Stromovka Pty Ltd as Trustee of the Stromovka Trust

[2016] NSWSC 1641

Supreme Court

New South Wales

Medium Neutral Citation:

Stromovka Pty Ltd as Trustee of the Stromovka Trust [2016] NSWSC 1641

Hearing dates:

17 November 2016

Date of orders:

17 November 2016

Decision date:

17 November 2016

Jurisdiction:

Equity

Before:

Kunc J

Decision:

Judicial advice given

Catchwords:

TRUSTS AND TRUSTEES – Application for advice – Whether discretionary beneficiaries persons “whose rights as beneficiary may be prejudiced” to be notified of proposed distribution – Trustee Act 1925 (NSW) s 63(8)

Legislation Cited:

NSW Trustee and Guardian Act 2009 (NSW)
Succession Act 2006 (NSW)
Trustee Act 1925 (NSW)

Category:

Procedural and other rulings

Parties:

Stromovka Pty Ltd (ACN 067 166 474) as Trustee of the Stromovka Trust (First Plaintiff)
Ian Leonard Evans (Second Plaintiff)
Michael Patrick Kantor (Third Plaintiff)

Representation:

Counsel:

 

D Barlin (Plaintiffs)

 

Solicitors:

  Bartier Perry (Plaintiffs)

File Number(s):

2016/264710

Publication restriction:

No

EX TEMPORE Judgment

Summary

1. By summons filed on 2 September 2016, Stromovka Pty Ltd (the "Trustee"), as Trustee of what is now called the Stromovka Trust (the "Trust"), Michael Patrick Kantor and Ian Leonard Evans apply for judicial advice under s 63 of the Trustee Act 1925 (NSW) (the "Act").

2. Mr D Barlin of Counsel appeared for the plaintiffs. The evidence included a compendious opinion from Mr Barlin and the Court acknowledges the assistance it has derived from both that opinion and Counsel's thorough presentation of the issues today.

3. The Court is satisfied that the plaintiffs are entitled to the advice set out in paragraph [24] below.

The facts

4. The Trust was created by a deed made on 15 November 1994 (the “Deed”). Martin Keith Arthur Kantor ("Mr Kantor") was described in that Deed as the "Principal" of the Trust.

5. The terms of the Trust include:

“1.   INTERPRETATION

0.1. In the interpretation of this Deed, unless otherwise indicated by the context or subject matter:

…

“Discretionary Beneficiaries” means the persons named or described in the Ninth Schedule.

…

“From time to time” includes “for the time being” and vice versa.

…

“relative” in relation to any natural person means the following persons:

(a)   a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, cousin, child or other lineal descendant of that natural person or of that person’s spouse for the time being;

(b)   a spouse of any person specified in paragraph (a) of this definition; and

(c)   a child or other lineal descendant of a former spouse of that natural person.

…

“spouse” includes a de facto spouse.

…

3.   APPOINTMENT OF INCOME AND CAPITAL

3.1   The Trustee shall hold the Trust Fund (or any part of the Trust Fund) and any income therefrom (or any part of the income of the Trust Fund) or any combination of the foregoing in trust for all or such one or more exclusively of the others or other of the Discretionary Beneficiaries and in such shares or proportions as the Trustee may in its absolute discretion revocably or irrevocably from time to time before the Vesting Date appoint.

3.2   The appointment made under Clause 3.1 may be made by the Trustee at any time or times irrespective of the age or ages of the Discretionary Beneficiaries and for whatever purpose including their respective advancement, maintenance, education and benefit as the Trustee may determine at the time of the appointment.

…

NINTH SCHEDULE (Discretionary Beneficiaries – Clauses 3 and 4)

(a)   the Principal;

(b)   the present spouse of the Principal and any future spouse of the Principal;

(c)   any present or future relative of the Principal;

(d)   any company or other body corporate (whether or not it exists at the date of this Deed) of which the Principal or any Beneficiary mentioned in paragraph (b) and (c) of this definition is at the relevant time a member or statutory officer;

(e)   the trustee of any trust (whether or not it exists at the date of this Deed) under which any Beneficiary mentioned in paragraphs (a) to (c) of this Schedule has a vested or contingent interest in the property comprised therein or is eligible to receive a distribution of income or capital therefrom provided always that any distribution or appointment to the trustee of that trust will not result in a breach of the rule against remoteness of vesting set out in Clause 8 hereof; and

(f)   such other person, trustee in his capacity as trustee of a trust (provided always that any distribution or appointment to the trustee of that trust will not result in a breach of the rule against remoteness of vesting set out in Clause 8 hereof), company, institution, charity or one or more of them (whether or not in existence at the date of this Deed) that the Trustee before the Vesting Date nominates in writing or by oral resolution (recorded in the minutes of a Corporate Trustee) to be a Discretionary Beneficiary for the purposes of this Deed;

TENTH SCHEDULE (Residuary Beneficiaries – Clauses 4.1(c) and 5)

Absolutely for:

(a)   the Principal;

(b)   the spouse for the time being of the Principal;

(c)   any present or future relative of the Principal.”

6. At various times Mr Kantor had a close personal relationship with Ms Bernadette Maree Keys ("Ms Keys"). The existence of that relationship is not a matter for doubt, although the times during which it subsisted are not entirely clear. The best evidence before the Court today is contained in a document entitled "Deed Of Compromise/Family Arrangement" made on 8 February 2000 between, among others, Mr Kantor and Ms Keys. That document includes these recitals:

“WHEREAS:

1(a)   The father asserts that the mother and the father lived together as if they were husband and wife as set out hereunder:

From April 1993 to about November 1993 at Hepburn Springs, Victoria

From about May 1994 to about July 1994 at Clifton Hill, Victoria

From about November 1994 to December 1994 at Clifton Hill, Victoria

From about mid-October 1996 to mid-May 1997 in Glasgow, Scotland; or alternatively

(b)   The mother asserts that the mother and father lived together as if they were husband and wife as set out hereunder from 3 April 1993 to 14 April 1994 at Hepburn Springs Victoria; for various intervals from 10 June 1995 to 27 March 1997 at Clifton Hill Victoria and Scotland in the United Kingdom either of which assertions constitute (“the relationship”).

2.   The mother and father separated permanently in mid-May 1997 (“the separation”).”

7. Mr Kantor made a will (the "Will") on 6 August 2015. The Will included:

“5.2   I have made various gifts in this Will which may not be able to (sic) funded from my personal assets. In that case, it is my wish (without binding my Executors or the Trustee of any of My Trusts) that:

a)   They do all in their power to make such gifts from My Trusts where they are permitted to do so under the terms of the relevant deeds;

b)   If there is any shortfall that the gifts in this Will to my Children (or to be held on trust with them as Primary Beneficiary) be prioritised over all other gifts and all other amounts abate proportionately.”

…

26.1   Subject to the preceding clause, in this Will, the term:

…

n)   “My Trusts” means:

i)   The Stromovka Trust (formerly known as the Martin Keith Arthur Kantor Trust) established by deed dated 15 November 1994 (and amended from time to time) (“Stromovka Trust”);

ii)   The Tinkan Trust (formerly known as the Stromovka Trust)[sic] established by deed dated 2 March 1999) (and amended from time to time) (“Tinkan Trust”);

iii)   and any other trust in which I hold a Controlling Position other than any Nominated Superannuation Fund;”

8. Mr Kantor died on 16 August 2015. Mr Michael Kantor and Mr Ian Evans are the executors appointed under the Will.

9. By summons filed on 9 April 2016 in this Court, Ms Keys has sought provision from the estate or the notional estate of Mr Kantor pursuant to Chapter 3 of the Succession Act 2006 (NSW). It is apparent that at the time her summons was filed, discussions about the settlement of her claim were well advanced. On 11 August 2016, Ms Keys, through her solicitors, accepted an offer from Messrs Evans and Kantor as executors to settle her claim by the payment of an amount from the Trust. That agreement was subject to certain provisos, including that the Trustee obtain judicial advice which allows it to make that payment.

10. This application is brought to satisfy that proviso. However, the Court notes in passing, that none of the plaintiffs have sought judicial advice in this application as to the desirability of the settlement which has been entered into, including the payment to Ms Keys. In making that observation, the Court is not to be taken as expressing any view as to whether such advice should or should not have been sought. It is made solely for the purposes of clarity in understanding the issues which the Court has had to resolve in the present application.

Consideration

11. The primary question posed by this application is whether or not Ms Keys is a "Discretionary Beneficiary" as defined in the Ninth Schedule of the Deed which includes a reference to:

“The present spouse of the Principal and any future spouse of the Principal".

12. It was urged upon the Court that the question should be answered in the negative. Without disrespect to the careful way in which the arguments in support of that proposition were put by Mr Barlin, it is not necessary for the Court to come to a concluded view. It is sufficient for present purposes to note that the answer is not entirely clear. One consequence, which may be thought troubling, of the argument put on behalf of the plaintiffs is that a person who was the spouse of Mr Kantor, perhaps even for many years, would cease to be a spouse under the Deed for the purposes of a distribution from the Trust after Mr Kantor's death. That is but one example of the complications which would need to be grappled with to resolve the question of whether or not, for the purposes of a distribution in the near future to satisfy the settlement of her family provision proceedings, Ms Keys is a “Discretionary Beneficiary” of the Trust.

13. A simpler and more certain solution to the problem is presented by clause (f) of the Ninth Schedule, which (with unnecessary words omitted) provides:

“(f)   such other person, … that the Trustee before the Vesting Date nominates in writing or by oral resolution (recorded in the minutes of a Corporate Trustee) to be a Discretionary Beneficiary for the purposes of this Deed;”

14. The Trust has not vested. There can be no doubt that, provided it is done in good faith and for a proper purpose, the Trustee is entitled to exercise the power conferred by clause (f) to nominate Ms Keys as a “Discretionary Beneficiary” of the Trust. There is no reason why that should not be done, for more abundant caution, in circumstances where there is some doubt as to whether or not Ms Keys is already a “Discretionary Beneficiary”. Once that has been done, the Trustee will be entitled under clause 3 of the Trust to appoint or distribute from income or capital the amount of the settlement with Ms Keys, provided again that is done in good faith and for a proper purpose. The Court will make orders reflecting advice consistent with the conclusions which I have just expressed.

15. Advice was also sought in relation to the effect of clause 5.2 of the Will (see paragraph [7] above). That advice was sought both by the Trustee and by Messrs Evans and Kantor in their capacity as executors under the Will. The question for advice was, in effect, whether the plaintiffs would be justified in proceeding on the basis that clause 5.2 of the Will does not compel the trustee to appoint income or capital out of the Trust in any particular manner.

16. It is clear that clause 5.2 does not compel any such result. That conclusion follows from the words in clause 5.2 (emphasis added):

“It is my wish (without binding my Executors or the Trustee of any of My Trusts)".

17. The emphasised words in parenthesis put beyond doubt the proposition that neither the executors nor the Trustee are legally obliged to give effect to the wish expressed in clause 5.2. Mr Barlin was unable to point to any authority which would suggest that such express words making clear that no legal obligation was being imposed should be interpreted in any other way. The plaintiffs are entitled to advice in accordance with this conclusion.

18. The final issue is a matter which I raised with Mr Barlin in the course of argument. That was whether notice should be given to any persons in accordance with s 63(8) of the Act, which provides:

“(8)   Where the question is who are the beneficiaries or what are their rights as between themselves, the trustee before conveying or distributing any property in accordance with the opinion advice or direction shall, unless the Court otherwise directs, give notice to any person whose rights as beneficiary may be prejudiced by the conveyance or distribution."

19. As I have set out above, the fundamental question which gave rise to this application was whether or not Ms Keys is a "Discretionary Beneficiary" of the Trust. I do not, with respect, accept Mr Barlin's submission that at best what was being debated was whether Ms Keys was a discretionary object of the Trust. It is clear from the words of the Deed itself that the debate was about whether or not she was a beneficiary, albeit a discretionary beneficiary, of the Trust. For that reason, I am satisfied that s 63(8) of the Act is enlivened.

20. Mr Barlin then submitted that, if the Court considered s 63(8) applied, the Court should otherwise direct in accordance with the power conferred by s 63(8). His submission, put shortly, was that all of those persons who are "eligible persons" under s 57 of the Succession Act2006 (NSW) had been given notice of Ms Keys’ family provision proceedings. All of those persons were “Discretionary Beneficiaries” within the meaning of the Ninth Schedule of the Deed, or residuary beneficiaries within the meaning of the Tenth Schedule of the Deed. The difficulty was that there would undoubtedly be a much larger class of persons who would have to be notified by reason of the expansive definition of "relative" in the Deed (see paragraph [5] above). That result was further complicated by the potentially infelicitous reference in both of those schedules to "any present or future” relative. Those words themselves gave rise to further doubt as to who might have to be included. Mr Barlin's submission was that as the proposed payment which had given rise to the need for the present advice was to be made in connection with the settlement of Ms Keys’ family provision proceedings, the purpose or the public policy underlying s 63(8) had been satisfied in the circumstances of this case. In practical terms, what Mr Barlin has submitted makes sense.

21. However, all those persons currently know about is the claim being made by Ms Keys. There is no evidence that they know of the impending settlement and payment. It is clear that they have a real and present interest in the settlement of those proceedings and, equally, a real and present interest as discretionary beneficiaries or residuary beneficiaries in the payment of funds out of the Trust. The payment will necessarily reduce the amount available for distribution to others.

22. The language of s 63(8) of the Act poses a difficulty in the present circumstances. It gives the Court a power to direct whether or not notice should be given, but it does not give power to the Court to limit the class of persons to whom that notice should be given. I am satisfied on the basis of Mr Barlin's submissions that it would be impractical and give rise to further delay if notice had to be given to everybody who might presently be a discretionary or residuary beneficiary (and therefore someone "whose rights as beneficiary may be prejudiced by the conveyance or distribution"). The Court will "otherwise direct" so that a notice to the entire class does not have to be given.

23. However, it seems to me that the underlying public policy of notification to parties who may be prejudiced by the distribution expressed in s 63(8) should be observed, at least in relation to the limited class of persons who have been given notice as eligible persons of Ms Keys' family provision proceedings. Accordingly, I propose to fashion the terms of the advice which the Court will give to the plaintiffs to include a provision for those persons to be given notice of the proposed distribution as part of the settlement and, if they wish, an opportunity to be heard in relation to the advice which the Court has given.

Orders

24. The Court orders:

1. Ian Leonard Evans and Michael Patrick Kantor are joined to these proceedings as second and third plaintiffs respectively.

2. Stromovka Pty Limited (the “Trustee”) as Trustee of the Stromovka Trust (the “Trust”) is justified in proceeding on the basis that after there has been compliance with the matters set out in the Schedule to these orders, the Trustee has power to appoint Bernadette Maree Keys as a “Discretionary Beneficiary” pursuant to clause (f) of the Ninth Schedule of the Deed made on 15 November 1994 between Anne Kantor and the Trustee (as amended) (the “Deed”).

3. The Trustee is justified in proceeding on the basis that after there has been compliance with the matters set out in the Schedule to these orders, the Trustee will have the power, after Ms Keys is nominated as a “Discretionary Beneficiary” pursuant to clause (f) of the Ninth Schedule of the Deed, to appoint income and/or capital (or any part thereof) of the Trust under the Deed to Ms Keys pursuant to the power contained in clause 3.1 of the Deed.

4. The plaintiffs are justified in proceeding on the basis that clause 5.2 of the Will of Martin Keith Arthur Kantor made on 6 August 2015 does not compel any of the plaintiffs to appoint income and/or capital (or any part thereof) of the Trust in a particular manner.

5. The costs of these proceedings be paid out of the income and/or capital of the Trust on the indemnity basis.

6. There be liberty to apply to any of the plaintiffs on three days’ notice by email to the Associate to Kunc J.

7. Direct that the exhibits be returned to the solicitors for the plaintiffs to be held by them up to and including 10 February 2017 or further order of the Court.

8. Direct these orders be taken out forthwith.

SCHEDULE.

1. The Trustee gives notice of the above orders and this schedule (the “Notice”) to every natural person to whom notice of family provision proceedings 2016/239429 has been given as an eligible person for the purposes of Chapter 3 of the Succession Act 2006 (NSW), with the Notice specifying that within 14 days of receiving the Notice they may apply to the Court for orders or directions in relation to the above orders.

2. No application for orders or directions in relation to the above orders is made to the Court within the time specified in the Notice.

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Decision last updated: 21 November 2016