Stein v Sybmore Holdings Pty Ltd - [2006] NSWSC 1004

No judgment structure available for this case.

CITATION: Stein v Sybmore Holdings [2006] NSWSC 1004

HEARING DATE(S): 19 September 2006

JUDGMENT DATE :
27 September 2006

JURISDICTION: Equity

JUDGMENT OF: Campbell J

DECISION: Order empowering trustee to amend trust deed to extend vesting date made.

CATCHWORDS: TRUSTS -- discretionary trusts -- nature of rights of property in -- TRUSTS -- power of court to approve advantageous dealings -- whether ever able to be used in a way which alters beneficial interests -- whether applicable to amendment of the Trust Deed -- whether power able to be used to extend vesting date of discretionary trust -- syntactic structure of section 81 Trustee Act 1925 (NSW) -- consideration of elements of section 81 Trustee Act 1925 (NSW) -- WORDS AND PHRASES – “expedient”

LEGISLATION CITED: Income Tax Assessment Act 1936
Trustee Act 1925
Trustee Act 1925 (Eng)

CASES CITED: Re AS Sykes (dec’d) and the Trustee Act [1974] 1 NSWLR 597
Arakella Pty Ltd v Paton (2004) 60 NSWLR 334
Audio Visual Copyright Society Ltd v Australian Record Industry Association Ltd [1999] NSWSC 947; (1999) 152 FLR 142
Re Bowmil Nominees Pty Ltd (as trustee of the Williamson Superannuation Fund) [2004] NSWSC 161
Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329
Re Cosaf Pty Ltd (Supreme Court of NSW, Young J, 18 December 1992, unreported)
Re Craven’s Estate [1937] Ch 431
Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405
Re Jay-O-Bees Pty Ltd (in liq); Rosseau Pty Ltd (in liq) v Jay-O-Bees Pty Ltd (in liq) [2004] NSWSC 818; (2004) 50 ACSR 565
Ku-Ring-Gai Municipal Council v The Attorney-General (1954) 55 SR (NSW) 65
James N Kirby Foundation v Attorney General (NSW) (2004) 213 ALR 366
NM Superannuation Pty Ltd v Hughes (Supreme Court of NSW, 5 March 1996, unreported, BC 9600423)
Re Philips New Zealand Ltd [1997] 1 NZLR 93
Riddle v Riddle (1952) 85 CLR 202

PARTIES: Morrie Jack Stein - Plaintiff
Sybmore Holdings Pty Ltd - First Defendant
Sybil Dolly Stein - Second Defendant
Tanya Robyn Stein - Third Defendant
Ian Samuel Stein - Fourth Defendant

FILE NUMBER(S): SC 3355/06

COUNSEL: G Burton SC - Plaintiff

SOLICITORS: Denes Ebner - Plaintiff
Submitting Appearances - Defendants

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EQUITY LIST

CAMPBELL J

27 SEPTEMBER 2006

3355/06 STEIN v SYBMORE HOLDINGS PTY LTD

JUDGMENT

1 HIS HONOUR: This is an application to vary a Trust Deed, under section 81 Trustee Act 1925.

Entering of the Trust Deed

2 Mr Morrie Stein was born on 12 June 1927. On 1 April 1978 he was aged 50, married, and with two young children, Tanya (born 30 November 1970), and Ian (born 20 June 1976).

3 In early 1978 Mr Stein discussed his financial affairs with his accountant, Mr Frank Hay. He asked Mr Hay whether it was possible to set up a family trust, and said that his intention was to provide for his wife, children and grandchildren after he was gone. The discussion was no more detailed than that. Mr Hay arranged for a Trust Deed to be prepared, which established a discretionary trust. It was executed on 1 April 1978. The trustee of that Trust Deed is, and at all times has been, Sybmore Holdings Pty Ltd, a company controlled by Mr Stein and his wife. The settlor was a company controlled by Mr Hay.

Provisions of the Trust Deed

4 A schedule to the Trust Deed contains definitions:

THE VESTING DAY

23 December 2007

THE SPECIFIED BENEFICIARIES

The Principal, his wife, widow, children, grandchildren, great-grandchildren, spouses of the Principal’s children, grandchildren, and great-grandchildren, the parents, parents-in-law, brothers, brothers-in-law, sisters, sisters-in-law, nephews and nieces of the Principal.

THE SECONDARY BENEFICIARIES

Such persons, Corporation, Society or Charity as may be nominated at any time and from time to time by the Trustee by Deed or Memorandum or oral declaration recorded in the Minutes of the Trustee.

RESIDUARY BENEFICIARIES

The children of the Principal.

THE PRINCIPAL:

5 The deed recited that:

“… the Settlor is desirous of making provision for the Beneficiaries as hereinafter defined …”

6 The deed contained a definition of the “Vesting Day” as meaning:

“… the first to occur of the following dates, namely

(i) The day specified in the Schedule as the Vesting Day.

(ii) The date being twenty one (21) years after the death of the last survivor of the descendants now living of his late Majesty King George VI.

(iii) Such other date as may be fixed by the Trustee as the Vesting Day whether by Deed or Memorandum in writing or oral declaration recorded in the Minutes of the Trustee.”

7 The term “Primary Beneficiaries” was defined as meaning and including the people described as Specified Beneficiaries in the Schedule, and certain additional persons, companies or trusts that the Trustee might thereafter nominate. In fact the Trustee has not made any such nominations.

8 The “Secondary Beneficiaries” were the people and entities identified as Secondary Beneficiaries in the Schedule.

9 “Beneficiaries” was defined as meaning the Primary Beneficiaries, the Secondary Beneficiaries and the Residuary Beneficiaries.

10 Clause 2 declared a trust of the Trust Fund, subject to the provisions of the Deed, for the Beneficiaries.

11 Clause 3 set out the trusts of income as follows:

PROVIDED THAT

(b) In respect of any income of the Trust Fund not applied or paid by the Trustee pursuant to the provisions of Clause (a) hereof the Trustee may in its absolute discretion by oral declaration recorded in the Minutes of the Trustee insofar as the law may allow stand possessed of such income and may accumulate such income throughout the fiscal year of receipt thereof and at the expiration of such year convert the same to capital and the same shall become capital and be part of the Trust Fund.

UPON TRUST

PROVIDED THAT

12 Clause 6 set out the trusts of capital:

UPON TRUST

PROVIDED THAT

13 Clause 7 contained a power of advancement of capital:

“The Trustee may from time to time pay or apply any capital money (including accumulated income) being the subject of the Trust Fund not exceeding altogether in amount Ninety per centum (90%) of the value of the Trust Fund for the maintenance, education, advancement or benefit of the Beneficiaries or any of them.”

14 Clause 18 contained a power of variation of the Trust Deed:

“The Trustee may with the consent of the person who has the power to appoint a new Trustee hereof in accordance with Clause 21 at any time and from time to time in its absolute discretion by Deed or Memorandum in writing or oral declaration recorded in the Minutes of the Trustee:

(i) Vary all or any of the powers or provisions herein declared concerning the Trust Fund with the exception of the Vesting Day.

(ii) Add any persons, corporation, Trustees of trusts or clauses of persons as Beneficiaries

(iii) Exclude any persons, corporation, Trustees of trusts or classes of persons as Beneficiaries but so that this power shall not be capable of being exercised so as to derogate from any interest to which any Beneficiary has previously become indefeasibly entitled whether in possession or in reversion or otherwise.”

15 Clause 22 makes provision that the Trust would be governed by the law of the place where the Trustee (if a corporation) is incorporated. As Sybmore Holdings Pty Ltd is incorporated in New South Wales, the Trust is therefore governed by New South Wales law.

16 In exercise of the power of variation, the Trustee has excluded from the list of Specified Beneficiaries “the parents, parents-in-law, brothers, brothers-in-law, sisters, sisters-in-law, nephews and nieces of the Principal”.

Reasons for this Application

17 In this application Mr Stein seeks an order that would empower the Trustee to make an amendment to the Trust Deed that would significantly defer the date by which the Vesting Day must occur.

18 It has only been recently that Mr Stein read the Trust Deed for the first time, and saw that it provided for a Vesting Day which could not be any later than 23 December 2007. His children are now aged 35 and 29, unmarried, and without children. If the Vesting Day remains as it is, the Trust assets will need to be distributed no later than 23 December 2007. That will mean that the Trust is not able to fulfil the purpose which Mr Stein had in mind when he established it.

19 The Trust assets include six parcels of real estate, with a total market value of the order of $13m or $14m. One of those parcels of real estate was purchased in 1978, before the commencement date for imposition of capital gains tax on 20 September 1985. If it were necessary to make a distribution of the Trust property in 2007, capital gains tax would be payable on distribution of all the real estate other than the parcel purchased in 1978. If each of the beneficiaries were subject to tax at the top marginal rate of tax including Medicare, the tax on the net capital gain for tax purposes would be a little over $690,000. As well, the property which was acquired in 1978 would lose its present status as being capital gains tax exempt, so far as any increments in value it might sustain after distribution were concerned.

20 The evidence does not disclose whether in fact the beneficiaries are subject to tax at the top marginal rate. As well, the accountant who did these calculations assumed that the Trustee had not made a family trust election for income tax purposes, under section 272-80 of Schedule 2F of the Income Tax Assessment Act 1936. The evidence does not disclose whether that assumption is right. Thus, payment of tax of the order of $690,000 is something which I can treat only as being a possible worst case.

21 However it is clear that New South Wales stamp duty, of the order of $620,000, would be payable on transfers made to give effect to the distribution. And loss of the capital gains tax-exempt status of the property purchased in 1978 would also be a certainty.

22 The Trustee, and the wife and two children of Mr Stein, have each filed submitting appearances in the litigation. Each of them consents to and supports Mr Stein’s desire to defer the date by which the Vesting Day must occur by many decades. Each of the wife, daughter and son has sworn an affidavit in support of the application, giving reasons for taking that view. The reasons of all three of them are the same. They see the tax and stamp duty liabilities which would flow from the Trust vesting in 2007 as disadvantageous. They see it as an advantage that the extension of the Vesting Day would enable the Trust to continue to operate during Mr Stein’s lifetime and for long after his death. Each of them regards it as an advantage that their children and other lineal descendants will have an opportunity to benefit. Each of them bears in mind that, even if the day by which the Vesting Day must occur is extended, it is still possible for the Trustee to decide that vesting of all assets of the Trust will occur earlier, and, even if the Trustee does not make such a decision, Clause 7 confers upon the Trustee a very broad power to make advances of capital. Each of them sees it as an advantage that continuing the Trust structure provides the flexibility of making a different distribution of income to different beneficiaries at different times.

23 They each understand that deferral of the date by which the Vesting Day must occur has some disadvantages. It is likely to delay the time at which they personally will receive any capital from the Trust, and might mean that they personally never receive any capital from the Trust. They understand that extension of the Vesting Date will expand the class of potential beneficiaries if Tanya and/or Ian marry, and will further expand the class of potential beneficiaries if either of them has children. Ian understands that extension of the Vesting Date might mean that it is Tanya’s lineal descendants rather than his own who come to benefit from the Trust, and Tanya has a corresponding understanding concerning the possibility of Ian’s lineal descendants proving to be the people who actually receive benefits. Each of them states:

“I believe that the potential disadvantage to me and other beneficiaries currently alive is significantly outweighed by the advantages I have described.”

Section 81

24 Section 81 Trustee Act 1925 provides:

“(1) Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure, or transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust, or by law, the Court:

(a) may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, including adjustment of the respective rights of the beneficiaries, as the Court may think fit, and

(b) may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne as between capital and income.

(2) The provisions of subsection (1) shall be deemed to empower the Court, where it is satisfied that an alteration whether by extension or otherwise of the trusts or powers conferred on the trustees by the trust instrument, if any, creating the trust, or by law is expedient, to authorise the trustees to do or abstain from doing any act or thing which if done or omitted by them without the authorisation of the Court or the consent of the beneficiaries would be a breach of trust, and in particular the Court may authorise the trustees:

(a) to sell trust property, notwithstanding that the terms or consideration for the sale may not be within any statutory powers of the trustees, or within the terms of the instrument, if any, creating the trust, or may be forbidden by that instrument,

(b) to postpone the sale of trust property,

(c) to carry on any business forming part of the trust property during any period for which a sale may be postponed,

(d) to employ capital money subject to the trust in any business which the trustees are authorised by the instrument, if any, creating the trust or by law to carry on.

...

(4) The powers of the Court under this section shall be in addition to the powers of the Court under its general administrative jurisdiction and under this or any other Act.”

Present Property Rights in the Trust Property

25 In circumstances where Tanya and Ian are both alive and without children the effect of Clause 3(c) of the Trust Deed is that the income of any year is held on trust for Tanya and Ian in equal shares, except to the extent that the Trustee decides to appoint that income to someone else under Clause 3(a), or accumulate it under Clause 3(b). In the language of property law, under Clause 3(a) and (b) there is a power to appoint the income, and under Clause 3(c) there is a gift over to Tanya and Ian in default of appointment. Where there is a power to appoint property amongst members of a class, and a gift over in default of appointment, the takers in default have a vested, but defeasible, interest in the property (Thomas on Powers para 2-67, 2-75, 2-79; Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 at 426-7 per Mahoney JA (with whom Kirby P agreed)).

26 In similar fashion, Clause 6 of the Trust Deed gives Tanya and Ian as Residuary Beneficiaries a vested but defeasible interest in the capital of the Trust. The interest of, say, Tanya in the capital is a contingent interest, because it is contingent on her surviving until the Vesting Day. It is defeasible because if the Trustee appoints the property to someone else, under the power of appointment contained in Clause 6 or 7, it will no longer flow to her as a taker in default of appointment. Even so, such a defeasible contingent interest in the capital is a right of property, which is vested in interest but not in possession.

27 Mr and Mrs Stein, Ian and Tanya are all potential objects of the Trustee’s power of appointment

· of income, under Clause 3,

· of capital on the Vesting Day, under Clause 6, and

· of capital prior to the Vesting Day, under Clause 7.

Effect of Extension of the Vesting Day on Beneficial Interests in the Trust Fund

28 If the date by which the Vesting Day must occur is delayed for several decades, and if, say, Ian dies before the Vesting Day, but Tanya remains alive, the effect of the extension of the Vesting Day will be to change the beneficial interests in the Trust Fund from what they are now. In particular, if Ian leaves a child or children, that child or children will as a result come to have a vested but defeasible interest in half of the capital, while if Ian dies without children Tanya will come to have a vested but defeasible interest in the whole of the capital. If Ian dies before the Vesting Day leaving a child or children, that child or children will also acquire corresponding rights in the income. Other possible events, concerning who dies, who remains alive, and who has children, will result in other changes to the beneficial interests in the Trust Fund from what those beneficial interests are now. Does the fact that there will be these changes in beneficial interest mean that section 81 cannot be used to empower the Trustee to extend the date by which the Vesting Day must occur?

29 In Audio Visual Copyright Society Ltd v Australian Record Industry Association Ltd [1999] NSWSC 947; (1999) 152 FLR 142 Simos J considered a situation where the collecting society for copyright royalties for sound recordings and cinematograph films held royalties on trust for various copyright owners entitled to them. It had distributed part, but not all, of the royalties received by it during certain accounting periods amongst the people it understood to be the copyright owners for whom it held those royalties in trust. A decision of the High Court established that owners of the copyright in sound recordings incorporated in the soundtracks of cinematograph films were entitled to be paid part of the royalties that the Society had collected. The collecting society had not previously distributed royalties to owners of that species of copyright, as it had believed it had no obligation to do so. The Society sought the Court’s approval to distribute those royalties relating to past accounting periods which had not already been distributed on the basis that the scheme of allocation which had applied before the High Court’s decision continued. Simos J said, at 162, [76]:

Trustee Act

30 Jacobs’ Law of Trusts in Australia, 7th ed 2006 para [1706] p.373 footnote 47 appears to draw from that statement of Simos J a general proposition that “section 81 gives no power to alter the beneficial interests of the beneficiaries”.

31 I do not, with respect, think any such general proposition can be drawn from it.

32 Simos J’s reasoning in para [76] was closely tied to the facts of the case before him. Immediately before para [76] his Honour had set out at length the reasons why the Society sought the particular approval that it sought. As I read para [76], his Honour was not purporting to state any general principles. In any event, as appears from the words “as is common ground”, the application of section 81 does not seem to have been the subject of a real contest. For both these reasons, I do not regard para [76] of his Honour’s judgment as establishing any general principle. If, however, the proposition that Jacobs states is inherent in his Honour’s decision, I would respectfully disagree with it.

33 The correct position, in my view, is that sometimes section 81 can be used in a way that alters beneficial interests.

34 Section 81(1)(a) expressly states that the power it confers extends to “adjustment of the respective rights of the beneficiaries”. Those words are not found in the corresponding English section (section 57 Trustee Act 1925 (Eng)). They have the effect of making the NSW section wider than the English section: Ku-Ring-Gai Municipal Council v The Attorney-General (1954) 55 SR (NSW) 65 at 73-74 per Roper CJ in Eq, Brereton and Maguire JJ).

35 As well, there is authority that sometimes section 81 can justify a transaction which has the effect of altering beneficial interests. In Re AS Sykes (dec’d) and the Trustee Act [1974] 1 NSWLR 597 at 601 Helsham J recognised that section 81(1)(a) might permit alteration of beneficial interests in certain circumstances. In NM Superannuation Pty Ltd v Hughes (Supreme Court of NSW, 5 March 1996, unreported, BC 9600423) McLelland CJ in Eq said, at 8-9 of BC 9600423:

“The conferring on a trustee under s 81 of a power to effect a dealing or transaction in the management or administration of the trust on the ground of expediency may, in some cases, involve or require some incidental or consequential adjustment of the respective rights of beneficiaries ...”

Re Cosaf Pty Ltd

Arakella Pty Ltd v Paton

36 In Riddle v Riddle (1952) 85 CLR 202 at 214 Dixon J said that the powers given by section 81 were not intended to be restricted by any implications. In my view, the correct approach to section 81 involves application of the words of the section, without preconceptions about the type of transaction that it applies to. That includes without any preconception that it cannot be used in a way that alters beneficial interests.

Structure of Section 81

37 It is clear enough that applying section 81 requires one to:

- identify a “sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure or transaction” (which I will refer to as a “dealing”) that is proposed

38 However, considering section 81 just as a piece of prose, there is a syntactic ambiguity about the role that the phrase “in the management or administration of any property vested in trustees” plays in the section. One possibility is that “in the management or administration of any property vested in trustees” is an adjectival phrase that describes the particular dealing in question, so that the section requires that dealing to be one which is entered in the process of management or administration of property vested in trustees.

39 Another possibility is that “in the management or administration of any property vested in trustees” is an adverbial phrase that qualifies “expedient”. On that reading, the opening words of section 81(1) mean the same as:

“Where any sale, lease, mortgage, surrender, release or disposition, or any purchase, investment, acquisition, expenditure or transaction, is in the opinion of the Court expedient in the management or administration of any property vested in trustees, but the same cannot be effected …”

40 On that reading, the only expediency that is relevant to the section is expediency that is for the purpose of, or advances, the management or administration of any property vested in trustees.

41 In Ku-Ring-Gai Municipal Council v The Attorney-General (1954) 55 SR (NSW) 65 at 74 Roper CJ in Eq, Brereton and Maguire JJ said:

must

and

must

42 This decision binds me to hold that the second of the possible syntactic roles of “in the administration of any property vested in trustees” is the correct one.

43 As well, though, there is a requirement, derived by a process of construction that I cannot see, but that I am bound to follow, that “a question has arisen in the management or administration of property vested in a trustee.” In applying that requirement, a “question” must be the same as a problem, rather than a topic concerning which there is real doubt. It could not possibly have been the intention of the legislature that section 81 would not be available if it was perfectly obvious that trustees did not have power to enter a particular dealing, so that there was no question about it, in the sense of it being a matter of real doubt.

44 I turn to consider whether the various elements of section 81 are made out.

“Any … Transaction”

45 Of the types of dealing listed in section 81(1), in the phrase beginning “any sale, lease …”, the only noun capable of applying to the present situation is “transaction”. “Transaction”, in section 81, extends to amendment of the Trust Deed: Re Philips New Zealand Ltd [1997] 1 NZLR 93; Re Bowmil Nominees Pty Ltd (as trustee of the Williamson Superannuation Fund) [2004] NSWSC 161 at [16] per Hamilton J; James N Kirby Foundation v Attorney General (NSW) (2004) 213 ALR 366 at 370, [16] per White J.

46 Thus the type of power that Mr Stein seeks to have conferred on the Trustee is within the scope of section 81.

“Is in the Opinion of the Court Expedient”

47 In Riddle v Riddle Williams J said, at 220:

“The section is couched in the widest possible terms. The sole question is whether it is expedient in the interest of the trust property as a whole that such an order should be made.”

“The ordinary natural grammatical meaning of “expedient” is “advantageous”, “desirable”, “suitable to the circumstances of the case”.”

48 The type of expediency which can be considered is not completely open-ended. As Dixon J said in Riddle at 214 “Expediency means expediency in the interest of the beneficiaries”.

49 In Re Craven’s Estate [1937] Ch 431 at 436 Farwell J said:

“It cannot mean that however expedient it may be for one beneficiary if it is inexpedient from the point of view of the other beneficiaries concerned the Court ought to sanction the transaction. In order that the matter may be one which is in the opinion of the Court expedient, it must be expedient for the trust as a whole.”

50 The application of a test of “expedient for the trust as a whole” can encounter some difficulties in the context of a discretionary trust like the present one, which of its nature involves the trustee having a power to completely cut out some of the potential objects of the trust. The wording of section 81 does not actually say that an exercise of power is expedient only if it is expedient for the trust as a whole. Williams J was the only judge in the majority in Riddle who adopted such a test. I would prefer to leave out any such gloss on the statute.

51 In deciding whether it is expedient to give the Trustee the power it seeks, I do not rely upon the evidence that Mr Stein’s original intentions for this trust miscarried in the drafting. I would accept that, both in deciding what is expedient and in exercising discretion about whether to confer power to enter a particular dealing transaction, it is proper to take into account whether that dealing transaction advances the objectives of the Trust. But I am in some uncertainty about whether, when a Trust has been declared in writing, the objectives of the Trust are to be found by inquiry into the subjective motivations of the person who caused it to be set up. In those circumstances, and when taking Mr Stein’s subjective intentions into account would not affect the outcome of the case, I think it better not to take Mr Stein’s subjective intentions into account.

52 When I talk about whether a proposal is one that would “advance the objectives of the Trust” in the context of deciding whether a proposal is expedient, I do not mean whether it is completely within the scope of the Trust deed. After all, the whole purpose of section 81 is to enable power to be conferred to enter dealings that, if the Court did not make an order, would not be within power.

53 However, there is a more general sense in which one can tell, from the terms of the trust deed and the sort of context of social institutions and laws within which it was made, whether the conferring of power to carry out a particular dealing or type of dealing will involve a departure from the spirit of the settlor’s intention. It has some analogy to the way in which the court, in deciding whether to settle a cy près scheme, decides whether there was a general charitable intention. It involves trying to ascertain whether a departure from the strict letter of administering the trust is a departure in some respect that is an important part of the settlor’s intention, or a departure in a matter of inessential detail. The type of trust that is involved could be relevant here. A simple trust, to invest and pay income to or for the benefit of a nominated person, could probably not be altered, by the making of an order under section 81, to the same extent as could a more complex trust, like a family discretionary trust, or a superannuation trust. In the latter type of trusts, it is within the spirit of the settlor’s intention that there can be changes, within a certain ambit, in the beneficial interests in the trust property – whether by the exercise of a trustee’s discretion, or by conferring discretions on someone other than a trustee, as happens with the opportunity for a member of a superannuation fund to nominate, from time to time, who will receive benefits. In the latter type of trusts, there is a well-understood context of law (often tax law) which the trusts are clearly intended to take advantage of – it is often not difficult to conclude that keeping advantages of that type is within the spirit of the settlor’s intentions, or if that context of law were to change, it might be possible to conclude that it was within the spirit of the settlor’s intention the trust should accommodate itself to whatever the new law was.

54 Even without taking Mr Stein’s subjective intentions into account, I am satisfied that it is expedient to confer on the Trustee the power that Mr Stein seeks. It is well within the scope of the purpose of the trust, ascertained from the trust instrument alone, that it aims to provide benefits after the death of Mr Stein (as the use of the word “widow” in the list of Specified Beneficiaries demonstrates), and also to provide for his grandchildren and more remote issue. An extension of the Vesting Day would facilitate that objective. The Trust Deed itself establishes possibilities of flexible distribution of assets among members of the Stein family, and extension of the Vesting Day would enable that flexibility to continue to operate. The possibility of flexible distribution is no mere accident of the trust deed. Rather, part of the context in which the trust deed needs to be understood is that it is common for people who have more assets than they need for their own survival to seek to benefit close family members, without giving up control of the assets. Another part of the context in which the trust deed needs to be understood is that there has been for decades a system of income taxation in which a natural person is taxed on a basis whereby the first tranche of income in a year is tax-free, and successive tranches are taxed at increasingly higher rates – thus directing income from a discretionary trust in any year to the potential beneficiary who has a marginal rate of tax below the top rate will lessen the overall tax paid by the family unit. Maintaining flexibility to distribute both capital and income among members of Mr Stein’s family over generations provides one basis upon which I find that the conferring of the power would be expedient.

55 As well, the minimisation of the capital gains tax and stamp duty on the trust property provides a separate basis upon which the conferring of the power is expedient.

56 I also take into account that the wife and children of Mr Stein support the proposal, for sensible reasons. They together make up all the people who are presently potential objects of the powers of appointment in the Trust Deed. Tanya and Ian are the only people who have present rights of property in the Trust fund. Tanya and Ian are also, on present indications, the people who would acquire property rights vested in both interest and possession if the Vesting Day were to remain unaltered and the power of appointment of capital were not exercised.

57 That they support the proposal is not a separate reason why the exercise of the power is expedient. After all, section 81 says that it is the opinion of the Court as to expediency, not the opinion of the beneficiaries or potential beneficiaries, which matters. Rather, the fact that they support the proposal, and their reasons for supporting it, provide me with comfort that my conclusion that it is expedient to confer the power is right.

“In the Management or Administration Of Property Vested in Trustees”

58 In the present case, the Trust fund is clearly “property vested in trustees”.

59 I enquire first whether a question has arisen “in the management or administration of” that property. Management or administration of property includes taking steps to preserve the property, and taking steps to make the property financially productive. In my view, planning to minimise the impact of tax and duties on the trust property advances both those objectives and so is part of the administration of trust property. As well, the management or administration of property vested in trustees includes transferring part or all of it from time to time to those who have become entitled to it.

60 In the present case the Trustee wants to continue to hold the Trust property past 2007, and to pay its income to whichever of the potential income recipients it decides, in the same fashion as it has done since 1978. It wants to avoid capital gains tax and stamp duty being payable on any of the trust property. However it cannot do any of these things because the present provisions defining the Vesting Day require distribution no later than 23 December 2007. That is, it seems to me, a problem that has arisen in the management or administration of the trust property.

61 I next inquire whether the expediency which I have found is one that advances the management or administration of the property that is vested in trustees. Conferring on the Trustee power to go on providing benefits from the Trust to members of the Stein family, in the flexible way in which the Trust has been able to since 1978, enables the management or administration of the Trust property to continue past 23 December 2007, and in that way advances the management or administration of that property. Minimising the tax and duty on the Trust property has the effect that the Trust property is better managed and administered, and in that way the management or administration of that property is advanced. It is established that section 81 can be used to empower a trustee to carry out a scheme the sole purpose of which is to minimise the taxation liabilities which fall on the trust property: Re AS Sykes (dec’d) and the Trustee Act [1974] 1 NSWLR 597.

62 Thus, both tests that Ku-Ring-Gai Council require to be satisfied for the element “in the management or administration of property vested in trustees” in section 81 have been satisfied.

“Cannot be Affected by Reason of the Absence of Any Power”

63 The express power of variation contained in Clause 18 of the Trust Deed specifically excepts the making of a variation to the Vesting Day. Thus, there is an absence of power under the instrument creating the Trust. The trustees have no power, under the general law, to extend the Vesting Day. The power the absence of which section 81(1) is concerned with is a power vested in the trustees by the instrument creating the trust or by law – hence it is not necessary to decide whether anyone else (such as the Court, in its inherent jurisdiction) has any power to authorise conferring the power on the trustees.

64 This element of section 81 is satisfied.

“May by Order Confer”

65 Because the section says the Court may confer the power, it creates a discretion, which needs to be exercised. However there would be a considerable, and perhaps total, overlap between factors that established expediency, and the factors that led a Court to decide that as a matter of discretion it was appropriate to exercise the power under section 81. I can at present think of only one circumstance in which a Court would be likely to hold that it was expedient, in the sense section 81 uses that word, for a particular dealing to be entered into, that the trustee lacked power to enter that dealing, but that in the exercise of its discretion it would not give power for that dealing to take place. That is if there was some means other than the making of an order under section 81 by which the same practical objective could be achieved as would be achieved if power to enter the dealing were conferred.

66 One possible means by which the practical objective that I have held is expedient could be achieved, without making an order conferring power to vary the Vesting Day, is if it were possible to rectify the trust deed so that it contained a later Vesting Day.

67 A trust deed can be rectified if it is shown not to accord with the intentions of the person or persons who declared the trust: Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329; Spry, Equitable Remedies, 6th ed p.614. I am satisfied that the Trust Deed is not what Mr Stein wanted (assuming it is his intention that matters, or that his intention should be attributed to the settlor). However rectification requires not only proof that the document executed was not what was intended, but also proof of what was intended, with sufficient certainty to enable the Court to make an order which states the words that need to be deleted from, and/or included in, the instrument to give effect to the actual intention: Seton’s Judgments and Orders, 7th ed (1912) p.1638-1643. That order is then endorsed on the instrument that is to be rectified: ibid; Re Jay-O-Bees Pty Ltd (in liq); Rosseau Pty Ltd (in liq) v Jay-O-Bees Pty Ltd (in liq) [2004] NSWSC 818; (2004) 50 ACSR 565 at [74]. Even if I inferred that Mr Hay had the same intention as Mr Stein, I am not satisfied that there is cogent enough proof of what was required to enable an order to be drafted. Hence the Deed cannot be rectified.

68 In the circumstances of this case, power to amend the Trust Deed to extend the Vesting Day ought, as a matter of discretion, be granted.

“Subject to Such Provisions and Conditions … as the Court May Think Fit”

69 It would probably be a wrong exercise of discretion to confer on the Trustee a power to amend the Vesting Day in a way which allowed the Trust to continue for a period which would be longer than the permissible perpetuity period, measured from the date of creation of the Trust. However, after discussion with counsel for the applicant, the power which the plaintiff now seeks does not have any such problem. No other limitation on the power is called for.

70 In these reasons I have relied on section 81(1) alone. Counsel for the plaintiff also relied on section 81(2). I note that in Riddle Williams J, at 219, said that “subsection (2) widens, if it is possible so to do, the jurisdiction of the Court beyond that conferred by sub-s (1)”. In light of the conclusion I have reached it is not necessary to consider section 81(2) any further.

71 In all these circumstances I will make orders of the general kind that is asked.

1. Order that Sybmore Holdings Pty Ltd is empowered and authorised, notwithstanding the exception to the power of amendment contained in clause 18(i) of the Trust Deed to amend the Vesting Day specified in the Schedule to the Trust Deed to a date not later than 31 March 2058.

2. Note the consent of the Principal as required under clause 18 of the Trust Deed to the said amendment by the Principal’s bringing these proceedings as plaintiff.

3. Order that the costs of these proceedings be borne out of the income of the trust established by and under the Trust Deed.

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Citations

Stein v Sybmore Holdings [2006] NSWSC 1004

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Cited Sections

CITATION:	Stein v Sybmore Holdings [2006] NSWSC 1004
HEARING DATE(S):	19 September 2006
JUDGMENT DATE :	27 September 2006
JURISDICTION:	Equity
JUDGMENT OF:	Campbell J
DECISION:	Order empowering trustee to amend trust deed to extend vesting date made.
CATCHWORDS:	TRUSTS -- discretionary trusts -- nature of rights of property in -- TRUSTS -- power of court to approve advantageous dealings -- whether ever able to be used in a way which alters beneficial interests -- whether applicable to amendment of the Trust Deed -- whether power able to be used to extend vesting date of discretionary trust -- syntactic structure of section 81 Trustee Act 1925 (NSW) -- consideration of elements of section 81 Trustee Act 1925 (NSW) -- WORDS AND PHRASES – “expedient”
LEGISLATION CITED:	Income Tax Assessment Act 1936 Trustee Act 1925 Trustee Act 1925 (Eng)
CASES CITED:	Re AS Sykes (dec’d) and the Trustee Act [1974] 1 NSWLR 597 Arakella Pty Ltd v Paton (2004) 60 NSWLR 334 Audio Visual Copyright Society Ltd v Australian Record Industry Association Ltd [1999] NSWSC 947; (1999) 152 FLR 142 Re Bowmil Nominees Pty Ltd (as trustee of the Williamson Superannuation Fund) [2004] NSWSC 161 Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 Re Cosaf Pty Ltd (Supreme Court of NSW, Young J, 18 December 1992, unreported) Re Craven’s Estate [1937] Ch 431 Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 Re Jay-O-Bees Pty Ltd (in liq); Rosseau Pty Ltd (in liq) v Jay-O-Bees Pty Ltd (in liq) [2004] NSWSC 818; (2004) 50 ACSR 565 Ku-Ring-Gai Municipal Council v The Attorney-General (1954) 55 SR (NSW) 65 James N Kirby Foundation v Attorney General (NSW) (2004) 213 ALR 366 NM Superannuation Pty Ltd v Hughes (Supreme Court of NSW, 5 March 1996, unreported, BC 9600423) Re Philips New Zealand Ltd [1997] 1 NZLR 93 Riddle v Riddle (1952) 85 CLR 202
PARTIES:	Morrie Jack Stein - Plaintiff Sybmore Holdings Pty Ltd - First Defendant Sybil Dolly Stein - Second Defendant Tanya Robyn Stein - Third Defendant Ian Samuel Stein - Fourth Defendant
FILE NUMBER(S):	SC 3355/06
COUNSEL:	G Burton SC - Plaintiff
SOLICITORS:	Denes Ebner - Plaintiff Submitting Appearances - Defendants