W E Pickering Nominees Pty Ltd as trustee of the W E Pickering Family Trust and Ors (According to the schedule) v Jacqueline Robyn Pickering and Ors (According to the schedule)

[2016] VSCA 273

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2016 0040

W E PICKERING NOMINEES PTY LTD AS TRUSTEE OF THE W E PICKERING FAMILY TRUST and ORS (According to the schedule)	Applicants
v
JACQUELINE ROBYN PICKERING and ORS (According to the schedule)	Respondents

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JUDGES:	MAXWELL P, TATE and KYROU JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	3 November 2016
DATE OF ORDER:	3 November 2016
DATE OF REASONS:	16 November 2016
MEDIUM NEUTRAL CITATION:	[2016] VSCA 273
JUDGMENT APPEALED FROM:	[2016] VSC 71 (McMillan J)

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TRUSTS – Trust deed – Amendments – Trustee’s application for approval of amendments to trust deed – Application supported by all beneficiaries – Amendments would expand class of beneficiaries – Whether potential unborn beneficiaries would be adversely affected – Judge took into account potential impact on unborn beneficiaries – Issue not raised with parties – Denial of procedural fairness – Appeal allowed – Proceeding remitted to Trial Division for hearing before different judge – Trustee Act ss 63, 63A.

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APPEARANCES:	Counsel	Solicitors
For the Applicants	Mr B J McCullagh	Partners Legal
For the Respondents	Mr P Staindl, Solicitor	Clancy & Triado

MAXWELL P
TATE JA

KYROU JA:

Introduction and summary

1. The first applicant (‘Trustee’) is the trustee of the W E Pickering Family Trust (‘Trust’) which was constituted by a deed dated 1 February 1977 between the Trustee and George Pickering (‘Trust Deed’). 

1. Clause 2 of the Trust Deed established a fixed class of beneficiaries comprising William Pickering, his wife Jacqueline Pickering, their children and grandchildren.  When William Pickering died in 2012, he and his wife had six children and 13 grandchildren.  Two of the grandchildren, Nicholas and Mitchell, are minors (‘minor beneficiaries’).

1. The second, third and fourth applicants are the directors of the Trustee.  The second and third applicants and all of the respondents are the existing beneficiaries of the Trust.  The minor beneficiaries are the seventeenth and eighteenth respondents respectively, and are represented by their mother (Cindy Cross, who is also a beneficiary and the fifth respondent) as their litigation guardian.

1. In his will, William Pickering expressed a wish that the Trustee make a capital distribution of certain assets of the Trust to the trustees of three family trusts and that a capital distribution be made of ‘all other assets of the [Trust]’ to three of the beneficiaries.  These testamentary wishes are not binding on the Trustee and the first of them cannot be effected under the current terms of the Trust Deed because trustees of family trusts are not beneficiaries under the Trust. 

1. By originating motion filed on 28 April 2015, and with the consent of the respondents, the applicants sought orders pursuant to s 63A, or alternatively s 63, of the Trustee Act 1958 (‘Act’) that the Trust Deed be amended to:

(a)       expand the class of beneficiaries of the Trust to include spouses, children and other relatives of existing beneficiaries and trustees of associated family trusts;

(b)      specify certain persons as joint appointors and confer on them power to substitute a new trustee of the Trust;  and

(c)       confer on the Trustee a general power to amend the Trust Deed.

1. The parties requested that the proceeding be determined by the trial judge on the papers, which included a number of affidavits.  One of the affidavits was sworn by Cindy Cross, who stated the following regarding the minor beneficiaries:

Even though I know that it is possible, though unlikely, that the effect of the [relief sought] may not be advantageous to Nicholas and Mitchell if certain events materialise, the risk of such events occurring is one that I am prepared to take on my own and Nicholas and Mitchell’s behalf.

1. The affidavits filed by the parties did not address the position of any unborn beneficiaries (namely, any further grandchildren of William and Jacqueline Pickering) or whether it was possible for any further beneficiaries to be born.  As will appear, however, the judge took into account the position of potential unborn beneficiaries in deciding whether to grant the relief which the parties sought by consent.  The applicants’ complaint on the present application was that her Honour did not inform them that this would be an issue and, as a result, they had had no opportunity to make submissions or file evidence directed at the issue.

The proceeding at first instance

1. The procedural history of this matter is fully set out in her Honour’s reasons.  It is apparent that the manner of its conduct imposed unusually heavy burdens on the judge.  Three particular features of the proceeding should be noted.

1. First, the application for amendments to the Trust Deed was at all times by consent.  The Trustee and the beneficiaries were as one.  As a result, there was no contradictor and her Honour was left to investigate for herself whether there were considerations which militated against the requested exercise of the Court’s discretion.  Secondly, it fell to her Honour to intervene repeatedly, by way of case management, to ensure that the submissions filed were adequate and that all necessary procedural steps were taken.  Thirdly, the parties’ request that the application be determined ‘on the papers’, without a hearing, meant that her Honour had no opportunity to test the arguments with counsel.

1. Her Honour published detailed and careful reasons for judgment, addressing the alternative bases of the application under ss 63 and 63A of the Act respectively. She concluded that:

(a)it was not appropriate for the Court to exercise its discretion under s 63 of the Act to confer on the Trustee the power to make any of the proposed amendments to the Trust Deed;[1] 

(b)section 63A of the Act did not authorise the Court to grant to a trustee a general power to amend a trust deed;[2] 

(c)section 63A of the Act did not authorise the Court to amend a trust deed to insert a general power to appoint an appointor;[3]  and

(d)while s 63A of the Act authorised the Court to approve the amendment of the Trust Deed to expand the class of beneficiaries, it was inappropriate to exercise that power in the present case.[4] 

[1]W E Pickering Nominees Pty Ltd v Pickering [2016] VSC 71 [99] (‘Reasons’). The judge held that the proposed amendment to expand the class of beneficiaries of the Trust took the ‘application beyond the ambit of s 63 [of the Act].’

[2]Reasons [60]–[61].

[3]Ibid [60], [62].

[4]Ibid [59].

1. In relation to the last of these findings, her Honour said that, ‘[a]lthough not addressed by the [applicants], it is apparent that there is also a class of potential unborn beneficiaries of the [Trust who are] not represented in the proceeding’.[5]  The judge found that the proposed amendment would expand the pool of beneficiaries and thus substantially dilute the beneficial interests of the current beneficiaries, as well as the beneficial interests of the potential unborn beneficiaries.[6]  Accordingly, in her Honour’s view, there was ‘a prima facie reason to presume’ that the interests of any potential unborn beneficiaries could be adversely affected.[7] She concluded that, in these circumstances, the Court should not make an order under s 63A of the Act approving the proposed amendment on behalf of any potential unborn beneficiaries.[8] 

   [5]Ibid [30].

   [6]Ibid [34], [58].

   [7]Ibid [58].

   [8]Ibid [59].

1. The applicants, with the support of the respondents, sought leave to appeal against the third and fourth of her Honour’s findings above on 12 grounds.  Those grounds, in substance, allege that the judge:

(a)       denied the applicants procedural fairness by relying on the impact of the first proposed amendment to the Trust Deed on unborn beneficiaries without giving the applicants prior notice that she proposed to do so and an opportunity to address that matter;  and

(b)      gave ‘undue weight to the unlikely contingency being the rights of unborn child beneficiaries’ and failed to give sufficient weight to considerations that favoured the granting of the relief sought by the parties, including the beneficiaries’ unanimous consent to the proposed amendments.

1. At the conclusion of argument on the application for leave to appeal, the Court made the following orders:

1        The application for leave to appeal is granted.

2The appeal is treated as instituted and heard immediately and is allowed.

3Orders 1 and 2, made by her Honour Justice McMillan on 4 March 2016 be set aside, and the proceeding is remitted to the Trial Division for hearing before a different judge.

4The costs of this appeal, of both the applicants and the respondents, be paid out of the trust fund and the costs of the applicants be paid on an indemnity basis.

5        Reserve liberty to apply. 

1. At the time we made the orders, we said that we would publish our reasons at a later date.  These are our reasons for making the orders. 

Did the judge deny the applicants procedural fairness?

1. It is well established that, before a decision-maker makes a decision which adversely affects the rights or interests of a person, the decision-maker must give the person prior notice of adverse matters which the decision-maker proposes to take into account, and an opportunity to address those matters, unless the risk of those matters being taken into account inheres in the issues to be decided.[9]

   [9]Re Refugee Review Tribunal; Ex parte Aala (2000) 204 CLR 82, 121–2 [101]–[102].

1. In the present case, the parties recognised that the effect of the proposed amendments to the Trust Deed on the existing beneficiaries was a relevant matter for the judge to take into account in deciding whether to approve the amendments.  Unsurprisingly, they filed affidavits and made submissions on this issue.  Initially, the minor beneficiaries were not parties to the proceeding.  They were added as parties at the Court’s instigation, and affidavit material and submissions were filed dealing with the impact on them of the proposed amendments. 

1. Nothing was mentioned, however, by the parties or the Court at any time during the course of the proceeding about whether it was possible for any further beneficiaries to be born and, if so, what impact the proposed amendments might have on them.  Accordingly, it could not be said that the risk of the judge taking into account the impact on potential unborn beneficiaries inhered in the issues to be decided.[10]

   [10]Ucar v Nylex Industrial Products Pty Ltd (2007) 17 VR 492.

1. In our respectful view, once her Honour formed the view that there might be unborn beneficiaries whose interests were relevant to the issues to be determined, procedural fairness required that those matters be drawn to the attention of the parties and an opportunity provided to adduce evidence and make submissions on those matters before any decision was made. 

1. At the hearing of the application for leave to appeal, counsel for the applicants and counsel for the respondents confirmed that that at no time were the parties on notice that the judge proposed to take into account the impact on potential unborn beneficiaries of the proposed amendments.  Counsel for the applicants stated that, if the applicants had been given notice, they would have adduced evidence dealing with the ages and childbearing intentions of the children of William and Jacqueline Pickering.  Given that the judge treated the impact of the proposed amendments on potential unborn beneficiaries as a determinative consideration, it cannot be said that, if the judge had not denied the applicants procedural fairness, it was inevitable that the outcome of the proceeding would have been the same.[11] 

   [11]Stead v State Government Insurance Commission (1986) 161 CLR 141, 145.

1. It follows that the applicants established a clear legal basis for this Court to make the orders set out above.  The making of those orders meant that it was not necessary for us to consider the other grounds of appeal.

1. As explained earlier, the positions adopted by the respective parties left the judge in the position of having to work out for herself how the application should be determined, without the benefit of a contradictor or of oral argument.  In the circumstances, what occurred is readily understandable.  As we have explained, however, the requirements of procedural fairness necessitated the making of the orders.

Order remitting the proceeding for rehearing by another judge

1. It will be a matter for the remitter judge to decide how the hearing of the proceeding will be conducted before him or her, including whether there will be an oral hearing or a decision will be made on the papers.  In view of what we were told by counsel for the applicants, it seems inevitable that they will seek leave to file further affidavits.

1. At the hearing of the application for leave to appeal, the Court asked the parties whether they had given any consideration to whether this was an appropriate case for an order to be made under r 16.01(2) of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’) that a person be appointed to represent the potential unborn beneficiaries. We also raised with the parties the issue of whether a person appointed as representative might be of assistance to the Court as a contradictor. Counsel informed us that they did not have any instructions on the making of an order under r 16.01(2) and that the parties would reserve their position in relation to that matter. This will be an issue for the remitter judge to consider.

1. At the hearing of the application for leave to appeal, the Court also raised with the parties the issue of whether, if William Pickering’s testamentary wishes were given effect, the assets of the Trust would be exhausted.  Counsel for the applicants informed us that his instructions were that this would not be the case but that he had not explored this issue in depth with the applicants.  Whether this is a relevant consideration will be a matter for the parties and the remitter judge.

Orders regarding costs

1. The applicants succeeded on appeal in their capacity as trustee of the Trust, in the case of the first applicant, and as directors of the Trustee, in the case of the other applicants.  Accordingly, we concluded that it was appropriate for the applicants’ costs to be paid out of the assets of the Trust on an indemnity basis.  As the respondents have at all times consented to the appeal being allowed, we ordered that their costs be paid out of the assets of the Trust on a standard basis.

1. In the light of the fact that we made no decision on the substantive issues in the proceeding, we considered it appropriate for the remitter judge to decide questions of costs relating to both the original proceeding and the remitter proceeding.  We note that this course was adopted previously by this Court in Marriner v Australian Super Developments Pty Ltd (No 2).[12]

   [12][2012] VSCA 290 [20].

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SCHEDULE OF PARTIES

W E PICKERING NOMINEES PTY LTD AS TRUSTEE OF
THE W E PICKERING FAMILY TRUST   First Applicant

ROGER STUART PICKERING  Second Applicant

DARYL JOHN PICKERING    Third Applicant

JAMES STEWART PICKERING           Fourth Applicant

JACQUELINE ROBYN PICKERING   First Respondent

DAWN MARGARET PICKERING  Second Respondent

ROBYN ELIZABETH PICKERING  Third Respondent

PETER EDWARD PICKERING  Fourth Respondent

CINDY LYNNE PICKERING  Fifth Respondent

NATASHA WHITE     Sixth Respondent

JUSTIN PICKERING  Seventh Respondent

REBECCA PICKERING  Eighth Respondent

EMMA PICKERING  Ninth Respondent

LACHLAN PICKERING  Tenth Respondent

LANA HOSKING    Eleventh Respondent

CHRISTOPHER HOSKING  Twelfth Respondent

TEGHAN HOSKING   Thirteenth Respondent

MYKAELA PICKERING  Fourteenth Respondent

BENJAMIN PICKERING   Fifteenth Respondent

MATTHEW PICKERING   Sixteenth Respondent

NICHOLAS JAMES CROSS BY HIS LITIGATION GUARDIAN,
CINDY LYNNE CROSS (nee PICKERING)  Seventeenth Respondent

MITCHELL JORDAN CROSS BY HIS LITIGATION GUARDIAN,

CINDY LYNNE CROSS (nee PICKERING)  Eighteenth Respondent