OWIES. In the event of the death of both JOHN JOACHIM OWIES and EVA OWIES then PAUL ANDREW OWIES and MICHAEL BENJAMIN OWIES.”

…

If valid, the effect of the 2002 variation was to change the persons identified as Guardian and Appointor:

(a) from John and then, after his death, Eva;
(b)to John and Eva jointly and, in the event of the death of either of them, the survivor, together with Paul and Michael, and then Paul and Michael together in the event of the death of both John and Eva.

On 9 June 2010, the trustee purported to execute a Deed of Variation (the 2010 variation). It relevantly provided as follows:

… WHEREAS by deed of settlement made 30^th November 1970 BETWEEN AGATHA GETZLER and the trustee a trust known as THE OWIES FAMILY TRUST was created AND WHEREAS clause 20 of the deed of settlement provides that the trustees for the time being may by deed with the consent of the guardian revoke, add to or vary all or any of the trusts AND WHEREAS the present guardian of the trust is JOHN JOACHIM OWIES
NOW THIS DEED WITNESSETH that the trustee pursuant to clause 20 of the deed of settlement amends the schedule to the deed of settlement:-
1. To amend the “Guardian” to read “the said John Joachim Owies during the lifetime and after his death the said Eva Owies and upon the death of both John Joachim Owies and Eva Owies the guardian shall be Michael Owies”.
2. To amend the description of the “Appointor” to read “the said John Joachim Owies during his lifetime and after his death the said Eva Owies and upon the death of both John Joachim Owies and Eva Owies the appointor shall be Michael Owies.”

John Joachim Owies being the guardian of the Owies Family Trust by his signature to this document HEREBY CONSENTS to the foregoing amendment to the deed of settlement.

The 2010 variation was also prepared by Mr Sampson at Eva’s request. Eva provided instructions in relation to it at a meeting with Mr Sampson on 16 April 2010. Michael also attended the meeting. Mr Sampson’s evidence, which I accept, was that Eva said that Deborah had ‘cut herself off’ and that her instructions were that Deborah was not to have any involvement in decision-making with the trust. Her instructions were also that Paul was to be removed as a ‘successor’ Guardian and Appointor because she was unhappy with some of his business dealings and ‘had big ideas’ and that Michael was to remain as the only ‘successor’ Guardian and Appointor. This is consistent with John’s evidence that he intended that Michael would become the person with the power to control who would be the trustee of the trust when he and Eva had passed away.

If valid (and also assuming the 2002 variation to be valid), the effect of the 2010 variation was that John and Eva would no longer jointly be Guardian and Appointor and instead John would be both Guardian and Appointor with Eva holding those positions after his death and then Michael holding them after the death of both Eva and John.

On 15 December 2017, the trustee executed a deed (the 2017 variation). It relevantly provided as follows:

… WHEREAS by Deed of Settlement made 30^th November 1970 BETWEEN AGATHA GETZLER and the Trustee a Trust known as THE OWIES FAMILY TRUST was created AND WHEREAS clause 20 of the Deed of Settlement provides that the Trustees for the time being may by deed with the consent of the Guardian revoke, add to or vary all or any of the trusts AND WHEREAS the present Guardian of the Trust is JOHN JOACHIM OWIES
NOW THIS DEED WITNESSETH that the Trustee pursuant to Clause 20 of the Deed of Settlement amends the Schedule to the Deed of Settlement:-
1.To amend the “Guardian” to read “MICAHEL BENJAMIN OWIES during his lifetime and after his death his Legal Personal Representative”.
2.To amend the description of “Appointor” to read “MICHAEL BENJAMIN OWIES during his lifetime and after his death his Legal Personal Representative”.

JOHN JOACHIM OWIES being the Guardian of the OWIES FAMILY TRUST by his signature to this document HEREBY CONSENTS to the foregoing amendment to the Deed of Settlement.

If valid (and also assuming the 2002 and 2010 variations to be valid), the effect of the 2017 variation was to appoint Michael as Guardian and Appointor (and after his death his legal personal representative), instead of those positions being held by John and then, after his death, Eva and then Michael after the death of both John and Eva.

Issue 1: Trustee’s power of amendment

Given the purported making of the 2002, 2010 and 2017 variations (collectively, the variations), the first issue for determination is whether the trust deed, properly construed, gives power to the trustee to amend the description of the persons identified as Guardian and Appointor.

The determination of this question depends upon the proper construction of cl 20 of the trust deed which gives the trustee a general power of amendment. It was uncontroversial that the trustee’s power of amendment was exclusively contained within cl 20.

Clause 20 provides as follows:

The Trustees for the time being may at any time and from time to time by deeds with the consent of the Guardian if alive revoke add to or vary all or any of the trusts hereinbefore limited or the trusts limited by any variation or alteration or addition made thereto from time to time and may by the same or any other deed or deeds declare any new or other trusts or powers concerning the Trust Fund or any part or parts thereof the trusts whereof shall have been so revoked added to or varied but so that the law against perpetuities is not thereby infringed and so that such new or other trust powers discretions alterations or variations –
(i)may relate to the management or control of the Trust Fund or the investment thereof or to the Trustees’ powers or discretions in these presents contained;
(ii)shall not be in favour of or for the benefit of the Settlor or result in any benefit to the Settlor but shall otherwise be for the benefit of all or any one or more of the General Beneficiaries or the next of kin of any of them or the next of kin of the Primary Beneficiary or Primary Beneficiaries or any of them;
(iii)shall not affect the beneficial entitlement to any amount set aside for any Beneficiary prior to the date of the variation, alteration or addition.

In considering the proper construction of cl 20, it is relevant to note various other provisions of the trust deed referred to below.

Clause 1 of the trust deed contains various definitions, relevantly including the following:

(1)The “Primary Beneficiaries” mean the person or persons named and described or defined as such in the Schedule.
(2)The “General Beneficiaries” mean the Primary Beneficiaries the brothers and sisters spouses and children of the Primary Beneficiaries the spouses children and grandchildren of such brothers sisters and children and such additional persons (if any) as are named and described or defined in the Schedule as additions to the class of General Beneficiaries and “Beneficiary” means any of the General Beneficiaries:

…
(4)“the Trust Fund” means the said settled sum being a sum paid or to be paid by the Settlor to the Trustees upon the execution hereof all moneys investments and property paid or transferred to and accepted by the Trustees as additions to the Trust Fund the accumulations of income hereinafter directed or empowered to be made all accretions to the Trust Fund and the investments and property from time to time representing the said money investments property accumulations and accretions or any part or parts thereof respectively;
(5)“the Vesting Day” means the day specified in the Schedule as the Vesting Day or such earlier day as the Trustees may in their absolute discretion at any time during the lifetime of the Guardian with the consent of the Guardian or if the Vesting Day is later than the day of the death of the last surviving Guardian then after such last mentioned date without any consent appoint PROVIDED ALWAYS that notwithstanding anything herein contained all powers and dispositions made by or pursuant to or contained in this Deed which but for this provision would or might vest take effect or be exercisable after the expiration of the perpetuity period shall vest and take effect on and be exercisable only until the last day of the perpetuity period;
…

Relevantly, the schedule to the trust deed identifies:

(a) the primary beneficiaries as the children of John and Eva, with John and Eva being listed as additional members of the class of general beneficiaries;

(b) the Guardian and Appointor as John ‘during his lifetime and after his death’ Eva;[12] and

(c) the Vesting Day as 30 June 2050.

[12]See [18] above.

Clause 2 states:

IN consideration of the premises the Settlor as Settlor HEREBY DECLARES that the Trustees shall and the Trustees HEREBY DECLARE that they will henceforth stand possessed of the Trust Fund and of the income thereof upon the trusts and with and subject to the powers and provisions hereinafter expressed concerning the same.

Clause 3 deals with the annual income of the trust and relevantly provides as follows:

(i)the Trustees shall in each accounting period until the Vesting Day pay apply or set aside the whole or such part (if any) as they shall think fit of the net income of the Trust Fund of that accounting period for such charitable purposes and/or to or for the benefit of or for all or such one or more exclusive of the others or other of the General Beneficiaries living from time to time in such proportions and in such manner as the Trustees in their absolute discretion and without being bound to assign any reason therefor (but after considering the wishes of the Guardian) shall think fit;
(ii)the Trustees shall hold so much of the income of the Trust Fund as the Trustees shall not pay apply or set aside pursuant to the powers contained in paragraph (i) of this Clause in trust for the persons successively described in paragraphs (a) (b) and (c) of Clause 4 hereof as though each date on which such income becomes subject to the Trusts hereof were the Vesting Day specified in the Schedule;
(iii)notwithstanding anything contained in paragraphs (i) and (ii) of this Clause the Trustees may determine in their absolute discretion before the expiration of any accounting period prior to the Vesting Day to accumulate all or any part of the income arisen or arising during such period and such accumulation shall be dealt with as an accretion to the Trust Fund;
…

Clause 4 deals with the vesting of the trust property and relevantly provides as follows:

As from the Vesting Day the Trustees shall stand possessed of the Trust Fund and the income thereof in trust for such charitable purposes and/or for such of the General Beneficiaries for such interests and in such proportions and for one to the exclusion of the other or others as the Trustees may with the consent of the Guardian by instrument in writing revocable or irrevocable before the Vesting Day appoint PROVIDED ALWAYS that the Trustees shall not without such consent revoke any revocable appointment AND PROVIDED FURTHER that if there is no Guardian alive the Trustees shall have no such power of appointment and in default of and subject to any such appointment in trust –
(a)for such of the Primary Beneficiaries as shall be living on the Vesting Day and attain the age of twenty-one years as tenants-in-common in equal shares absolutely PROVIDED ALWAYS that the children (if any) who shall be living on the Vesting Day of any Primary Beneficiary who dies before the Vesting Day (and the descendants of any of such children or the children of such children who dies before the Vesting Day) shall take as tenants-in-common a share calculated per stirpes which such deceased Primary Beneficiary would have received had he or she survived to the Vesting Day;
(b)if in the events which happen or if for any reason whatsoever any part or parts of the Trust Fund shall not be effectively or validly disposed of by the trusts declared by this Deed or by any Deed from time to time in force varying altering or adding to such trusts the Trustees shall stand possessed of such part or parts of the Trust Fund as aforesaid for the statutory next of kin (excluding the Settlor) who are according to law next of kin of the Guardian first named in the Schedule who are living when the same falls or fall into possession as tenants-in-common in equal shares absolutely and if there shall be no such next of kin upon trust for such charitable purposes as the Trustees may determine any resulting trust to the Settlor being hereby expressly negatived;
…

Clauses 7 and 8 detail the broad discretionary powers the trustee has in addition to any powers otherwise conferred upon it by law.

Clause 17 relevantly provides that, subject to any express provision to the contrary, ‘every discretion vested in the Trustees shall be absolute and uncontrolled and every power vested in them shall be exercisable at their absolute and uncontrolled discretion …’.

Clause 21 provides that, ‘[e]xcept as provided by Clause 20 hereof this Deed and the Trusts hereby created shall be irrevocable’.

Clause 22 gives power to the Appointor to remove the trustee and appoint additional trustees as follows:

The Appointor and if there is no Appointor living the legal personal representatives of the last surviving Appointor shall be entitled by instrument in writing at any time and from time to time –

(a) in his her or their absolute discretion to remove any Trustee hereunder or of the Trust Fund;

(b) to appoint any additional Trustee or Trustees hereunder or of the Trust Fund;

....

Parties’ submissions
Paul and Deborah’s submissions

Paul and Deborah contended that, objectively construed, cl 20 does not give the trustee power to amend any definition in the schedule to the trust deed, including the person identified therein as Guardian.[13] The foundation for this submission was the provision made in the first part of cl 20 that the trustee may, with the consent of the Guardian, revoke, add to or vary the ‘trusts’. Paul and Deborah submitted that, properly construed, the naming of the Guardian was not a ‘trust’ within the meaning of cl 20.
[13]Although Issue 1 concerns whether the trust deed, properly construed, gives power to the trustee to amend the description of the persons identified as Guardian and Appointor, Paul and Deborah advanced their submissions by reference only to the position of Guardian, substantially on the basis that the same arguments were equally applicable to the position of Appointor.

Paul and Deborah argued that cl 20 was a very carefully drafted power of variation which distinguished between ‘trusts’ and ‘powers’. This distinction was said to be evident from: (a) the initial reference in the clause to ‘the trusts’ followed by the later reference to the trustee’s power to declare new or other ‘trusts or powers’; and (b) the preamble of the trust deed which records that the ‘[t]rustees have consented to become the Trustees hereof upon the trusts and with and subject to the powers and provisions hereinafter expressed’.

It was submitted that not every term, condition or definition in a trust deed is, or creates, a trust. A trust is an obligation attaching to property, whereas a power is the grant of the ability to do something. In support of these propositions, Paul and Deborah relied upon the following observations by Mayo J in Re Scott:[14]

No definition of a “trust” seems to have been accepted as comprehensive and exact. The word is sometimes applied to the trust premises, sometimes to the duties related thereto, sometimes to both. Strictly it refers, I think, to the duty or the aggregate accumulation of obligations that rest upon a person described as a trustee. The responsibilities are in relation to property held by him, or under his control. That property he will be compelled by a court in its equitable jurisdiction to administer in the manner lawfully prescribed by the trust instrument, or where there be no specific provision written or oral, or to the extent that such provision is invalid or lacking, in accordance with equitable principles. …
The part of the will that I have quoted might be thought to be a power rather than a trust. A trust and a power are to be differentiated. A power may be described for present purposes as the individual personal authority given to a person to do an act whereby the succession to property will follow as a result of that act. A power may be given to a person who has no other interest in the property. If there be no duty to exercise control over the succession in any way the authority is a power and not a trust. That the legal estate in property is vested in a person to whom the beneficial interest does not belong is not necessarily inconsistent with him having also a power over the disposal of the property. If a trust instrument contains a power to be exercised at the discretion of the trustee, but such power is not required to be exercised at all, the trustee may decide not to utilise the faculty. In that case the court will not interfere. If, however, the powers must be exercised, and the discretion given only refers to a choice of objects, some of whom must be benefited by the exercise, the powers are in the nature of trusts. …

[14]Re Scott dec'd [1948] SASR 193, 196 (‘Re Scott’). The first paragraph in the above extract was referred to with approval by McGarvie J in JW Broomhead (Vic) Pty Ltd (in liquidation) v JW Broomhead Pty Ltd [1985] VR 891, 925.

Consistent with this statement of principle, Paul and Deborah submitted that, if there is no duty to exercise the content of the provision of a trust deed, the provision contains a power and not a trust. Applying that distinction, because there is no duty or obligation on the trustee to amend the definition of the Guardian in the schedule, it is not a ‘trust’ with the consequence that the trustee has no power to vary it under cl 20.

Senior counsel for Paul and Deborah emphasised that the Court’s primary task in construing the trust deed is to discover the intention of the Settlor from the words used in the trust deed, read as a whole.[15] Applying this approach, it was submitted that the Settlor’s intention in relation to the position of Guardian was that:
[15]Applying Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146, [154].

(a) John would have the powers of the Guardian during his lifetime;

(b) if Eva survived John, she would then have those powers; and

(c) upon the death of both John and Eva, there would no longer be a Guardian.

A number of features and provisions of the trust deed were said to indicate that this was the Settlor’s intention. First, reference was made to the absence of any express provisions in the trust deed for the appointment of new or additional successor Guardians, confirming the absence of any indication that the Settlor intended cl 20 to be any wider than its plain words. Secondly, reliance was placed on the definition of ‘the Vesting Day’ in cl 1(5) of the trust deed.[16] The clause relevantly provides that the trustee may appoint an earlier Vesting Day with the consent of the Guardian during the lifetime of the Guardian, but without any consent after ‘the death of the last surviving Guardian’. Thirdly, reference was made to cl 4 of the trust deed which gives the trustee power, with the consent of the Guardian, to appoint for whom of the general beneficiaries the trust fund is to be held on the Vesting Day. However, ‘if there is no Guardian alive the Trustees shall have no such power of appointment’, in which case the trust fund is to be held for the children of John and Eva as tenants in common in equal shares.
[16]See [30] above.

Senior counsel for Paul and Deborah submitted that these provisions made clear that the Settlor intended that John, or Eva after John had died, could consent to the trustee making an appointment to change the default position of each of John and Eva’s children taking an equal share of the trust fund on vesting, but that if they had not done so before they had both died, there was to be no power to change that default position. It was submitted that such a consequence was unsurprising because it is apparent that the trust was set up to benefit the children of John and Eva as primary beneficiaries, and John and Eva themselves, while giving John and Eva a role in the operation of the trust during their lifetimes.

It was also submitted that the method of defining the Guardian successively showed that the Settlor did not provide for any other person to fill that role once both parents had died, reflecting a view that, once they had died, there would no longer be a need for a Guardian. It was submitted that the trust was simply intended to continue until it vested, either by effluxion of time, or by the trustee bringing forward the Vesting Day pursuant to cl 1(5). In support of this analysis, it was submitted that the existence of a Guardian is not necessary for the creation or operation of a trust.

Senior counsel for Paul and Deborah referred to various authorities which establish the proposition that a power of variation does not extend to giving a trustee power to destroy the substratum of a trust, being the trust’s underlying foundation and purpose. Any change in the definition of the Guardian would change the substratum of the trust because of its effect on the rights of the next of kin of the Guardian on vesting.

In that regard, reference was made to cl 4(b) of the trust deed[17] which, in effect, provides that, if none of the primary beneficiaries or their children are alive on the Vesting Day, the corpus of the trust is to be held for ‘the next of kin of the Guardian first named in this Schedule who are living’, namely, the next of kin of John. Such an outcome is consistent with the purpose of the trust being to benefit members of the Owies family. A change in the definition of the Guardian which names someone other than John as first in the definition in the schedule could create a completely different outcome on vesting, thereby changing the substratum of the trust. In this regard, it was submitted that the material before the Court established that, in relation to the 2017 variation, Michael’s next of kin are not the same as John’s next of kin. Thus, if the 2017 variation was effective, its outcome upon vesting would not be the outcome envisaged by the Settlor when the trust was settled.
[17]See [34] above.

In the alterative to their principal submission that the definition of the Guardian was not a ‘trust’ so as to engage the power of variation in cl 20, Paul and Deborah submitted that it remained necessary that the power be used by the trustee for the purpose for which it was conferred. In that regard, sub-cl (ii) of cl 20 required that the power of amendment be used for the benefit of the beneficiaries, or their next of kin. They submitted that, in changing the definition of the Guardian, the variations did not purport to be for and were not in fact for the benefit of any of those persons.

Trustee’s submissions

The trustee’s central contention was that, although no objection could be made to the statements of principle drawn from Re Scott on which Paul and Deborah relied, in the context of cl 20 of the trust deed, the ‘trusts hereinbefore’ must be taken to be a reference to the primary trust created by cl 2 of the trust deed. Because the trust is constituted by the bundle of rights and obligations which are vested in the trustee, it was argued that the ‘trusts hereinbefore’ must be understood as including the terms applicable to the exercise of powers in respect of the trust. The words ‘vary all or any of the trusts hereinbefore’ were therefore submitted to be broad enough to encompass a variation of the powers which were available to the trustee in respect of the operation of the trust. The power of amendment to vary the trusts must be understood to be a power to vary the rights and obligations to which the trustee is subject which, in addition to equitable principles, are those which are defined by the trust deed.

Senior counsel for the trustee argued that, if the power in cl 20 to ‘vary all or any of the trusts hereinbefore limited’ was not broad enough to encompass a variation of the powers available to the trustee in respect of the operation of the trust, an absurd result would ensue because it would suggest that there is no power of variation, in circumstances where the powers which are conferred by the deed generally on the trustee were extremely broad.

The trustee pointed to a number of features of cl 20 and other provisions of the trust deed to demonstrate that the power of amendment in cl 20 of the deed was broad.

First, although the power of amendment was subject to limits (namely, a requirement that the Guardian consent and the provisions made by sub-cls (i), (ii) and (iii)), the permissive expression (‘may’) in sub-cl (i) indicated that it was a sub-clause which was designed to confirm that the power conferred by the chapeau extends to the matters the subject of the sub-clause, namely ‘the management or control of the Trust Fund or the investment thereof or to the Trustees’ powers or discretions’.

Secondly, the requirement for the Guardian’s consent was said to support an interpretation that the Settlor intended the power in cl 20 to be as broad as possible. In circumstances where it was apparent that she intended to have no role in the operation of the trust, the Settlor simply intended that there be a check on the trustee’s power in the form of the Guardian, and that that check be administered by the Guardian.

Thirdly, senior counsel for the trustee drew attention to the second part of cl 20 the subject of the words ‘and may…declare any new or other trusts or powers concerning the Trust Fund’. It was submitted that a power to vary a trust, such as that dealt with in the first part of the clause, is ordinarily different to a power to declare a new trust or a new power. Accordingly, cl 20 should be construed liberally so that it embraces both of these concepts and confers upon the trustee a very broad power of amendment including all of the powers and provisions of the trust deed.

Fourthly, the trustee submitted that the intended scope of the trustee’s powers in cl 20 should be informed by the terms of cl 17 which provides that every power vested in the trustee ‘shall be exercisable at their absolute and uncontrolled discretion’. It was submitted that it was almost impossible to imagine a broader grant of discretion to a trustee.

Fifthly, the trustee contended that there was absent from the trust deed any indication that the trustee cannot amend the trust deed to change the identity or description of the Guardian or Appointor. In conjunction with the unqualified nature of the power referred to in the first part of cl 20, there was no good reason to, in effect, read down the power of amendment therein provided.

The trustee also relied on the language used in cl 1 of the trust deed in referring to Guardian and Appointor as meaning ‘successively the person or persons named and described as such in the Schedule’. It was argued that this indicated that the trust deed was drafted with a view that there may be more than one person who fulfils these roles over the life of the trust. The logic of this construction was submitted to be apparent from: (a) the ordinary dictionary definitions of ‘successively’ as meaning ‘characterised by or involving succession’ and as ‘succession’ as meaning ‘a number of persons or things following one another in order or sequence’;[18] and (b) the wording of cl 22 which grants the Appointor or, ‘if there is no Appointor living the legal personal representatives of the last surviving Appointor’, power to remove the trustee. It was submitted that it can be inferred from this language that there may be a succession of Appointors.
[18]Macquarie Concise Dictionary (4^th ed, 2006) 1221.

In relation to the limitation in sub-cl 20(ii), the trustee submitted that the variations are properly viewed as being for the benefit of all the general beneficiaries because they have the effect of maintaining all of the trusts created by the trust deed as being for the continuing benefit of the general beneficiaries. Further, noting that it is sufficient for sub-cl 20(ii) if the variations were for the benefit of any one of the primary beneficiaries, to the extent that the variations conferred additional powers upon those who were appointed as Guardian subsequent to John and Eva, namely Paul and Michael, the amendments can be properly seen as being for their benefit.[19]
[19]On this analysis, the 2002 variation conferred a benefit on Paul and Michael and the 2010 and 2017 variations conferred a benefit on Michael.

In the alternative to its primary submissions outlined above, the trustee relied upon a submission that the trustee’s power to declare new trusts or powers in the second part of cl 20 extends to an ability to vary any of the provisions of the trust deed. That submission is outlined in [61]–[62] below in the summary of Michael’s submissions.

Michael’s submissions

Counsel for Michael submitted that the ordinary meaning of cl 20 conferred upon the trustee broad powers capable of being used to amend the identities of the people holding the position of the Guardian and Appointor, provided that the criteria in sub-cls 20(i) to (iii) are met. The basis of this contention was the second part of cl 20 pursuant to which the trustee may ‘declare any new or other trusts or powers’ and that ‘such new or other trust powers discretions, alterations or variations’ may, in accordance with subparagraph (i), ‘relate to the management or control of the Trust Fund or the investment thereof or to the trustee’s powers or discretions …’.

It was argued that these parts of cl 20, together with the word ‘and’ at the start of ‘and may by the same or any other deed…’, gave the trustee power to declare new powers and that this power was sufficient on its own for the trustee to have made the variations changing the definitions of Guardian and Appointor. Michael submitted that this analysis was supported by the fact that, pursuant to cl 17, the trustee’s powers were exercisable at its absolute and uncontrolled discretion.

In the alternative, Michael adopted the trustee’s submissions outlined above that the trustee’s power in cl 20 to ‘vary all or any of the trusts hereinbefore limited’ is a reference to the primary trust created by cl 2 and that it is broad enough to permit a variation of the powers which are available to a trustee in respect of the operation of the primary trust, including the identification of the persons occupying the positions of Guardian and Appointor.

Michael submitted that this conclusion was supported by a reading of the whole of the trust deed. He relied in particular on the reference to ‘successive’ Guardians and Appointors in cl 1, and the reference to the ‘last surviving Appointor’ in cl 22, arguing that these features were strong indications that the Settlor intended that there would be more Appointors and Guardians than just John and Eva over the 80 year life of the trust. Contrary to Paul and Deborah’s submissions that these references were only ever intended to be references to Eva taking John’s place after his death, Michael submitted that a carefully drafted deed would have made this clear.

Michael submitted that a construction of cl 20 as encompassing a power to amend the identity of the persons holding the positions of Guardian and Appointor was supported by the key role the trust deed provides for the Guardian to play in respect of the control and management of the trust, in circumstances where the trust deed does not contain any other power of amendment and did not expressly prohibit such a variation. Reference was made to the role of the Guardian under cls 3, 4 and 20 of the trust deed.[20] Given this measure of control that it was intended that the Guardian would have over the discretions of the trustee and given the trust’s vesting date of 30 June 2050, it was submitted that it is to be expected that there would be provision in the trust deed for successive Guardians to be appointed.
[20]See [33], [34], [28] above.

Michael also adopted the trustee’s submission that it cannot be said that the variations were not for the benefit of all or any of the primary beneficiaries as required by sub-cl 20(ii).

Principles of construction

The principles to be applied in determining the proper construction of cl 20 of the trust deed were not in dispute. The rules of construction of contracts also apply to trusts.[21] The parties’ intentions are therefore to be determined objectively from what they have said in the instrument they have executed.[22] It is also sometimes permissible for the Court to have regard to the surrounding circumstances known to the parties at the time the contract was executed.[23]
[21]See Byrnes v Kendle (2011) 243 CLR 253, 275 [57]–[59]; The Trust Company (Nominees) Ltd v Banksia Securities Ltd (receivers and managed appointed) (in liq) [2016] VSCA 324, [35]; Schreuders v Grandiflora Nominees Pty Ltd [2016] VSCA 93, [12].
[22]Byrnes v Kendle (n 21) 273 [53]–[59].
[23]As stated by the Court of Appeal in Schreuders v Grandiflora Nominees Pty Ltd (n 21) [15] in relation to the principles applicable to the construction of trusts, citing Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656–7 [35].

In the case of a trust, ‘[t]he court’s primary task in construction is to discover the intention of, relevantly, the Settlor from the words used in the instrument, read as a whole’.[24] Unless they have a special or technical meaning, the words used in a trust deed are to be given their ordinary and natural meaning, read in the context of the trust deed as a whole.[25]
[24]Scaffidi v Montevento Holdings Pty Ltd (n 15) [154].
[25]Montevento Holdings Pty Ltd v Scaffidi (2012) 246 CLR 325, 332 [25].

As stated by Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd:[26]

It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, “even though the construction adopted is not the most obvious, or the most grammatically accurate”, to use the words from earlier authority cited in Locke v. Dunlop, …

[26](1973) 129 CLR 99, 109 (‘ABC v APRA') (citations omitted). In The Trust Company (Nominees) Ltd v Banksia Securities Ltd (receivers and managed appointed) (in liq) (n 21) [37], the Court of Appeal observed that the above principles stated by Gibbs J were not in doubt. The Court of Appeal also noted that ‘Gibbs J did not suggest that harmony can always be achieved, rather that it is the object to be pursued in the course of construction’.

In Schreuders v Grandiflora Nominees Pty Ltd,[27] the Court of Appeal summarised the approach to the construction of trust instruments as follows:[28]
[27](n 21).
[28]Ibid [21]–[22].

… trust instruments are to be given their natural and ordinary meaning unless they have a special or technical meaning.[29] The terms of an instrument must be construed in the context of the entire document[30] and in such a way that renders them ‘all harmonious one with another’.[31]
[29]Hill (Viscount) v Hill (Dowager Viscountess) [1897] 1 QB 483, 486.
[30]Re Altson: Equity Trustees Executors & Agency Co Ltd v Spielvogel [1955] VLR 281, 284; ABC v APRA (n 26) 109.
[31]ABC v APRA (n 26) 109.

The parties’ intention must be found in the wording of the trust instrument rather than in what was on their minds when they executed the instrument.[32] … In Byrnes v Kendle,[33] Gummow and Hayne JJ stated:

[T]he expressed intention of the parties is to be found in the answer to the question, ‘What is the meaning of what the parties have said?’, not to the question, ‘What did the parties mean to say?’[34]

[32]Byrnes v Kendle (n 21) 273 [53]–[59], 284–90 [98]–[115].

[33]Byrnes v Kendle (n 21).

[34]Byrnes v Kendle (n 21) 273 [53].

In Kearns v Hill,[35] the Court of Appeal of New South Wales observed that the provisions of discretionary trusts, including powers of variation, are not to be interpreted in a ‘narrow or unreal way’ and that the ‘cardinal duty’ of the Court is ‘to construe each provision according to its natural meaning, and in such a way to give it its most ample operation’.[36] As Buss P stated in Mercanti v Mercanti,[37] ‘the nature, form and extent of the permitted variations depend, in general, upon the language and apparent purpose of the variation clause in the context of the trust deed as a whole’.[38] An express power of variation may contain express or implied limitations in relation to its exercise.[39]
[35](1990) 21 NSWLR 107.
[36]Ibid 109 (Meagher JA, with whom the other member of the Court agreed).
[37](2016) 50 WAR 495.
[38]Ibid 518.
[39]Mercanti v Mercanti (n 37) 520.

Consideration

The proper construction of the word ‘trusts’ first appearing in cl 20 is central to determining whether the trust deed gives power to the trustee to amend the description of the persons identified as Guardian and Appointor. The word is not defined in the trust deed. However, as the trustee emphasised, the ‘trusts’ in cl 20 are not referred to in a decontextualised way; the clause refers to the ‘trusts hereinbefore’.

As was submitted on behalf of the trustee, this must be taken to be a reference to the primary trust created by cl 2 of the trust deed. I do not, however, consider that, in the context of the provisions of this trust deed, the ‘trusts hereinbefore’ thereby extends to include the terms applicable to the exercise of powers in respect of the trust such that cl 20 is sufficiently broad to permit a variation of all of the rights and obligations to which the trustee is subject as set out in the trust deed. The trustee’s submission rests on an appeal to general equitable principles, including that a trust is constituted by the bundle of rights and obligations which are vested in the trustee. It does not, however, engage with the terms of cl 20 considered in the context of the trust deed as a whole. Such an analysis leads to the conclusion that the trust deed does not give the trustee power to amend the description of the persons identified as Guardian and Appointor.

Of primary significance in this analysis is the fact that the declaration of trust in cl 2 to which the ‘trusts hereinbefore’ in cl 20 must be taken to refer, expressly distinguishes between ‘the trusts’ upon which the trustee is to hold the trust fund, on the one hand, and the ‘powers and provisions hereinafter expressed concerning the same’, on the other.[40] Although dealing with a differently expressed power of variation, the same distinction in relevantly similar provisions of a trust deed was important in the task of construction undertaken by Buss P in Mercanti v Mercanti[41] and by Douglas J in Jenkins v Ellett.[42]
[40]Clause 2 is set out in full in [32] above.
[41]Mercanti v Mercanti (n 37) 525 [128], 527 [143].
[42][2007] QSC 154, [16]–[17].

This distinction is also expressed in the preamble of the trust deed which records that the ‘[t]rustees have consented to become the Trustees hereof upon the trusts and with and subject to the powers and provisions hereinafter expressed’.

It is in the context of these provisions of the trust deed that the significance of the language used in cl 20 becomes evident. The initial reference in cl 20 to the trustee’s power to ‘add to or vary all or any of the trusts hereinbefore limited’, is followed by the later reference to the trustee’s power to declare any new or other ‘trusts or powers’. The trustee and Michael did not advance a submission which addressed this important difference in the words used in cl 20. Given the clear distinction made in the trust deed between ‘the trusts’ and the ‘powers and provisions’ concerning the trust, including in particular in cl 2 to which cl 20 must be taken to refer, this strongly supports the conclusion that the power of variation provided by the clause does not extend to the powers available to the trustee in respect of the operation of the trust or, more generally, the other provisions of the trust deed which apply to the exercise of those powers.

I do not agree that this construction gives rise to an ‘absurd result’.

First, it gives the trustee a power of variation, albeit one limited to the ‘trusts’. The learned authors of Jacobs’ Law of Trusts in Australia (‘Jacobs’’) write that the ‘[p]recise definition [of a trust] is elusive, if not impossible’.[43] To similar effect, Mayo J in Re Scott observed that ‘[n]o definition of a “trust” seems to have been accepted as comprehensive and exact.’[44] In the circumstances of this case, the distinction made in the trust deed between ‘trusts’ and ‘powers’ undercuts a broader conception of the word as meaning, for example, ‘the whole relationship which arises between the parties in respect of the property the subject of the trust,’ being the definition proffered by the learned authors of Jacobs’.[45] Instead, it is consistent with the narrower definition of a trust as an obligation attaching to property as elucidated by Mayo J in Re Scott. The trustee and Michael did not contest his Honour’s observations at the level of principle. I consider that, in the context of this trust deed, the ‘trusts’ referred to carry the meaning advanced on behalf of Paul and Deborah as being an obligation attaching to property. As they submitted, because there is no duty or obligation on the trustee to amend the definitions of Appointor and Guardian in the schedule of the trust deed, it is not a ‘trust’ and accordingly not within the reach of the variation power in cl 20. In the language of cl 2, those definitions are ‘provisions’ expressed by the trust deed concerning the trusts.
[43]JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia (LexisNexis Butterworths, 8^th ed, 2016) [1.01] (‘Jacobs’’).
[44]Re Scott (n 14) 196.
[45]Jacobs’ (n 43) 2 [1.03].

Secondly, although limited to a power to vary the trusts in the sense which I have described, the permissively cast terms of sub-para (i) make clear that the power of variation may relate to ‘the management or control of the Trust Fund or the investment thereof’.

Thirdly, separate to the power of variation, the second part of cl 20 also gives the trustee a power to ‘declare any new or other trusts or powers concerning the Trust Fund or any part or parts thereof’. However, contrary to the trustee’s submissions, it does not logically follow from the existence of this power in cl 20 that the clause should be construed so that it confers upon the trustee a very broad power of amendment including all of the powers and provisions of the trust deed. A power to vary a trust is, as the trustee submitted, different to a power to declare a new trust or a new power. It does not follow simply from the co-location of the two powers within the same provision of the trust deed that those powers should in effect be dissolved into one overarching power of amendment of the trust deed. Such an approach is contrary to the clear terms of cl 20.

It also follows from this discussion that I reject Michael’s submission that the trustee’s power to declare new powers was sufficient for the trustee to have made the variations. Each of the Deeds of Variation recited the trustee’s power to ‘revoke, add to or alter all or any of the trusts’. None purported to declare new powers. Further and in any event, as a matter of substance, the variations cannot be said to have declared new powers. Consistent with what was recited in each, they purported to ‘alter’ or ‘amend’ the relevant provisions of the schedule.

The above provisions make clear that cl 20 is cast in wide terms. This is underlined by the provision made by cl 17 that the powers vested in the trustee are exercisable at the trustee’s ‘absolute and uncontrolled’ discretion. Nevertheless, cl 17 does not give licence to an interpretative approach to ascertaining the Settlor’s intention which disregards the limits on the trustee’s powers expressed in the words of the trust deed considered as a whole. Here, the power of variation is subject to a requirement that the Guardian consent, as well as the provisions made by sub-cls 20(ii) and (iii). It is also limited by subject matter, it being a power to vary the ‘trusts hereinbefore’, as distinct from a general power to vary the terms of the trust deed. The Settlor could have readily given the trustee such an expansive power of variation by the inclusion of plain and express terms in the trust deed if she had so intended.

It is true, as was submitted on behalf of Michael, that, under the trust deed, the Guardian has important functions relating to the control and management of the trust and that the trust deed does not provide for any power of variation except that provided for by cl 20. At first glance, the measure of control that the Guardian has over the discretions of the trustee in circumstances where the trust has a vesting date of 30 June 2050 might prompt an interpretation of cl 20 as encompassing a power to amend the identity of the persons holding the position of Guardian.

Such an approach would however be in error. First, the position of Guardian is not essential to the operation of a trust. Secondly, the Settlor’s intention is to be found in the wording of the trust deed, as distinct from speculations about what might have been in her mind when the trust was settled. An examination of sub-cl 1(6) of the trust deed and the terms of the schedule in the context of the trust deed as a whole, show an intention on behalf of the Settlor that John would have the powers of the Guardian during his lifetime; that, if Eva survived him, she would then have those powers; and that, upon the death of both John and Eva, there would no longer be a Guardian. The first two of these propositions are reflected in the express terms of the trust deed; it is only the third which is controversial.

As was submitted on behalf of Paul and Deborah, this construction is indicated by the terms of cls 1(5) and 4 read with the above provisions of the trust deed. Sub-clause 1(5) provides that the trustee may appoint an earlier Vesting Day with the consent of the Guardian during the lifetime of the Guardian, but without any consent after ‘the death of the last surviving Guardian’. Clause 4 gives the trustee power, with the consent of the Guardian, to appoint for whom of the general beneficiaries the trust fund is to be held on the Vesting Day. However, ‘if there is no Guardian alive the Trustees shall have no such power of appointment’, in which case the trust fund is to be held for the children of John and Eva as tenants in common in equal shares.

The reference in particular to ‘the last surviving Guardian’ in sub-cl 1(5) implies that the class of persons who may hold the office of Guardian is finite and ascertainable. That intention is reflected in turn in the specification only of John and then Eva as Guardians in the schedule to the trust deed. It is also consistent with the absence of any express provision in the trust deed for the appointment of new or additional successor Guardians. As to the reference in cl 4 to there being ‘no Guardian alive’, the need for such a provision would presumably be greatly diminished if the Settlor’s intention had been to permit the trustee to vary the trust deed by appointing new or additional successor Guardians.

In addition to the terms of the trust, the Settlor’s intention in settling the trust may also be objectively ascertained from a consideration of the surrounding circumstances known to her when the trust was settled. As the trustee submitted, the Owies family was the context in which the trust was made. The Settlor was Eva’s sister. She self-evidently intended that, at least in the first instance, the trustee would be a company of which John and Eva were directors. As the terms of the trust make plain, she also intended that the children of John and Eva were to be the primary beneficiaries, with the general beneficiaries being John and Eva and the family of the primary beneficiaries. And of course the Settlor also expressly intended the Guardian and Appointor to be John and then, after his death, Eva. It is therefore correct, as the trustee submitted, that the Settlor intended the trust to operate in the context of, and for the benefit of, the Owies family.

It is also clear from the Vesting Date specified in the trust deed that the Settlor intended the trust to have a potential period of operation of up to 80 years. Given the familial relationship between the Settlor and John and Eva, the Settlor may be taken to have had at least a general idea of John and Eva’s age when the trust was settled in 1970. At that time, John and Eva were 47 and 41 years of age respectively. With that knowledge, the Settlor must be taken to have known that John and Eva would not be alive if the trust continued to operate until the Vesting Date.

In the context of these circumstances in which the trust was made, it is significant that the Settlor only identified John and Eva, successively, as Guardian and did not include within the trust deed any express power for the appointment of new or successor Guardians. It confirms the conclusion, based on the terms of the trust deed, that the Settlor intended that, upon the death of both John and Eva, there would no longer be a Guardian. There is nothing anomalous or unexpected in such a result, given the Settlor’s intention that the trust operate in the context of, and for the benefit of, the Owies family.

It is immaterial to this analysis that the trust deed provides a mechanism by which the Vesting Day may be brought forward because, in ascertaining the Settlor’s intention, it is appropriate to do so on the footing that the trust may operate until the Vesting Date. Although it is true that the Guardian has important roles under the trust deed, as I have noted, the existence of a Guardian is not necessary for the creation or operation of a trust.

In light of the above analysis and conclusion, it is unnecessary for me to determine whether, as Paul and Deborah contended, any change in the definition of the Guardian would change the substratum of the trust because of its effect on the rights of the next of kin of the Guardian upon vesting. It has been observed that, ‘[t]he determination of the substratum of a discretionary family trust is not without difficulty. … especially … where … the trust deed is drafted to confer maximum flexibility in relation to the beneficiaries of the trust, the distribution or accumulation of capital and income, and the management and control of the trust’.[46]
[46]Mercanti v Mercanti (n 37) 546.

For the above reasons, the trust deed, properly construed, does not give power to the trustee to amend the description of the persons identified as ‘Guardian’ and ‘Appointor’.

Issue 2: Validity of resolutions amending the trust deed

Assuming, contrary to my view, that the trustee had power to amend the description of the persons identified as Guardian and Appointor, the second issue for determination is whether the variations are void because the Court cannot be satisfied that the board of directors of the trustee resolved to authorise the trustee to execute them. This issue arises because there is no evidence of any resolution of the board of the trustee authorising the execution of each of the variations.

The 2002 and 2010 variations

The trustee contended that, despite the absence of any evidence of the board of the trustee resolving to authorise the execution of the 2002 and 2010 variations, the Court should act on the basis that, by operation of the presumption of regularity, a resolution of directors of the trustee was validly passed to make those variations.

The presumption of regularity

The presumption of regularity is derived from the Latin maxim, omnia praesumuntur rite esse acta. In his recent extensive discussion of the principle in McHugh v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs (‘McHugh’),[47] Anderson J identifies that the maxim broadly translates to mean ‘everything is presumed to be rightly and duly performed until the contrary is shown’.[48]
[47][2020] FCA 416 (‘McHugh’).
[48]Ibid [330], quoting RH Kersley, Broom’s Legal Maxims (10^th ed, Sweet & Maxwell, 1939) 642, quoted in Minister for Natural Resources v NSW Aboriginal Land Council (1987) 9 NSWLR 154 164 (McHugh JA).

In Johnson v Director of Consumer Affairs (Vic),[49] Kyrou J (as he then was) referred to the presumption of regularity as:[50]
[49](2011) 34 VAR 447.
[50]Ibid [56].

… a well-established principle that where an act is done which can only be done legally after the performance of some prior act, proof of the later act carries with it a presumption of the due performance of the prior act.[51]
[51]McLean Bros & Rigg Ltd v Grice (1906) 4 CLR 835, 850, citing Knox County v Ninth National Bank (1893) 147 US 91, 97.

His Honour continued:[52]
The presumption applies to both acts and omissions, and to matters of substance (such as compliance with statutory provisions) as well as matters of detail (such as those of form and procedure dealt with in regulations). It is based on inference from probabilities and policy considerations of public and business pragmatism.
In Carpenter v Carpenter Grazing Co Pty Ltd, Hope JA, with whom Samuels and Priestly JJA agreed, said that the presumption of regularity may reasonably be drawn:
where an intention to do some formal act is established, when the evidence is consistent with that intention having been carried into effect in a proper way, the observance of the formality has not been proved or disproved and its actual observance can only be inferred as a matter of probability.

The presumption of regularity is a rebuttable presumption of fact, associated with a reasonable inference based on what ordinarily happens in the ordinary course of human affairs. In determining whether the presumption is rebutted, this inference from the ordinary course of human affairs bears some weight, which may vary according to the proved circumstances.

[52]Johnson v Director of Consumer Affairs (Vic) (n 49) [58]–[60] (citations omitted).

The presumption applies in many areas of law and is clearly rebuttable. In the law relating to corporations, Lord Simonds in Morris v Kanssen observed that its application was very similar to the law of agency and that ‘[t]he wheels of business will not go smoothly round unless it may be assumed that that is in order which appears to be in order’.[53] Justice Anderson in McHugh referred to this as one of two broad foundations which underpinned the presumption, the other being in common experience. As to the latter, his Honour stated:[54]

… The tenability of the presumption relies on there being “previous experience of the connection between the known and inferred facts, of such a nature, that as soon as the existence of the one is established, admitted or assumed, the inference as to the existence of the other immediately arises, independently of any reasoning upon the subject”: …. As such, in determining whether the presumption is rebutted, the ordinary course of human affairs carries some weight, which may vary depending on the circumstances:….

[53]Morris v Kanssen (1946) AC 459, 475.

[54]McHugh (n 47) [333] (citations omitted).

His Honour summarised the position in this way:[55]

The presumption of regularity is an evidential presumption. It is a judicial tool founded on common experience and pragmatic concerns to facilitate the proof of certain facts in appropriate circumstances. Where applicable in respect of a particular fact, a presumption will arise that the fact has occurred in the past, and it is up to the party against whom the presumption operates to present evidence to the contrary.

[55]McHugh (n 47) [339] (emphasis in original).

Consideration

The 2002 variation records that it was executed with the trustee company’s seal. It bears John’s signature as director of the trustee and Eva’s signature as secretary. Mr Sampson’s evidence was that he drafted the variation at Eva’s request and provided it to her. Other than recognising Eva’s signature on the variation, Mr Sampson was unable to say anything about the circumstances of its execution. Likewise, John’s evidence was that he and Eva signed the variation. His witness statement, however, contains no indication about the making of any resolution by the board of the trustee authorising its execution.

The position is very similar in respect of the 2010 variation. It records that it was executed by the trustee by those persons authorised to sign for the company. It is signed by John as a director of the trustee and by Eva as secretary. Again, Mr Sampson’s evidence was that he drafted it at Eva’s request and that he recognises her signature on it. He also gave evidence that he met with Eva and Michael to take instructions and that he sent the variation to Eva and John by letter dated 7 June 2010 and received it back in executed form under cover of a letter from John dated 10 June 2010. He is unable, however, to say anything about the circumstances of its execution. In his witness statement, John only relevantly states that he and Eva signed the 2010 variation.

Paul and Deborah did not submit that there was no scope for the presumption of regularity to apply in the circumstances contended for by the trustee; they instead submitted that the evidence before the Court was sufficient to displace its operation. In that regard, they focussed upon the circumstances and timing of the preparation of John’s witness statement. It was submitted that the Court should assume that the contents of John’s witness statement contained all the evidence he could have given about the relevant issues concerning the making of the variations to the trust deed. They pointed to the fact that the trustee and Michael had previously submitted to the Court that they were preparing their cases on the basis that all the evidence in chief would be contained in witness statements and that John’s witness statement was prepared months after the service of the statement of claim which properly articulated Paul and Deborah’s claims.

Paul and Deborah also relied on the fact that the trustee and Michael were represented by experienced and senior legal practitioners who had taken steps, by the filing of a supplementary affidavit of documents, to provide late discovery in relation to the distributions of income in certain years when it appeared necessary to fill ‘gaps in the evidence’. It was therefore submitted that the Court should infer that no evidence had been given to the Court of resolutions to execute the deeds of variation because no such evidence could be given. They submitted that the operation of the presumption of regularity in the circumstances of the case could only extend to establish that the variations themselves were executed by the trustee in accordance with the Corporations Act 2001 (Cth) (‘Corporations Act’), not that there had been an anterior meeting of the board of directors authorising the trustee to take such action.

It is not, however, a prerequisite to the exercise of the Court’s inherent jurisdiction to remove a trustee that misconduct on the part of the trustee be demonstrated. Although the jurisdiction is to be exercised cautiously,[181] a lack of confidence in the trustee’s further administration of the trust may be sufficient to justify their removal.[182]
[181]Porteous v Rinehart (1998) 19 WAR 495, 507.
[182]See Miller v Cameron (n 179) 575 (Latham CJ), 582 (Dixon J); Letterstedt v Broers (n 180) 386; Monty Financial Services Ltd v Delmo (n 172) 78.

In her summary of the principles relating to the removal of trustees at first instance in Marsella v Wareham (No 2),[183] McMillan J stated that a breach of trust will not necessarily lead to the removal of a trustee.[184] Re Wrightson,[185] a case in which an application for removal was brought by some of the beneficiaries of a testamentary trust, was cited in support of that proposition. In that matter, the trustees’ admission that they had committed a breach of trust by investing the trust estate in certain securities, contrary to the terms of the trust deed, formed part of the grounds upon which removal was sought. In dismissing the application for removal, Warrington J relevantly stated, in terms consistent with the later pronouncements by Dixon J in Miller v Cameron,[186] that ‘[y]ou must find something which induces the Court to think either that the trust property will not be safe, or that the trust will not be properly executed in the interests of the beneficiaries’.[187]
[183][2019] VSC 65.
[184]Ibid [72]. No criticism of McMillan J’s summary of principle was advanced on appeal: Wareham v Marsella (n 150) [102].
[185][1908] 1 Ch 789, 802–3.
[186](n 179).
[187]In Re Wrightson (n 186), the Court did not consider that removal of the trustees was necessary for the welfare of the beneficiaries or the protection of the trust estate because: ‘the Court has now the power of seeing that the trust is properly executed’; the rest of the beneficiaries did not call for removal; and extra expense and loss to the trust estate was be occasioned by a change of trustees.

It is relevant to identify the duties of a director of a company which acts as a corporate trustee. Those duties were described as follows by Garde AJA in Australasian Annuities Pty ltd (in liq) v Rowley Super Fund Pty Ltd: [188]

… In circumstances where a company is a corporate trustee, a director acting in the best interests of the company as a whole must act in good faith to ensure that the company administers the trust in accordance with the trust deed having regard to the rights and interests of the beneficiaries of the trust. The best interests of the company as a corporate trustee are to act properly in accordance with the trust deed in managing the business of the trust and in dealing with the assets and liabilities of the trust. A director of a corporate trustee must act in good faith to ensure that the company complies with its obligations as a trustee, and properly discharges the duties imposed on it by the trust deed and by trust law generally. It is not in the best interests of the company for it to act in breach of its duties of a trustee, for the company has assumed the responsibilities of that office and must see to it that they are fulfilled.
The obligation of a director of a corporate trustee is the same whether the trust is a unit trust or a discretionary trust viz to act in good faith to ensure that the company acts properly in accordance with the trust deed in administering the business, assets and liabilities of the trust. …
[188]Australasian Annuities Pty ltd (in liq) v Rowley Super Fund Pty Ltd (2015) 318 ALR 302, [228]–[229] (citations omitted), cited in Hoh v Ying Mui Pty Ltd [2019] VSCA 203, [243].

Lack of impartiality

One circumstance in which a corporate trustee may be removed from office is where it continually favours the interests of its directors over the interests of other beneficiaries, particularly where there is no reason to believe such conduct will not continue in the future. This circumstance arose in Nicholls v Louisville Investments Pty Ltd.[189]Two trustee companies were found to be under the de facto control of two brothers. Justice Needham stated:[190]

… The decisions as to distribution of trust income clearly indicate that the … brothers have continually made decisions favouring themselves as against the other beneficiaries. That is a clear breach of trust and there is no reason to believe that, in future years, similar decisions will not be made. While [the clause of the trust deed] gives the power to discriminate, it is, in my opinion, improper for those in control of the trustee to use that power regularly to advance their own interests. As no evidence was given by any of the … brothers seeking to justify this conduct, or, in the alternative, proposing future conduct which would not discriminate in their favour, there seems to me to be no alternative to the removal of the trustees and the appointment of an independent trustee.

[189](1991) 10 ACSR 723.

[190]Ibid 728.

Another case in which a trustee was removed because of a lack of impartiality was Re Whitehouse which concerned two trusts of which a married couple were the trustees and in relation to which their two adult sons were the beneficiaries.[191] The trust deed ultimately provided the father with extensive control over the trust. The relationship between the father and his sons deteriorated and the sons applied for the trustees to be removed. Shortly before the trial of the proceeding, the father replaced his wife as a trustee with his accountant, due to his wife’s lack of capacity.
[191]Re Whitehouse [1982] Qd R 196.

Justice Macrossan found that the attitude of the accountant trustee ‘indicates that he was then taking his cue from others and was opting for a policy of obstruction, or, at least, non-cooperation with the beneficiaries, rather than providing them with the fullest measure of response’.[192] His Honour found that the accountant’s justifications offered for his actions while giving his evidence ‘showed something less than a willingness to bring to bear a full and fair appreciation of the beneficiaries’ position and their entitlements’.[193] Although Macrossan J considered the accountant to be competent, he ‘regarded himself as obliged to side with the existing trustee and support him’ and as a result, ‘[h]e has failed to show the degree of detachment and that impartiality between existing trustee and beneficiaries which one would prefer’.[194] An order was made setting aside the appointment of the accountant as trustee.
[192]Ibid 201.
[193]Ibid.
[194]Re Whitehouse (n 192) 207.

Justice Macrossan considered that the personal disputes and animosity between the father and sons did not of themselves constitute sufficient ground for removal. However:[195]

[T]he disputes and the state of animosity which exists have been attributable to [the father] to an extent sufficient to make me apprehensive as to his future administration of the trust. I think that he has carried over his attitude as dictatorial controller of the companies to his character as trustee and on the material before me I do not think he is capable of remedying the situation in the future.
[195]Re Whitehouse (n 192) 206.

His Honour ordered that an independent trustee be appointed.
Submissions on removal
Paul and Deborah’s submissions

Paul and Deborah submitted that, because Mr Sampson was the author of the variations, given my findings in relation to Issue 1, he caused the trustee to execute deeds of variation which were beyond power and as such he ought not be allowed to act as a director of the trustee. They contended that it could not be said that he would properly administer the trust in the future.

As to the trustee’s failure to give real and genuine consideration to whether or not to exercise its discretion in making an income distribution to Deborah or Paul in 2015, 2016 and 2018, Paul and Deborah submitted that the trustee was failing in what Jacobs’ describes as ‘[p]erhaps the most important duty’ to adhere rigidly to the terms of the trust.[196]
[196]Jacobs’ (n 43) 338 [17.04], citing Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484, [32].

Paul and Deborah also submitted that the trustee should be removed because Michael and Mr Sampson have demonstrated a lack of impartiality and an inability to fairly and properly consider Paul and Deborah’s interests. They relied on the following matters:[197]
[197]They also relied on the 2019 ratification of the 2017 variation as indicating that the trustee was incapable of acting impartially. I have already rejected the substance of this submission at [125] above.

(a) The delays in transferring the South Yarra apartment to Deborah and Mr Sampson’s view that her acceptance of the transfer was ‘grumbling’, bad-tempered and ungracious.[198] Paul and Deborah submitted that one reason Mr Sampson had not yet completed the distribution of the apartment was because of this view about the tone of Deborah’s solicitor’s letter and that this was not the behaviour of an independent trustee.
[198]See [246]–[247].

(b) The circumstances of at least one phone call made by Michael to Deborah while she was at the South Yarra apartment on 5 December 2019. On that day, Deborah had returned home from hospital after undergoing surgery to remove part of her liver. Her evidence was that she received several silent phone calls which made her feel anxious. Michael’s evidence was that he rang Deborah once and did not speak when she answered the phone. He denied making more than one call. He gave evidence that he called Deborah because he had been told that she was in hospital which he did not believe to be true. Although he did not intend to be threatening in making the call and rejected the proposition that he was hostile towards Deborah, Michael accepted in his evidence that he could see how his call might be interpreted as threatening. Paul and Deborah submitted that Michael’s evidence, including his demeanour, which established that he made a silent phone call to Deborah after her release from hospital, gives no confidence that, as a director of the trustee, he would give appropriate consideration to Deborah’s circumstance and approach his task impartially in the future.

(c) The belated provision of the trust deed and trust documents to Paul,[199] in circumstances where Mr Sampson was acting on behalf of John and Eva in relation to Paul’s request for trust documents and was aware of Paul’s entitlement as a beneficiary to have access to these documents. Reliance was also placed on the refusal to supply Paul with documents related to the trust as far back as 2006 which were sought by Paul in the context of his divorce proceeding. It was submitted that Mr Sampson had demonstrated a lack of impartiality by his acceptance of instructions from Eva over more than a decade in refusing to provide Paul with trust documents to which he knew Paul was entitled as a beneficiary. It was also said to be notable that Mr Sampson did not seek instructions from anyone as a director of the trustee; the instructions to refuse came from Eva, and the correspondence pursuant to which the trust deed was finally provided to Paul was written by Mr Sampson as acting for Eva and John.
[199]See [221] above; the documents were provided in November 2017, nearly 12 months after Paul’s request.

(d) The fact that Michael sought to be joined as a party to the proceeding (which was originally only brought against the trustee) because of the ‘close bond’ he had with his parents and because he wanted to be ‘some sort of voice for them’.

(e) Alleged fundamental misunderstandings by Michael and Mr Sampson about the duties of trustees, such that they are unable to impartially consider Paul and Deborah’s circumstances. Three misunderstandings were alleged:

(i) Mr Sampson’s statement in the proposal he gave to John and Eva on 14 December 2017[200] that ‘[c]ontrol of the trust rests with the Appointor and Guardian of the trust’ when in fact control of the trust assets lies with the trustee;
[200]See at [113] above.

(ii) Mr Sampson’s view that whether a beneficiary has asked for a distribution is relevant to the trustee’s decision regarding the distribution of income; and

(iii) Michael’s evidence that, when on 17 June 2019 he signed, purportedly as Guardian, the minute of resolution providing for the distribution to John of all of the trust’s income for the year, he did so because that was what John wanted.

Paul and Deborah submitted that the trust had not been administered for the benefit of the beneficiaries; the trust’s assets and income had instead been treated as belonging to John, Eva and Michael. In support of this argument, they referred to Mr Sampson’s evidence that, if the Appointor was changed, John and Eva ‘were the ones at risk if they hand over their effective ultimate control of their trust to someone else’.[201] They also relied on the trustee’s continued application of a 40/20/40 formula[202] for the distribution of income between 2011 and 2018, even though John, Eva and Michael were spending very little of the money distributed to them with the income distributions simply being retained in the trust’s ever-increasing loan accounts. They also referred to John’s evidence that ‘[t]he assets were acquired and developed by Eva and myself’ as disclosing a fundamental misunderstanding on his behalf about the nature of a trust. It was submitted that these matters meant that there was no basis to think that, in the future, the assets of the trust would be held and dealt with for the benefit of all objects.
[201]Emphasis added by Paul and Deborah.
[202]As between John, Eva and Michael respectively.

It was also submitted by Paul and Deborah that Mr Sampson and Michael did not properly understand the duties of a trustee. In addition to the matters referred to in [364(e)], they referred to the South Yarra apartment, as an asset of the trust, being treated with ‘gross neglect’ over decades, despite Deborah’s request for repairs as long ago as 2004. Following his appointment, Mr Sampson had not taken any steps to ascertain the state of the apartment as trust property. Reference was also made to Mr Sampson’s realisation under cross-examination that the effect of the decision to distribute the South Yarra apartment to Deborah was that the trustee now holds the apartment on a separate trust for Deborah. In an affidavit sworn by him before trial, the apartment was listed as a trust asset. Mr Sampson acknowledged this to be a misunderstanding on his behalf.

In the context of the substantial value of the assets held by the trust, Paul and Deborah also criticised Mr Sampson’s refusal for the trust to pay Deborah’s legal costs for the conveyance of the apartment, despite Mr Sampson’s evidence that those costs could be as little as $500. This was also said to be consistent with the lack of impartiality in the trustee’s approach to administering the trust.

Paul and Deborah criticised the trustee for its approach to this proceeding in failing to acknowledge the claimed ‘objective facts’ regarding the lack of income distribution resolutions between 2010 and 2017. By seeking to ‘reconstruct’ events in a manner which was asserted to be inconsistent with the trust’s own accountant, Mr Dexter, the trustee had shown itself not to be impartial and incapable of acting in good faith in the future.

Referring to the statement by Garde AJA in Australasian Annuities Pty Ltd (in liq) v Rowley Super Fund Pty Ltd,[203] Paul and Deborah submitted that the conduct of Michael and Mr Sampson cannot give the Court any confidence that they are capable of acting in good faith ‘to ensure that the company administers the trust in accordance with the trust deed’.
[203]See [357] above.

Trustee and Michael’s submissions

As to Paul and Deborah’s reliance on their success in respect of Issue 1, the trustee submitted that the ineffectiveness of the variations does not of itself involve a breach of trust, particularly given that the trustee acted on the advice of Mr Sampson that the trust deed provided for a power to amend in the manner contemplated by the variations.

More generally, the trustee submitted that it was significant that its affairs have always been conducted by natural persons. To the extent that the trustee acted in breach of trust before December 2017 when Mr Sampson was purportedly appointed as a director of the trustee during which time John and Eva conducted the affairs of the trustee, it is significant that neither John nor Eva remain as directors and that the directors now include Mr Sampson, a legal practitioner of many years’ experience in the field of trust law and someone who is not an object of the trustee’s discretionary powers of income or capital distribution.

The trustee laid emphasis on the fact that, in April 2019, it had exercised its discretion to make a capital distribution of the South Yarra apartment to Deborah. This was said to demonstrate that the trustee, under the directorship of Mr Sampson and Michael, would be willing to make further discretionary distributions of capital or income to Deborah.

The trustee also argued that, even if the Court found that there had been a breach of trust, there was no evidence to suggest that the current directors would act capriciously in making income resolutions, nor any evidence to suggest that they would not give genuine consideration to all of the beneficiaries. The trustee referred to Michael’s evidence that, in making future distributions of income from the trust, he would make enquiries of Paul and Deborah’s circumstances (in his capacity as Guardian). The trustee also relied upon Mr Sampson’s evidence that the purpose of the trust was that it ‘may provide some income to the beneficiaries in accordance with the resolutions of the trust deed’.

The trustee submitted that there is no evidence that it will not execute and administer the trust properly in the future. The likelihood of a repeated breach of trust occurring, given the changing control of the trustee with the deaths of Eva and John, was said to be minimal.

Although Michael did not advance any submissions on the question of removal per se, he did submit that disproportionate significance had been attributed to the silent phone call made by him to Deborah on 5 December 2019. Counsel emphasised Michael’s evidence that he only telephoned Deborah once and that the call was motivated by scepticism about something he had been told. It was said to be a small incident which had been given an undeserved weight by Paul and Deborah in their submissions.

Consideration

A number of the matters raised by Paul and Deborah give rise to reservations about the suitability of the trustee continuing in office. However, upon analysis, those reservations are not of such a degree and character to cause me to lose confidence in the trustee’s future administration of the trust having regard to the interests of the beneficiaries, the security of the trust property, the proper execution of the trust and the faithful and sound exercise of the powers conferred on the trustee.

As the trustee submitted, an important feature of this case is that its affairs have always been conducted by those natural persons who have held office as directors of the trustee. The identity of those persons has changed from time to time. At the outset, it is important to consider the breaches of trust which I have found by reference to this feature.

In relation to Issue 1, the trustee executed three deeds of variation which were beyond its power. In doing so, the trustee acted contrary to the trust deed and thereby committed a breach of trust in purporting to make each of the variations. Because Michael did not become a director of the trustee until 20 November 2019, these breaches do not raise any question about his suitability as one of the natural persons now in control of the trustee.

Mr Sampson is, however, in a different position. He prepared each of the variations and purported to sign the 2017 variation as a director of the trustee. It is therefore the case that, in purporting to act as a director of the trustee in relation to the 2017 variation, Mr Sampson failed to ensure that the trustee administered the trust in accordance with the trust deed. This is a matter which weighs in favour of the trustee’s removal. However, without more, this conduct does not lead me to conclude that the trust property will not be safe or that the trust will not be properly executed in the interests of the beneficiaries. Mr Sampson acted on an erroneous view about the trustee’s power to vary the trust deed. However, as is apparent from the submissions advanced in this case, it must be acknowledged that the extent and nature of the trustee’s powers of variation under the trust deed is not without complexity. Further, it cannot be said that Mr Sampson acted other than in good faith in relation to the variations.

In relation to my findings in respect of Issue 6 that the trustee failed to give real and genuine consideration to Paul and Deborah in determining income distributions in 2015, 2016 and 2018, on the question of removal, because John and Eva were the directors of the trustee in 2015 and 2016 and are no longer alive, it is the breach in 2018 which is of particular significance. Mr Sampson purported to be a director of the trustee in 2018 and I have found that, when exercising its discretion to make income distributions that year, the trustee failed to give real and genuine consideration as to whether or not to make a distribution to Deborah. That is a matter which weighs in favour of the trustee’s removal.

The significance of this failure on the question of removal is however diminished by two factors. First, my rejection of the claim that the trustee failed to give real and genuine consideration to Paul and Deborah in determining income distributions in 2019 indicates that the trustee’s failure in 2018 has not continued into the period of Michael and Mr Sampson’s directorships. Secondly, it is of particular significance that, in April 2019 when Mr Sampson purported to act as a director of the trustee together with John, the trustee resolved to make a capital distribution of the South Yarra apartment to Deborah. In light of this fact, there is no proper basis to find that there is a real risk or likelihood that the trustee will not make further discretionary distributions of capital or income to Deborah.

The making of the capital distribution of the South Yarra apartment to Deborah is also important because it overshadows and contextualises the claim that Mr Sampson and Michael are incapable of bringing an impartial mind in their roles as directors of the trustee. Before explaining that proposition, it is important to first note that, in my view, many of the complaints made by Paul and Deborah about Michael and Mr Sampson’s claimed lack of impartiality were either not supported by the evidence, were of minor significance, or were overstated.

Contrary to Paul and Deborah’s submission, the evidence does not support a finding that one reason for the delay in the transfer of the South Yarra apartment was because of Mr Sampson’s adverse view about the tone of Deborah’s solicitor’s letter. I accept Mr Sampson’s evidence for the reasons for that delay.

As to the belated provision of trust documents to Paul, two points may be made. First, the delays occurred in a period prior to when Mr Sampson and Michael commenced acting as directors of the trustee. Secondly, although Mr Sampson was involved in this earlier period in the communications with Paul and his representatives about the production of documents, his involvement was as Eva’s (or Eva and John’s) solicitor. His evidence was that Eva – his client – did not want to supply the documents to Paul and that the documents would only be produced on subpoena. That view reflects adversely on Eva’s, rather than his, view about the duties of a trustee.

Although some criticisms can properly be levelled at Mr Sampson about his approach to and discharge of his duties as a director of the trustee,[204] their significance on the question of removal should not be overstated, particularly as I do not accept that his evidence disclosed fundamental misunderstandings on his behalf about the duties of trustees. In particular, Paul and Deborah’s reliance upon a statement by Mr Sampson that ‘control of the trust assets rests with the appointor and guardian’ is taken out of context and ignores Mr Sampson’s evidence on this topic in cross-examination.
[204]In particular that he did not ascertain the state of the South Yarra apartment after his appointment as a director of the trustee and misunderstood, which he frankly acknowledged in his evidence, the status of the South Yarra apartment following the resolution to transfer it to Deborah.

I do, however, accept that, viewed in isolation, some of the specific complaints advanced by Paul and Deborah in support of the claimed lack of impartiality do provide a proper basis for concern about the capacity of Michael and Mr Sampson to discharge their duties impartially. Mr Sampson’s characterisation of Deborah’s solicitor’s acceptance of the transfer of the South Yarra apartment as being ‘grumbling’, bad-tempered and ungracious, does not speak of a moderate and detached attitude by a trustee towards a beneficiary. Similarly, his refusal for the trust to pay Deborah’s legal costs for the conveyance of the apartment which he considered could be as little as $500 might be said to confirm a lack of impartiality on his behalf. In relation to Michael, his conduct in making at least one silent phone call to Deborah after her release from hospital is conduct which, looked at in isolation, is not fitting of a person charged with administering a trust for the benefit of persons including Deborah and does legitimately give rise to a concern about his capacity to impartially discharge his office as a director of the trustee.

However, care must be taken to not unduly exaggerate the significance of each of the above fairly minor separate incidents and reactions. Their significance on the question of impartiality must also be viewed in context. In that regard, their collective significance is diminished when regard is had to the trustee’s resolution in April 2019 to transfer the South Yarra apartment to Deborah. The transfer of an asset worth in excess of $700,000 to a beneficiary provides me with a measure of confidence that, despite the apparent tensions and difficulties which have characterised the relations between Paul, Deborah and Michael over the years, the trustee is nonetheless capable of properly administering the trust now and into the future.

For these reasons, having regard to the grounds for removal relied upon by Paul and Deborah considered independently and collectively by reference to the circumstances of the case, on balance, the welfare of the beneficiaries of the trust is not opposed to the trustee’s continued occupation of office.

Issue 9: Whether Michael ought be removed as Guardian and Appointor

Michael only holds the office of Guardian and Appointor if the 2010 variation or the 2017 variation are valid. Because I have found in Issue 1 that those variations are invalid, this issue accordingly does not arise for determination.

If, however, I am wrong in my conclusion in respect of Issue 1 and Michael holds the office of Guardian, I do not consider that, in the circumstances of the trust, the Court has power to remove him from that position. In Blenkinsop,[205] the Court of Appeal of Western Australia proceeded on the basis that the Court only has power to remove a Guardian if the Guardian has a fiduciary power.[206] I respectfully agree with the analysis and approach adopted by the Court of Appeal. In this matter, Paul and Deborah have not contended that the Guardian’s role and powers under the trust deed are of this character. Accordingly, they have failed to establish that the Court has power to remove Michael as Guardian.
[205](n 75).
[206]Ibid [75], [89].

Given the above matters, it is unnecessary for me to address the evidentiary basis[207] upon which Paul and Deborah submitted that Michael should be removed as Guardian and Appointor.
[207]Namely, an allegation by Deborah, denied by Michael, that, in late 2012, Michael told her that he had been appointed to a role in relation to the trust, that she would never receive a distribution from the trust and that he did not want her to continue to be on the owners’ corporation committee for the South Yarra apartment.

Disposition

The parties are to confer about the form of orders to be made giving effect to these reasons and are to submit minutes of proposed orders within 14 days. The proceeding will then be listed for further directions.

The parties are also to confer about the terms of any orders which may be made in relation to costs. In the event that there is no agreement in respect of costs, the parties may submit submissions on costs, limited to 10 pages, within 14 days.

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[2020] VSC 716

28 October 2020