Woodcock v Woodcock (No 2)
[2022] FedCFamC1F 173
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Woodcock & Woodcock (No 2) [2022] FedCFamC1F 173
File number(s): MLC 13421 of 2020 Judgment of: WILSON J Date of judgment: 30 March 2022 Catchwords: FAMILY LAW – STATUTORY CONSTRUCTION – proper construction of “property” in s 4(1) of the Family Law Act in the context of applications under s 79 of the Family Law Act – Kennon v Spry considered.
FAMILY LAW – MAJOR COMPLEX FINANCIAL PROCEEDINGS LIST – trial of a preliminary issue.
FAMILY LAW – DISCRETIONARY TRUSTS – whether husband’s rights under four discretionary trusts are “property” – consideration of judicial interpretation of “property” – review of High Court authorities – held, property.
FAMILY LAW – VALUATION – valuation of interests held by husband under four discretionary trusts – whether capable of valuation as a matter of fact and law – Kennon v Spry considerations addressed – held, husband’s interest capable of valuation.
FAMILY LAW – PRACTICE & PROCEDURE – determination of preliminary point, namely whether the husband’s interest in four discretionary trusts are “property” and if so, whether that property is capable of valuation – held, yes.
Legislation: Family Law Act 1975 ss. 4 & 79
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 r 1.06
Cases cited: Armory v Delamirie [1722] 93 ER 664
Australian Securities and Investments Commission v Carey (No 6) (2006) 153 FCR 509
Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485
Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334
Breen v Williams (1996) 186 CLR 71
Chan v Valmorbida Custodians Pty Ltd [2020] VSC 590
Coley v Danae [2020] WASCA 13
Commissioner of Stamp Duties (Qld) v Donaldson (1927) 39 CLR 539
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64
Commonwealth v WMC Resources Ltd (1998) 194 CLR 1
Darkinjung Pty Ltd v Darkinjung Local Aboriginal Land Council [2006] NSWSC 1217
Erceg v Erceg [2017] 1 NZLR 320
Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89
Federal Commissioner of Taxation v St Helen’s Farms (ACT) Pty Ltd (1981) 146 CLR 336
Fordyce v Ryan [2017] 2 Qd R 240
Gartside v Inland Revenue Commissioners [1968] AC 553
General Steel Industries Inc. v Commissioner for Railways (NSW) (1964) 112 CLR 125
Harris v Dewell (2018) 58 Fam LR 313
Hocking v Director-General of the National Archives of Australia (2020) 94 ALJR 569
Hziao v Fazarri (2020) 94 ALJR 961
In re Gulbenkian’s Settlement [1970] AC 508
In Re Prater (1888) 37 Ch D 481
In the Marriage of Evans (1991) 104 FLR 130
In the Marriage of Hauff (1986) 10 Fam LR 1076
Ingles & Ingles [2019] FamCA 33
Jones v Skinner (1836) 5 LJ Ch 87
Kalls Enterprises Pty Ltd (In liq) v Baloglow (2006) 58 ACSR 63
Kennon v Spry (2008) 238 CLR 366
McPhail v Dalton [1971] AC 424
Minister of State for the Army v Dalziel (1944) 68 CLR 261
Mullane v Mullane (1983) 158 CLR 436
Multan Pty Ltd v Ippoliti [2006] WASC 130
National Trustees Executors & Agency Co of Australasia Ltd v Federal Commissioner of Taxation (1954) 91 CLR 540
The Juliana [1822] 165 ER 1560
Rigby and Kingston (No 4) [2021] FamCA 501
Sand & Sand (2012) 48 Fam LR 458
Saulnier v Royal Bank of Canada WBLI Inc (2008) 3 SCR 166
Smorgon v ES Group Operations Pty Ltd (2021) 64 VR 146
Spencer v The Commonwealth (1907) 5 CLR 418
Stanford v Stanford (2012) 247 CLR 108
Telstra Corporation Limited v The Commonwealth (2008) 234 CLR 210
Tepko Pty Ltd v Water Board (2001) 206 CLR 1
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107
Walton & Anor v ACN 004 410 833 Limited (Formerly Arrium Limited) (In Liquidation) [2022] HCA 3
Wheeler v Baldwin (1934) 52 CLR 609
Woodcock & Woodcock [2021] FedCFamC1F 88
Yanner v Eaton (No 2) (1999) 201 CLR 351
Zhu v Treasurer (NSW) (2004) 218 CLR 530
K Gray, ‘Property in Thin Air’(1991) 50 Cambridge Law Journal 252
W N Hohfeld, ‘Some Fundamental Legal Conceptions as Applied in Judicial Reasoning’ (1913) 23 Yale Law Journal 16
Kevin Gray and Susan Francis Gray, The Idea of Property in Land, in Bright and Dewar (eds), Land Law: Themes and Perspectives (Oxford University Press, 1998)
Division: Division 1 First Instance Number of paragraphs: 121 Date of hearing: 21 February 2022 Place: Melbourne Counsel for the Applicant: Mr L. Glick QC with Mr R. Kruse Solicitor for the Applicant: Nedovic Lawyers Counsel for the Respondent: Mr A. Myers AC QC with Mr D. Sweeney and Mr S. Frauenfelder Solicitor for the Respondent: Lander & Rogers ORDERS
MLC 13421 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS WOODCOCK
Applicant
AND: MR WOODCOCK
Respondent
ORDER MADE BY:
WILSON J
DATE OF ORDER:
30 MARCH 2022
THE COURT ORDERS THAT:
1.On or before 4:00pm on 13 April 2022 the parties must bring in a minute that gives effect to these reasons.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Woodcock & Woodcock is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
WILSON J
INTRODUCTION
This case concerns the proper construction of the word “property” in s 4(1) of the Family Law Act (“the Act”), where used in s 79 of the Act, as the word “property” has been considered by the High Court of Australia.
Expressed most basically, in this proceeding the wife contended that the husband’s interests in a collection of trusts is property for the purpose of s 79 of the Act. Conversely, the husband argued that his interests under the trusts amounted to no more than rights with respect to due administration of the relevant trust and rights with respect to due consideration, in both instances, such rights being incapable of valuation.
Mr T, the wife’s expert valuer, gave evidence[1] that the husband’s interests embodied in his right to due consideration and his right to due administration are capable of valuation, before and after the deeds that amended the relevant trusts.
[1] The report of Mr T of R Limited dated 31 January 2022.
Mr U, the husband’s expert valuer, gave evidence[2] that the husband’s rights are not capable of being valued either before or after the amending deeds.
[2] The report of Mr U of S Company dated 15 February 2022.
The husband argued that the interests conferred upon him pursuant to the deeds and amendments thereto were rights but not property. Conversely, the wife argued that the bundle of rights conferred upon the husband represent a concentration of power encapsulated by the equitable right to due consideration and due administration and that those rights constitute property for the purpose of s 79 of the Act.
This was the trial of a preliminary issue pursuant to rule 1.06 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (“the Rules”). The trial of the s 79 application has been fixed to proceed on 6 June 2022.
As these reasons explain, in my view the husband’s interests under the relevant trusts are capable of valuation and they constitute property, as defined in s 4(1) of the Act, for the purpose of a proceeding for the alteration of property interests under s 79 of the Act.
RELEVANT BACKGROUND
Some but not all of the relevant background has already been canvassed.[3] The parties agreed to a confidentiality regime applicable to the deeds in issue in this case. Consistent with that regime, in certain instances I directed that particulars of the deeds not be transcribed.
[3] Woodcock & Woodcock [2021] FedCFamC1F 88.
Agreed exhibit 1 comprised the documentary evidence on this application. It was made up of –
(a)the affidavit of Mr K made 2 July 2021 and exhibits thereto;[4]
(b)the affidavit of Mr Woodcock made 6 July 2021 and exhibits thereto;[5]
(c)the affidavit of Mr U made 16 February 2022 and exhibits thereto;[6]
(d)the affidavit of Peter Nedovic made 30 April 2022 and exhibits thereto;[7] and
(e)the affidavit of Mr T made 31 January 2022 and exhibits thereto.[8]
[4] This affidavit was filed on behalf of the husband.
[5] Ibid.
[6] Ibid.
[7] This affidavit was filed on behalf of the wife.
[8] Ibid.
Four trusts were in issue, each constituted by deed of trust and a variety of deeds of amendment. It is utile to record the constituent documents of each trust.
The F Trust was constituted by deed dated 28 August 1995. The trustee of the trust is F Pty Ltd. The F Trust was varied by deed of variation dated 2003, 24 June 2005 and 30 June 2007, a deed of rectification dated 30 June 2007, an alteration of termination dated 27 March 2017, a supplemental deed of variation dated 1 September 2020, a supplemental deed made in September 2020 and a consolidated deed dated 1 September 2020.
The E Trust was constituted by deed dated 1 March 1995. The trustee of that trust is E Pty Ltd. The E Trust was varied by deeds of variation made in 2003, 24 June 2005, 28 June 2007 and 29 November 2010, a supplemental deed of variation dated 1 September 2020, a supplemental deed made in September 2020 and a consolidated deed dated 1 September 2020.
The B Trust was constituted by deed dated 1 December 1992. The trustee of that trust is B Pty Ltd. The B Trust was varied by deeds of variation dated 29 November 2010, 26 September 2013 and 1 September 2020, by supplemental deed made in September 2020 and a consolidated deed dated 1 September 2020.
The Mr G (1977) Family Trust was constituted by deed dated 30 June 1977. When the trust was created the trustees were three named natural persons. The trust was varied by deeds of variation dated 22 August 1985, 28 April 1992 and 23 May 2013. A deed of appointment of new trustees dated 30 April 1992 took effect so that C Pty Ltd became the trustee of that trust.
The husband is a current director of C Pty Ltd (the trustee of The G Family Trust), B Pty Ltd (the trustee of The B Trust), E Pty Ltd (the trustee of The E Trust) and F Pty Ltd (the trustee of The F Trust).[9]
[9] Exhibit “PN11” to the affidavit of Peter Nedovic sworn 30 April 2021 being current ASIC searches in respect of each company there named.
In this proceeding, each expert, that is to say Mr U and Mr T, was provided with and instructed to proceed in accordance with a statement of assumptions dated 31 January 2022. That statement is appended to these reasons. It is an extensive document. The more important matters to be drawn from it are as follows –
(a)the husband is one of several directors of each trustee save for The C Pty Ltd of which he is the sole director;[10]
(b)in respect of The B Trust, The F Trust and The E Trust, the beneficiaries of the trust are the “primary beneficiaries”, “capital beneficiaries” and “general beneficiaries”;[11]
(c)in respect of The G Family Trust, the beneficiaries are the “primary beneficiaries” and “general beneficiaries”;[12]
(d)the husband is a capital beneficiary under The B Trust[13] and a primary beneficiary under The F Trust, The E Trust and The G Family Trust;[14]
(e)notwithstanding the occurrence of a disqualifying event under The B Trust, The F Trust and The E Trust, the husband remains a director of the trustee of each trust, each expert was instructed to proceed on the basis that a lapsing event occurred and that the trustee under each trust resolved that the disqualifying event did not apply or should no longer apply to the husband;[15] and
(f)in relation to The B Trust, The F Trust and The E Trust, prior to 2020, distributions of capital or income were made in accordance with a regime that differed to the regime applicable subsequent to the 2020 amendments of each trust.[16]
[10] Paragraph 6, 17, 27 and 37 of the statement of assumptions document.
[11] Paragraphs 8, 19 and 29 of the statement of assumptions document.
[12] Paragraph 39 of the statement of assumptions document.
[13] Paragraph 8(2)(a) of the statement of assumptions document.
[14] Paragraphs 19(1), 29(1) and 39(1) of the statement of assumptions document.
[15] Paragraph 11, 20 and 30 of the statement of assumptions document.
[16] Paragraph 12, 13, 22, 23, 32, and 33 of the statement of assumptions document.
The provisions of each trust before and subsequent to the 2020 amendments were relevant.
Returning to the statement of assumptions that each expert was instructed to adopt, parts A-5 and A-6 were relevant. Relevantly distilled, those parts provided as follows –
(a)under each trust the powers of the relevant trustee to distribute income and capital are discretionary so that the trustee may in its discretion –
(i)decide whether or not to exercise a power to make a distribution or an accumulation of income;
(ii)decide whether or not to exercise a power to make a distribution of capital;
(iii)consider the potential beneficiaries in whose favour the power may be exercised; and
(iv)consider the extent or value of any distribution;
(b)the trustee is required to exercise a power or discretion in good faith, in accordance with the purposes of the trust and upon a real and genuine consideration of the matters in sub-paragraph (a)(i)-(iv) above;
(c)the husband as a beneficiary under each trust has a right –
(i)to compel the trustee to give real and genuine consideration as to whether or not the trustee should exercise its power to distribute income or capital and if so, how much and to whom; and
(ii)to compel the due administration of the trust by the trustee, to perform and administer the trust in accordance with the trust deed as well as in accordance with the duties and powers of the trustee.
In 2020 each of The B Trust, The F Trust and The E Trust was amended.
Prior to the 2020 amendments, in relation to The B Trust, the trustee had power to distribute income or capital or to accumulate income. Under that trust, the vesting date was expressed to be 30 June 2038 or such earlier date as the trustee in its discretion declared.
Consequent upon the 2020 amendments to the trust deeds mentioned above, the trustee’s powers to distribute income required either an “ordinary decision” (as defined) or a “majority decision” (also as defined) in default of which income accumulated. So far as capital was concerned, the trustee was empowered to decide by “majority decision” to allocate capital to any capital beneficiary or by “ordinary decision” to allocate capital to one or more of the trustees of the four-named related trust beneficiaries.
Prior to the 2020 amendments, The F Trust contained provisions comparable to The B Trust in relation to the trustee’s decision to distribute income. So far as the distribution of capital was concerned, the provisions of the deed were similar to The B Trust provisions insofar as a majority decision was required to allocate capital to a capital beneficiary yet capital could be allocated to specified beneficiaries in specified proportions if the distribution was by ordinary decision. Subsequent to the 2020 amendments, the provisions of The F Trust concerning the trustee’s power to distribute income or capital were substantially similar to the equivalent provisions under The B Trust.
So far as The E Trust was concerned, prior to the 2020 amendments the provisions concerning the trustee’s power to distribute income or capital were substantially the same as those that governed The F Trust. Consequent upon the 2020 amendments, the provisions of The E Trust concerning the trustee’s power to distribute income or capital were substantially the same as the equivalent provisions under The B Trust as well as The F Trust.
Mr K deposed to certain factual matters concerning the private operations of the corporate entities collectively called The G Group.[17] Those entities were B Pty Ltd, F Pty Ltd, E Pty Ltd, their subsidiaries, related and associated entities. Mr K deposed[18] to the formation in 1998 or thereabouts of an advisory board or investment committee of The G Group comprised of senior management executives including the husband. Mr K also deposed to the existence of an organ of The G Group known as the Family Council, inaugurated in 1998 or thereabouts.[19] Counsel for the wife submitted (in which submissions counsel for the husband did not demur) that the husband is the chair of the Family Council itself,[20] is managing director and chief executive officer of The G Group and is not in receipt of income. It was also submitted that the husband through his companies is a taker in default as to 15.38% of the assets of the trust.
[17] Paragraph 3 of the affidavit of Mr K made 2 July 2021.
[18] Paragraphs 10- 14 of the affidavit of Mr K made 2 July 2021.
[19] Paragraph 14 of the affidavit of Mr K made 2 July 2021.
[20] Paragraph 18(5) of the wife’s submissions dated 20 February 2022.
Under the heading of his affidavit “trustee ownership structure”, Mr K deposed to what he called descendants’ trusts. The husband’s descendants’ trust, The V Trust, has as its trustee V Pty Ltd of which the husband is a director and an eligible object of that trust.
Counsel for the wife submitted that the husband received more than $15 million in distributions between 2016 and 2020. The wife alleged that the $15 million, or a sum close thereto, was disclosed in the distribution schedule discovered by the husband on 15 March 2021 and from income distributions disclosed in the husband’s tax returns.
Before descending into an analysis of the conclusion and reasoning advanced by each expert, it is utile to record the legal basis on which counsel for the wife, in particular, contended that the rights possessed by the husband in the various trusts recorded above are property.
In my earlier decision in this proceeding[21] I recorded, without deciding, the manner in which the wife submitted that the husband was possessed of a collection of rights that constitute a species of property within the meaning of s 79 of the Act.[22] In this trial of a preliminary issue, counsel for both parties contended that this case was an appropriate vehicle for the determination of the point and that the determination of this issue is a test case.[23]
[21] Woodcock & Woodcock [2021] FedCFamC1F 88 (at [54]-[61]).
[22] Counsel for the wife called in aid the decision of Lord Langdale MR in Jones v Skinner (1985) 5 LJ Ch 87, 9; In Re Prater (1888) 37 Ch D 481, 483, 486; Commissioner of Stamp Duties (Qld) v Donaldson (1927) 39 CLR 539, 550; Wheeler v Baldwin (1934) 52 CLR 609; Minister of State for the Army v Dalziel (1944) 68 CLR 261, 285; National Trustees Executors & Agency Co of Australasia Ltd v Federal Commissioner of Taxation (1954) 91 CLR 540; Breen v Williams (1996) 186 CLR 71; Commonwealth v WMC Resources Ltd (1998) 194 CLR 1; Yanner v Eaton (No 2) (1999) 201 CLR 351; Telstra Corporation Limited v The Commonwealth (2008) 234 CLR 210; Kennon v Spry (2008) 238 CLR 366; Hocking v Director-General of the National Archives of Australia (2020) 94 ALJR 569 and Ingles v Ingles [2019] FamCA 33.
[23] T3 L20. It must be recognised that the determination of a preliminary issue in the manner urged in this case frequently leads to interlocutory appeal, for example, Tepko Pty Ltd v Water Board (2001) 206 CLR 1, Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 and Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241.
Two questions were agitated by the parties. The first was whether the husband’s equitable right to due administration and his right to due consideration was “property” for the purpose of s 79 of the Act. The second was whether such rights were “property” capable of valuation.
PROPERTY IN AUSTRALIAN LAW
The alteration of property interests under s 79 of the Act is premised on the determination, according to ordinary legal and equitable principles, of the existence of legal and equitable interests of the parties in property.[24]
[24] Stanford v Stanford (2012) 247 CLR 108 (at [36] –[40] and Hziao v Fazarri (2020) 94 ALJR 961, 976 (at [66]).
In Yanner v Eaton[25] Gummow J explained that the word “property” is used in law in various senses to describe a range of legal and equitable interests, corporeal or incorporeal. His Honour pointed out[26] that distinct corporeal and incorporeal property rights in relation to the one object may exist concurrently and be held by different parties. Gummow J cited Professor Hohfeld’s identification of the term “property” as a striking example of the inherent ambiguity and looseness in legal terminology.[27]
[25] (1991) 201 CLR 351 (at [85]).
[26] Relying on the observations in Breen v Williams (1996) 186 CLR 71, 80-81, 88-90, 101-102 and 126-129.
[27] W N Hohfeld, ‘Some Fundamental Legal Conceptions as Applied in Judicial Reasoning’ (1913) 23 Yale Law Journal 16, 21.
In Yanner v Eaton, the plurality[28] observed that the word “property” refers to a degree of power that is recognised in law as power permissibly exercised over a thing, that the concept of “property” may be elusive and that it is usually treated as a “bundle of rights”.[29] The plurality endorsed the observations of Professor Gray[30] where Professor Gray stated that false thinking about property stems from the residual perception that property is itself a thing or resource rather than a legally endorsed concentration of power over things or resources.
[28] Gleeson CJ, Gaudron and Kirby JJ.
[29] Minister of State for the Army v Dalziel (1944) 68 CLR 261, 285 (Rich J).
[30] K Gray, ‘Property in Thin Air’(1991) 50 Cambridge Law Journal 252, 299.
The plurality held as follows[31] –
“property” is a term that can be, and is, applied to many different kinds of relationships with a subject matter. It is not a monolithic notion of standard content and invariable intensity.
[31] (1999) 201 CLR 351 (at [19]).
The plurality also referred to the observations of Lord Langdale MR in Jones v Skinner[32] where the Master of the Rolls held that “property” is “the most comprehensive of all terms which can be used.”
[32] (1835) 5 LJ Ch (NS) 87, 90.
An illustration of the courts’ need to be flexible in the application of the word “property” was provided by the High Court in Telstra Corporation Ltd v The Commonwealth.[33] While that case concerned s 51(xxxi) of the Constitution of the Commonwealth of Australia especially the words “acquisition” and “property”, certain observations of utility beyond constitutional law may be divined from the judgment. Counsel for the wife relied on the following passage –
In the present case it is also useful to recognise the different senses in which the word “property” may be used in legal discourse. Some of those different uses of the word were identified in Yanner v Eaton.[34] In many cases, including at least some cases concerning s 51(xxxi),[35] it may be helpful to speak of property as a “bundle of rights”. At other times it may be more useful to identify property as “a legally endorsed concentration of power over things and resources”.[36] Seldom will it be useful to use the word “property” as referring only to the subject matter of that legally endorsed concentration of power.
[33] (2008) 234 CLR 210 (at [44]).
[34] (1999) 201 CLR 351 at 365-367 [17]-[20] per Gleeson CJ, Gaudron, Kirby and Hayne JJ; at 388-389 [85]-[86] per Gummow J.
[35] Minister for the Army v Dalziel (1944) 68 CLR 261 at 285 per Rich J.
[36] K Gray, ‘Property in Thin Air’(1991) 50 Cambridge Law Journal 252, 299, cited in Yanner v Eaton (1999) 201 CLR 351 at 366 [18] per Gleeson CJ, Gaudron, Kirby and Hayne JJ.
More recently, in May 2020 a differently constituted High Court again considered the ambit of the word “property” in Hocking v Director General, National Archives of Australia,[37] and in particular, the notion that “property” is often best understood as a legally endorsed concentration of power. The facts of that case bear no resemblance with those of this case as Hocking concerned property in correspondence passing between Sir John Kerr, then Governor-General of the Commonwealth of Australia and Buckingham Palace whereas this case concerns interests under trusts. Be that as it may, certain observations of the High Court are applicable to this case. The plurality[38] made the following observations –
Property is not “a monolithic notion of standard content and invariable intensity”;[39] it is not “a term of art with one specific and precise meaning”.[40] It is “a term that can be, and is, applied to many different kinds of relationship with a subject matter”. The relationship with a subject matter is in some contexts best understood in terms of a “bundle of rights”. In other contexts, it is best understood in terms of a “legally endorsed concentration of power”.[41]
Accordingly, property is not for all purposes to be equated with “full beneficial, or absolute, ownership”.[42] Indeed, a proprietary relationship can have the quality of relativity. Especially is that so in relation to property in tangible things. It is an old and well-known application of common law doctrine, for example, that “the finder of a jewel, though he does not by such finding acquire an absolute property or ownership, yet he has such a property as will enable him to keep it against all but the rightful owner”.[43]
The question, however, is not as to the content of the common law concepts of “possession” or “possessory title” but as to the meaning of “property” within the context of the Archives Act. The two are not the same.
[37] (2020) 94 ALJR 569.
[38] Kiefel CJ, Bell, Gageler and Keane JJ.
[39] Yanner v Eaton (1999) 201 CLR 351 at [19] quoting K Gray and S F Gray, The Idea of Property in Land, in Bright and Dewar (eds), Land Law: Themes and Perspectives (Oxford University Press, 1998) 15.
[40] Kennon v Spry (2008) 238 CLR 366 at [89].
[41] Yanner v Eaton (1999) 201 CLR 351 at [17]-[19]; Telstra Corporation Ltd v Commonwealth (2008) 234 CLR 210 at [44].
[42] Yanner v Eaton (1999) 201 CLR 351 at [22].
[43] Armory v Delamirie [1722] 93 ER 664 at 664.
For the purpose of this litigation that last quotation can be interchangeably read as a reference to the Family Law Act as well as to a reference to the Archives Act. In either circumstance, the meaning of property is not the same as the common law conception of possession or possessory title.
Most of the debate before me on the question of property centred around the observations of the High Court in Kennon v Spry.[44] Mr Glick QC as well as Mr Myers AC QC placed heavy reliance on various passages of the Court’s reasons so it is essential to go to those reasons, in terms. Mr Glick QC submitted in overview that the entitlement enjoyed by Mrs Spry to due consideration was answered affirmatively by French CJ, and separately in the joint judgments of Gummow and Hayne JJ. French CJ held as follows
The word “property” in s 79 is to be read as part of the collocation “property of the parties to the marriage”. It is to be read widely and conformably with the purposes of the Family Law Act. In the case of a non-exhaustive discretionary trust with an open class of beneficiaries, there is no obligation to apply the assets or income of the trust to anyone. Their application may serve a wide range of purposes. In the present case, prior to the 1998 Instrument those purposes could have included the maintenance or enrichment of Mrs Spry.
Where property is held under such a trust by a party to a marriage and the property has been acquired by or through the efforts of that party or his or her spouse, whether before or during the marriage, it does not, in my opinion, necessarily lose its character as “property of the parties to the marriage” because the party has declared a trust of which he or she is trustee and can, under the terms of that trust, give the property away to other family or extended family members at his or her discretion.
[44] (2008) 238 CLR 366.
The Chief Justice identified Mrs Spry’s right to due consideration as an equitable right.[45]
[45] (2008) 238 CLR 366, 393 (at [73]).
Relying on the holdings of Lord Wilberforce in the decision of the House of Lords in Gartside v Inland Revenue Commissioners[46] French CJ held that each beneficiary had the right to compel the trustee to consider whether or not to make a distribution to him or her as well as the right to proper administration of the trust. Those rights “are in the nature of equitable choses in action”.[47] French CJ held as follows in relation to the difficulty valuing such rights –
The beneficiary of a non-exhaustive discretionary trust who does not control the trustee directly or indirectly has a right to due consideration and to due administration of the trust but it is difficult to value those rights when the beneficiary has no present entitlement and may never have any entitlement to any part of the income or capital of the trust.
[46] [1968] AC 553, 617.
[47] (2008) 238 CLR 366, 393 (at [75]).
In expressing difficulty in putting a value on the right to due administration and the right to due consideration, French CJ acknowledged two earlier decisions of the Family Court, the first in time being In the Marriage of Hauff,[48] and the second in time being In the Marriage of Evans,[49] although the Chief Justice offered no analysis of either of those decisions. Of the difficulty in valuing either of those rights, the Chief Justice held that “a valuation might not be beyond the actuarial acts in relation to the right of due consideration.” No equivalent observation was made with respect to the right to due administration.
[48] (1986) 10 Fam LR 1076, 1081.
[49] (1991) 104 FLR 130.
So far as French CJ’s observations about the difficulty of valuing the right of due consideration were concerned, counsel for the wife made the following submission –
So there we are, your Honour. His Honour the Chief Justice flags it’s difficult. We know for 100 years now the courts have said it is difficult, but it doesn’t mean it’s impossible. We will do the best we can.[50]
[50] T 18 L 11.
The right to due consideration and the right to due administration is each in the nature of an equitable chose in action.[51] As such, in accordance with the observations of French CJ in Kennon v Spry[52] each can be taken into account in determining whether it is just and equitable to make an order under s 79 of the Act on the basis that the assets of the trusts are property of the marriage. Counsel for the wife placed considerable store in those observations.
[51] Kennon v Spry (2008) 238 CLR 366, 393 (at [75] French CJ).
[52] (2008) 238 CLR 366, 395 (at [80]).
The joint judgment of Gummow and Hayne JJ is conventionally credited for containing statements of principle in relation to “property”. Their Honours approached the task of assigning meaning to the word “property” as it appears in the Act as a matter of statutory construction, stating that the term “property” is not a term of art with one specific and precise meaning,[53] instead requiring close attention to statutory context in which the term is used having regard to the subject matter, scope and purpose of the relevant legislation.[54] Their Honours took the view that the dispute in that case was not resolved by considering only the way in which the term “property” may be used in relation to trusts of the kind described as “discretionary trusts”.[55] Gummow & Hayne JJ held as follows –
Reference was made earlier in these reasons to the comprehensive sense in which the term “property” is defined in s 4(1) of the Act. And it will also be recalled that the “property” which may be the subject of orders under s 79(1) of the Act is “the property of the parties to the marriage or either of them” (emphasis added). The right of the wife with respect to the due administration of the Trust was included in her property for the purposes of the Act. The submissions by Mr Gleeson to this effect should be accepted. The submissions to the contrary by Mr Myers should not be accepted. And in considering what is the property of the parties to the marriage (as distinct from what might be identified as the property of the husband) it is important to recognise not only that the right of the wife was accompanied at least by the fiduciary duty of the husband to consider whether and in what way the power should be exercised, but also that, during the marriage, the power could have been exercised by appointing the whole of the Trust assets to the wife. Observing that the husband could not have conferred the same benefit on himself as he could on his wife denies only that he had property in the assets of the Trust, it does not deny that part of the property of the parties to the marriage, within the meaning of the Act, was his power to appoint the whole of the property to his wife and her right to a due administration of the Trust.
[53] Citing Yanner v Eaton (1991) 201 CLR 351 and Zhu v Treasurer (NSW) (2004) 218 CLR 530.
[54] Australian Securities and Investments Commission v Carey (No 6) (2006) 153 FCR 509 and Saulnier v Royal Bank of Canada WBLI Inc (2008) 3 SCR 166, 178.
[55] (2008) 238 CLR 366, 397 (at [90]).
In Kennon v Spry, orders made pursuant to s 106B of the Act setting aside the 1998 Instrument and the 2002 Instrument were important for the conclusions expressed about “property”. Gummow & Hayne JJ put the position in the following terms –
The conclusion reached by the trial judge (erroneously) that the husband could have applied the whole or part of the Trust fund to or for his own benefit is inconclusive of the outcome. The jurisdiction being exercised by the Family Court was, as earlier indicated, jurisdiction over “proceedings between the parties to a marriage with respect to the property of the parties to the marriage or either of them” (emphasis added). What matters in this case is that once the 1998 Instrument and the 2002 Instrument were set aside by the s 106B orders, the property of the parties to the marriage or either of them was to be identified as including the right of the wife to due administration of the Trust, accompanied by the fiduciary duty of the husband, as trustee, to consider whether and in what way the power should be exercised. And because, during the marriage, the husband could have appointed the whole of the Trust fund to the wife, the potential enjoyment of the whole of that fund was “property of the parties to the marriage or either of them”. Furthermore, because the relevant power permitted appointment of the whole of the Trust fund to the wife absolutely, the value of that property was the value of the assets of the Trust. In deciding what orders should be made under ss 79 and 80 of the Act, the value of that property was properly taken into account. Wrongly attributing its value to the husband is irrelevant to the ultimate orders made.
Counsel for the wife argued that this Court has accepted that rights to due consideration and due administration are property,[56] and that the husband’s interests in the trust in that case was brought to account in the balance sheet. They invited me to do likewise.
[56] Ingles & Ingles [2019] FamCA 33 (at [157] – [158].)
Before turning to the issue of valuing the equitable rights asserted in this case, it is critical to appreciate the manner in which the husband contended that the rights in issue in this litigation are not property for the purpose of s 79 of the Act. In written submissions filed on behalf of the husband and in debate advanced before me by Mr Myers AC QC, it was argued that the husband’s right to due consideration and his right to due administration under the relevant trusts are rights only, not property, and that those rights are not capable of valuation.
Counsel for the husband submitted that under each of the four trusts in issue, the trustee is not obliged to distribute income or capital and instead may, in each trustee’s discretion, choose to allow the income to accumulate in the trust.[57] Counsel for the husband argued that the trustee under each trust does not have a duty to distribute income or capital during the life of the trust in consequence of which, so they argued, the husband is the object of a “mere power” rather than his being the object of a “trust power.” Calling in aid the observations of Lord Upjohn in In re Gulbenkian’s Settlement,[58] counsel for the husband submitted that the trustees under each trust in this case were under no duty to exercise the power. Lord Upjohn held as follows –
Again the basic difference between a mere power and a trust power is that in the first case trustees owe no duty to exercise it and the relevant fund or income falls to be dealt with in accordance with the trusts in default of its exercise, whereas in the second case the trustees must exercise the power and in default the court will. It is briefly summarised in 30 Halsbury's Laws (3rd Edn), p 241, para 445: “… the court will not exercise or compel trustees to exercise a purely discretionary power given to them; but the court will restrain the trustees from exercising the power improperly, and, if it is coupled with a duty, the court can compel the trustee to perform their duty.” It is a matter of construction whether the power is a mere power or a trust power and the use of inappropriate language is not decisive (Wilson v Turner ((1833), 22 ChC 521 at p 525)).
[57] In support, Counsel cited clauses 12 and 13 of the B Trust, clauses 22 and 23 of The F Trust, clauses 32 and 33 of The E Trust and clause 40 of TheG Family Trust.
[58] [1970] AC 508, 525 (subnom Whishaw v Stephens).
Relying on Lord Wilberforce’s speech in the House of Lords in McPhail v Dalton[59] counsel for the husband submitted that the distinction between a trust power and a mere power is significant because the court can compel a trustee to exercise a trust power whereas the court cannot compel a trustee to exercise a mere power. Lord Wilberforce held as follows –
Assimilation of the validity test does not involve the complete assimilation of trust powers with powers. As to powers, I agree with my noble and learned friend Lord Upjohn in Re Gulbenkian's Settlement that although the trustees may, and normally will, be under a fiduciary duty to consider whether or in what way they should exercise their power, the court will not normally compel its exercise. It will intervene if the trustees exceed their powers, and possibly if they are proved to have exercised it capriciously. But in the case of a trust power, if the trustees do not exercise it, the court will; I respectfully adopt as to this the statement in Lord Upjohn's opinion (p. 525).
[59] [1971] AC 424, 456 (subnom In Re Baden’s Deed Trusts).
Those principles taken from Lord Upjohn’s speech and from Lord Wilberforce’s speech are of undeniable correctness and have stood in Anglo-Australian law of trusts for decades. But the issue in this case does not concern the power of the trustees to exercise a trust power or a mere power. The issue in this case is whether the two equitable rights earlier identified are “property” for the purposes of s 4 and s 79 of the Act. Nothing in the speeches of Lord Upjohn or Lord Wilberforce touch upon that issue, it seemed to me.
Relying on the decision of this court in Harris v Dewell,[60] counsel on behalf of the husband argued that property ostensibly of a trust can only be treated as property for the purpose of s 79 where a person has complete legal or de facto control over the assets of the trusts and can appoint them to their benefit or to the benefit of a party to the marriage. I do not read the portions of those reasons to properly represent the proposition propounded. The relevant passages were as follows –
[67] It should be accepted that the principles emerging from the High Court and from the decisions of this Court to which reference has been made permit of a finding that property ostensibly that of a trust can be treated as property of a party for s 79 purposes where evidence establishes that the person or entity in whom the trust deed vests effective control is the “puppet” or “creature” of that party. The metaphor is used to connote a situation where the person or entity with control (the “puppet”) does nothing without the party (the “puppet master”) controlling or directing that person or entity.
[68] Control is not sufficient of itself. What is required is control over a person or entity who, by reason of the powers contained in the trust deed can obtain, or effect the obtaining of, a beneficial interest in the property of the trust. In our respectful view, it is in that sense, that Finn J speaks of “some lawful right to benefit from the assets of the trust”.
[60] (2018) 58 Fam LR 313, 326.
I decline to place the emphasis on those paragraphs that counsel for the husband urged. In any event, those passages do not address the specific issue to hand in this case, namely, whether the equitable choses in action to due consideration and to due administration are “property”.
On behalf of the husband it was submitted that the recent decision of the Court of Appeal of the Supreme Court of Western Australia in Coley v Danae[61] illuminates the issue. Counsel for the husband submitted that based on the authority of Coley v Danae, Kennon v Spry should be distinguished in cases like the present where a spouse does not have complete control over the trust asset and the property the subject to the trust was not acquired by or through the efforts of a party to the marriage.
[61] [2020] WASCA 13.
The facts of Coley v Danae were very different to those with which this case is concerned, especially in relation to the provisions of the four trust deeds of relevance in this case.
In Coley v Danae the case was conducted at trial on the basis that the relevant trust was a false front. A careful reading of the reasons of the Court of Appeal reveals that the trial judge did not devote attention to the equitable choses in action of the right to due consideration and the right to due administration. For that matter the Court of Appeal recognised that the High Court in Kennon v Spry accepted that a spouse’s equitable right, as a beneficiary of a discretionary trust, to due administration of the trust may (in a particular case) constitute his or her “property” for the purpose of s 79 of the Act. That much accords with the express holdings of Kennon v Spry.
However, the Court of Appeal added its view that for the purposes of Western Australian family law legislation, the base equitable right of a beneficiary under a discretionary trust will not ordinarily be included as property in the absence of special circumstances of the kind considered in Kennon v Spry.[62] It must be recognised at once that the High Court itself in Kennon v Spry did not identify the circumstances with which it was concerned in relation to the equitable rights of due consideration and due administration as being special circumstances.
[62] [202] WASCA 13 (at [88]).
The Court of Appeal focused on the right to due consideration of a discretionary trust being “property” being separate and distinct from the assets of the trust itself. In respect of that right the Court of Appeal held as follows –
The valuation of such a right if it might be possible, is almost certainly not to be equated with the assets of the trust, or even a proportion of them. Such a valuation would be a matter for expert actuarial or valuation evidence in light of all of the facts.
Counsel for the husband relied on the Court of Appeal’s conjunction between two things. The first was the observations of French CJ in Kennon v Spry in relation to the difficulty in valuing the right to due consideration. The second was the meaningless value of rights and powers under the trust without Dr Spry’s legal title to the trust assets.[63] That led counsel for the husband in Coley v Danae to submit as follows –
The Court noted that the respondent’s position as a “mere beneficiary of a discretionary trust” could still be relevant to the proceedings, but only to the extent that “the prospect of trust distributions to the beneficiary may be considered a “financial resource”’ for the purpose of maintenance orders under s 205ZD(3) of the Family Court Act 1997 (WA) (and its equivalent s 75(2) in the Family Law Act).
[63] [2020] WASCA 12 (at [85]), Kennon v Spry (2008) 238 CLR 366, 390 (at [62] and the husband’s written submissions at paragraph 26.
Counsel for the husband in this case argued that the decision in Coley v Danae is directly applicable in respect of the meaning of “property” under s 79 of the Act, contending that I should follow that decision. They said I should follow that case on the basis that it is a decision of an intermediate appellate court on equivalent legislation, unless convinced the decision is plainly wrong, citing Farah Constructions Pty Ltd v Say-Dee Pty Ltd.[64]Counsel for the husband argued that far from being plainly wrong, the Court of Appeal’s decision in Coley v Danae is “a considered and unanimous decision that correctly applies the law of trusts and reasoning in Kennon v Spry”.[65]
[64] (2007) 230 CLR 89 (at [135]).
[65] Paragraphs 32 of the husband’s written undated submissions.
It seemed that Mr Glick QC was provided with the husband’s submissions shortly prior to the commencement of the trial of the preliminary issue on 21 February 2022 and therefore did not have an opportunity to consider the husband’s submissions in relation to Coley v Danae.
A few matters emerge from the submissions made on behalf of the husband in relation to the proposition that Coley v Danae is a decision of an intermediate appellate court on equivalent legislation and as such, I should follow that decision unless convinced it is plainly wrong. The correct statement of principle about the treatment to be given by a trial judge in relation to a statement from an intermediate appellate court is derived from the passage in Farah Constructions Pty Ltd v Say-Dee Pty Ltd, as follows –
The result of the statements by the Court of Appeal about restitution-based liability has been confusion among trial judges of a type likely to continue unless now corrected. As Hamilton J remarked and Barrett J agreed, a trial judge of the Supreme Court of New South Wales now “faces the difficult situation of obiter dicta in the High Court some thirty years ago conflicting with recent dicta in the Court of Appeal, which have met with substantial criticism”.[66] The confusion is not likely to be limited to New South Wales judges. Intermediate appellate courts and trial judges in Australia should not depart from decisions in intermediate appellate courts in another jurisdiction on the interpretation of Commonwealth legislation or uniform national legislation unless they are convinced that the interpretation is plainly wrong.[67] Since there is a common law of Australia rather than of each Australian jurisdiction, the same principle applies in relation to non-statutory law. There has already been an example of a single judge feeling obliged to follow the Court of Appeal despite counsel’s submission that he was obliged not to do so.[68]
[66] Kalls Enterprises Pty Ltd (In liq) v Baloglow (2006) 58 ACSR 63 at 78 [47] per Hamilton J, quoted in Darkinjung Pty Ltd v Darkinjung Local Aboriginal Land Council [2006] NSWSC 1217 at [30] per Barrett J.
[67] Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 492 per Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ.
[68] Multan Pty Ltd v Ippoliti [2006] WASC 130 at [45] per Simmonds J.
That corresponded with an earlier statement to like effect from the High Court in Australian Securities Commission v Marlborough Gold Mines Ltd[69] as most recently applied by the High Court on 16 February 2022 in Walton & Anor v ACN 004 410 833 Limited (Formerly Arrium Limited) (In Liquidation).[70] In Marlborough Gold, the statement of principle was as follows –
It is somewhat surprising that the Full Court of the Supreme Court of Western Australia, and more particularly that Ng C, declined to follow what was said by the Full Court of the Federal Court in Windsor. Although the considerations applying are somewhat different from those applying in the case of Commonwealth legislation, uniformity of decision in the interpretation of uniform national legislation such as the Law is a sufficiently important consideration to require that an intermediate appellate court — and all the more so a single judge - should not depart from an interpretation placed on such legislation by another Australian intermediate appellate court unless convinced that that interpretation is plainly wrong.
[69] (1993) 177 CLR 485 (at [4]).
[70] [2022] HCA 3 (at [124]).
In Walton, the statement of principle was expressed as follows –
In accepting the proposition drawn from Re Excel in Evans v Wainter, the Court of Appeal properly applied the interpretative approach first laid down in Australian Securities Commission v Marlborough Gold Mines Ltd in the context of the Corporations Law that "an intermediate appellate court – and all the more so a single judge – should not depart from an interpretation placed on such legislation by another Australian intermediate appellate court unless convinced that that interpretation is plainly wrong". A consequence of the approach is that it occasionally falls to this Court on appeal from an intermediate appellate court to rechart a course of decision-making incorrectly set by another intermediate appellate court. That is what needs to happen here.
The legislation under consideration in Coley v Danae was Western Australian state legislation. Western Australia stands outside the operation of the Family Law Act. The Family Court Act 1997 of Western Australia is not uniform national legislation, unlike, for example, the Corporations Act or the Income Tax Assessment Act. In my view, the Marlborough Gold principle does not apply to the circumstances of this case even though, as counsel for the husband correctly submitted, certain aspects of the provisions of The Family Court Act 1997 (WA) have similar expression among the provisions in the Family Law Act 1975.
A decision of the Court of Appeal of Western Australia does not bind a single justice of what was the Family Court of Australia and now is Division 1 of the Federal Circuit and Family Court of Australia. In Trident General Insurance Co Ltd v McNiece Bros Pty Ltd[71] the High Court held that courts are bound to apply the principles laid down by courts higher in the appellate hierarchy. Decisions of the Court of Appeal of Western Australia provide persuasive, but not binding, precedents on single judges of this Court. I have taken into account the observations of the court in Coley v Danae in its commentary about the holdings of the High Court in Kennon v Spry. The decision of Kennon v Spry binds me and according to the doctrine of precedent, I am required to follow it irrespective of commentary about it by a State Court of Appeal.
[71] (1988) 165 CLR 107, 129-130 (Brennan J).
Counsel for the husband also relied on a decision of a single judge of the Family Court (as it then was) for the contention that a wife’s right to due administration and due consideration as the object of a discretionary trust did not amount to “property” under s 79 of the Act.[72] Two passages of the decision in that case are apposite it seemed to me. The first passage, relying on the decision of Jackson J of the Supreme Court of Queensland in Fordyce v Ryan,[73] was as follows –
It was held in Kennon v Spry that the right to due administration of the trust fund of a beneficiary of a non-exhaustive discretionary trust and the equitable entitlement of such a beneficiary to due consideration in relation to the application of income and capital can be taken into account as part of the property of the beneficiary as a party to the marriage for the purposes of s 79 of the FLA. It was also held that a trustee’s power to apply assets or income of the trust to the beneficiary is able to be treated for the purposes of the FLA as a species of property held by the trustee as a party to the marriage, although subject to the fiduciary duty to consider all beneficiaries. However these conclusions do not affect what constitutes property according to the general law. Accordingly, Kennon v Spry does not affect the answer to the present question.
[72] Rigby and Kingston (No 4) [2021] FamCA 501 at [80]-[95].
[73] [2017] 2 Qd R 240, 247 at [36].
The second[74] was a commentary on the observations of the High Court in Kennon v Spry. It was as follows –
While certain statements made by the plurality in Kennon v Spry may seem to have extended the meaning of “property” in s 79 proceedings to include a mere expectancy or possibility of a future proprietary right,[75] I respectfully agree with the effect of the observations made by Coleman J in Sand, i.e. that the statements need to be read in the context of the particular circumstances of that case,[76] and that “as the High Court in Mullane v Mullane[77] makes clear, not everything appearing to be a “chose in action” could be regarded as “property” for the purposes of s 4 of the Act”.[78]
[74] [2021] FamCA 501 (at [88]).
[75] Kennon & Spry at 395, [78] (French CJ) and 408, [126] (Gummow & Hayne JJ).
[76] Sand & Sand (2012) FLC 93-519 at 86,656, [52].
[77] (1983) 158 CLR 436 at 445.
[78] Sand & Sand (2012) FLC 93-519 at 86,655, [46].
Several things must be said of those statements from Rigby & Kingston (No 4).[79] First, the comment attributed to Jackson J to the effect that a mere right to due consideration and to due administration is not in general law recognised as property is not what his Honour actually held. His Honour actually held as follows as is set out immediately above –
It was held in Kennon v Spry that the right to due administration of the trust fund of a beneficiary of a non-exhaustive discretionary trust and the equitable entitlement of such a beneficiary to due consideration in relation to the application of income and capital can be taken into account as part of the property of the beneficiary as a party to the marriage for the purposes of s 79 of the FLA. It was also held that a trustee’s power to apply assets or income of the trust to the beneficiary is able to be treated for the purposes of the FLA as a species of property held by the trustee as a party to the marriage, although subject to the fiduciary duty to consider all beneficiaries. However these conclusions do not affect what constitutes property according to the general law. Accordingly, Kennon v Spry does not affect the answer to the present question.
[79] [2021] FamCA 501.
The statement by Jackson J that the observations of the High Court in Kennon v Spry do not affect what constitutes property according to the general law do not equate, as Carew J said they do, to a wide ranging statement “a mere right to consideration as an object of a benefaction and due administration is not in general law recognised as property.” That statement ignored statements of the High Court in such cases as Yanner v Eaton,[80] Telstra Corporation Ltd v The Commonwealth,[81] and Hocking v Director General, National Archives of Australia,[82] each preceding the decision in Rigby & Kingston (No 4) about the nature of “property”. I decline to follow Rigby & Kingston (No 4) to the extent that it makes comments in contradiction to the observations of the High Court about the metes and bounds of property.
[80] (1999) 201 CLR 351.
[81] (2008) 234 CLR 210.
[82] (2020) 94 ALJR 569.
It must not be forgotten that the statement of Jackson J in Fordyce v Ryan concerned bankruptcy legislation, not family law.
Self-evidently, the reasons in Kennon v Spry must be read in the factual context of that case. I do not read the reasons of French CJ or the joint reasons of Gummow & Hayne JJ as amounting to an extension of the meaning of “property” for the purposes of s 79 of the Act to “include a mere expectancy or possibility of a future proprietary right”. As I have already reasoned, French CJ described the right to due consideration and the right to due administration as equitable choses in action. French CJ did not describe those as “a future proprietary right”[83] as the learned judge in Rigby & Kingston (No 4) suggests nor did Gummow & Hayne JJ.[84] In my view, the terminology adopted by the learned judge in Rigby & Kingston (No 4) was not borne out in the wording actually used in the reasons of the members of the High Court.
[83] (2008) 238 CLR 366, 396 (at [78]).
[84] Ibid 408 (at [126]).
I do not draw from the decision of Coley v Danae and Rigby & Kingston (No 4) the propositions urged on behalf of the husband.
Drawing some of those threads together, it seems to me that according to existing statements of principle of the High Court, the equitable choses in action of due consideration and due administration under a discretionary trust of the sort illustrated by The B Trust, The F Trust, The E Trust and The Mr G (1977) Family Trust are in fact and in law “property” within the meaning of s 4 and s 79 of the Act. I say that for several reasons. In each of the four trusts, the husband retained power permissibly exercised over a certain thing, within the contemplation of Yanner v Eaton. He held what certain of the authorities describe as a “bundle of rights”. The husband enjoys a position of considerable influence on the Family Council and historically the husband has received distributions of approximately $15 million. He also has the ability to block. To my way of thinking the husband enjoys a legally endorsed concentration of power over things or resources, as Professor Gray describes “property” in his Cambridge University paper Property in Thin Air.
THE EXPERT EVIDENCE ON THE FIRST ISSUE
While Mr T and Mr U gave evidence on each preliminary issue, only Mr T was cross-examined. It is necessary to record some of the more important matters that emerged from the reports of each.
MR T REPORT 31 JANUARY 2022
The report of Mr T is voluminous and complex. Relevantly paraphrased, his findings may be distilled in the manner set out below –
(a)the husband’s rights are capable of being valued, both prior to and subsequent to the amending deeds;[85]
[85] Hall report, paragraph 7.
(b)historically, the husband’s rights have given rise to substantial cash flows from distributions from various trusts and may give rise to future cash flows and other benefits;[86]
[86] Hall report paragraph 8.
(c)without the husband’s rights as a beneficiary, the husband would not have been entitled to receive those distributions;[87]
[87] Ibid.
(d)future benefits that will accrue from the husband’s rights are subject to three categories of uncertainty,[88] first, uncertainty about the earnings and distributions of the entity and assets owned or controlled by various trusts, second, uncertainty about the dispositions of the amounts available for distribution by the various trusts (that is to say, the husband’s share of distributions), and third, uncertainty about the survival of the husband to receive distributions;
[88] Hall report paragraph 9.
(e)uncertainty about the amount and timing of future benefits arising from property to be valued is a common feature of valuation and does not normally make that property incapable of being valued;[89]
[89] Hall report paragraph 10.
(f)it is necessary to consider whether a reasonable basis exists for addressing the uncertainties earlier identified;[90]
(g)uncertainty about future benefits relating to the underlying earnings and assets and to the husband’s survival do not prevent the husband’s rights from being valued;[91]
(h)the question of whether a reasonable basis exists for assessing the impact of the uncertainty in relation to the disposition of amounts available for distribution by the various trusts represents a more difficult uncertainty;[92]
(i)prior to the amending deeds the husband had a significant level of influence and/or control over the trustee’s decisions;[93]
(j)the husband had control over one trust and in respect of two other trusts he had the effective ability during his lifetime to ensure that each year –
(i)he received at least a specified percentage of any distributions made; or
(ii)no distribution would be made (with potentially adverse tax consequences);[94] and
(k)after the amending deeds the husband still has significant influence on trustee decisions and there is a substantial history of past distribution decisions agreed by the same group of decision-makers (that include the husband).[95]
[90] Hall report paragraph 11.
[91] Hall report paragraph 12.
[92] Hall report paragraph 13.
[93] Hall report paragraph 15.
[94] Ibid.
[95] Hall report paragraph 17.
So far as The B Trust was concerned, Mr T expressed the opinion[96] that before and after the amending deeds, the husband has significant influence over the trustee’s decisions and subsequent to the amending deeds, his influence increased since now substantive allocation decisions can only be made over his objection if all other directors agree.
[96] Hall report paragraph 34.
So far as The F Trust was concerned, Mr T expressed the opinion[97] that prior to the amending deeds, the husband had the power to veto any income or capital distributions other than one made in accordance with specified percentages, meaning that the husband had the ability to ensure he received 16.574% of all future income and capital distributions during his lifetime from The F Trust.
[97] Hall report paragraph 47
Subsequent to amending deeds, Mr T expressed the opinion[98] that the husband had significant influence over the trustee’s distribution decisions for The F Trust because substantive allocation decisions can only be made over his objections if all other directors agree. However, Mr T opined that the husband no longer has the effective right to ensure he received at least 16.574% of any distributions made.
[98] Hall report paragraph 48.
So far as The E Trust was concerned, Mr T observed that the husband is one of several directors of E Pty Ltd, the trustee of The E Trust.[99] Prior to the amending deeds Mr T said[100] that the husband effectively had the power to veto any income or capital distribution other than one made in accordance with specified percentages meaning, in effect, the husband had the ability to ensure that he received at least 15.688% of all future income and capital distributions from that trust during his lifetime.
[99] Hall report paragraph 49.
[100] Hall report paragraph 49.
After the amending deeds, Mr T expressed the opinion[101] that the husband still retained significant influence over the trustee’s distribution decisions of The E Trust, meaning substantive allocation decisions can only be made over the husband’s objection if all other directors agree, a prima facie reduction in his level of effective control over trustee decisions compared to the situation prior to the amending deeds.
[101] Hall report paragraph 59.
So far as The G Trust was concerned, Mr T reported[102] that the husband was the sole director of the trustee, C Pty Ltd. Mr T expressed the opinion[103] that effectively the husband as sole director of C Pty Ltd has discretion over making income or capital distributions to any potential beneficiaries of this trust, including himself, subject to the rights of each beneficiary to due consideration and due administration.
[102] Hall report paragraph 60.
[103] Hall report paragraph 62.
In the passages below I have addressed Mr T’s opinions on valuation. Before turning to that, it is necessary to record the concessions made by Mr T during his cross-examination by Mr Myers AC QC.
Mr T said he had not previously valued a right of the kind in issue in this case.[104] Mr T said that in order to conclude that something was capable of valuation, he needed to form a view as to whether it would be possible to develop a reasonable basis on which to estimate future outcomes in relation to money paid to a beneficiary.[105]
[104] T46 L 27.
[105] T46 L34-38.
Mr T said[106] that the reasonable basis on which to estimate future outcomes arose from a number of factors including the existence of two trusts where the husband could veto any distribution other than one in specified percentages. In the case of the third trust, the husband is the sole director and had considerable discretion about decisions. So far as the amending deeds were concerned, Mr T said the husband was CEO of the G Group and chairman of the Family Council. When looked at over five years, a distinct history of distributions emerged. Combining the pattern of distributions, the husband’s influence and his effective veto power, Mr T said he formed the view that it was very likely on the balance of probabilities to develop a reasonable basis for estimating what would happen in the future.
[106] T47 L33-47.
Mr T gave evidence that reasons for past decisions help in predicting likely decisions in the future.[107]
[107] T49 L45.
He said he did not know the tax positions of the trusts.[108] He said a large number of entities and people could receive income and capital distributions although he did not consider specifically how many there were.[109]
[108] T50 L43.
[109] T51 L20-26.
Mr T expressed an opinion[110] about whether it was relevant to know if the husband as an appointee was among other appointees, saying that the number of potential beneficiaries was relevant although the fact that there may be others who received nothing was not particularly relevant in assessing whether it was possible to determine a reasonable basis for assessing the husband’s rights. Mr T said it would be reasonable to assess the husband’s rights over the whole of the husband’s life.[111]
[110] T52 L3-12.
[111] T52 L15.
Mr T said the husband’s rights were not capable of being assigned or transferred and he did not consider the possibility of those rights being assigned or transferred. Mr T said he did not consider it was necessary to make enquiries about the financial needs of potential appointees of income.[112] Mr T said he did not assume that every potential appointee would seek to get as much money as he or she could.[113] Mr T said he considered whether it was possible to reach a valuation of the expected cash flow as a result of the exercise of the rights he was valuing.[114] Mr T said there were some main factors in forming the view that those rights were capable of valuation including the history of past distributions, that it was possible to constrain the decisions of the trustee of at least two of the trusts prior to the amending deeds and that the husband had a significant influence over decisions.[115]
[112] T53 L44.
[113] T 54 L20.
[114] T54 L22-25.
[115] T55 L1-10.
Mr T gave evidence that the right he was concerned about[116] was the right to due consideration and due administration of the trust, which depended on the appointor making an appointment in favour of the husband.[117]
[116] T55 L31.
[117] T55 L46.
MR U REPORT 15 FEBRUARY 2022
Mr U said that in his opinion, based on the information available to him, the husband’s rights are not capable of being valued either before or after the amending deeds.[118] Mr U declined to express an opinion on whether the husband’s rights are property because he said that was a legal question to be determined by the court.[119]
[118] The MU report paragraph 8
[119] The MU report paragraph 10.
Mr U addressed whether, assuming the husband’s right were property, those rights are capable of being valued. He expressed the opinion that in order for the husband’s rights to be valued –
(a)they must be capable of being valued under the applicable standard of value; and
(b)there must be a reasonable basis for determining the timings, amounts and risks of any expected future cash flows.[120]
[120] The MU report paragraph 11.
Mr U expressed the opinion that the husband’s rights whether before or after the amending deeds –
(a)are not capable of being valued if the applicable standard of value is market value because they cannot be sold; and
(b)are not capable of being valued if the applicable standard of value is value to the owner because there is no reasonable basis for estimating the timings, amounts and risks of any expected future cash flows from the husband’s rights.[121]
[121] The MU report paragraph 13.
Further, Mr U expressed the opinion that based on the information available to him, there is not a reasonable basis for estimating the amounts, timings and risks of any cash flows that the husband might receive in the future from the trusts, whether before or after the amending deeds, and as a result the husband’s rights are not capable of being valued.[122] He said –
(a)the husband’s rights do not cause distributions, rather the cause is the decision of a trustee to exercise its discretion to pay a distribution to the husband;
(b)historical distributions are not helpful; and
(c)the husband has only limited influence over the appointment of, or decision made by, a trustee.[123]
[122] The MU report paragraph 14.
[123] Ibid.
Mr U recorded[124] what he called the “general principle” being the value of the future net cash flows expected to be generated by the property. In a footnote Mr U stated[125] that the net cash flows reflect the net benefit of associated costs generated by the property. He said since cash flows are expected to occur in the future and are subject to risk, that is, their amounts and timing may vary from what is expected, they must be discounted back to a present value in a way that accounts for the time, value of money and degree of risk.[126]
[124] The MU report paragraph 45.
[125] Ibid.
[126] Ibid.
Mr U stated that a standard of value is a conception of value. He said that the choice of standard of value is relevant because it can affect the type of cash flow that should be taken into account in determining value. He said the two commonly encountered standards are market value and value to the owner.[127]
[127] The MU report paragraph 46.
Citing the High Court decision in Spencer v The Commonwealth,[128] Mr U said that the market value is the price that would be paid in a hypothetical sale of the relevant property.[129] Mr U said that market value does not reflect cash flows that would not be obtainable to purchasers generally, such as additional cash flows that only one particular purchaser could obtain.[130] Mr U expressed the opinion that the fact that the husband’s rights cannot be sold because they are not assignable or alienable means that their market value is not capable of being determined.[131]
[128] (1907) 5 CLR 418.
[129] The MU report paragraph 47.
[130] The MU report paragraph 48.
[131] The MU report paragraph 49.
So far as the second basis of valuation was concerned, that is to say, value to the owner, Mr U stated that it is the value to a particular person, and as such is based on the cash flows that a person could expect from owning the property given that person’s particular circumstances.[132]
[132] The MU report paragraph 50.
In developing his opinion concerning the value to the owner, Mr U stated that if the property is capable of being sold, which he said was not the case with the husband’s rights, then the amount of value to the owner will usually be no lower than the market value.[133] Mr U stated that if the property is not capable of being sold, which he said is the case with the husband’s rights, then there will be no market value, and the amount of the value to the owner will depend entirely on the cash flow the owner could expect from continuing to own the property.[134] Mr U stated[135] that in his opinion there was no reasonable basis for estimating the expected cash flows from the husband’s rights and, as a result, the value to the owner is not capable of being determined.
[133] The MU report paragraph 51.
[134] The MU report paragraph 52.
[135] Ibid.
Mr U said[136] there was not a reasonable basis for estimating the amounts, timings and risks of any cash flows that the husband might receive in the future from the trusts, whether before or after the amending deeds and as a result the husband’s rights are not capable of being valued for the three reasons set out in paragraph 70, 71 and 72 of his report.
[136] The MU report paragraph 69.
Mr U compared his reasons and opinions with those of Mr T in section G of Mr U’s report and expressed the opinion that in his view not all property is capable of being valued.[137] Mr U took issue with Mr T’s view that it is certain that the husband will receive some further distribution or distributions from the trusts. Mr U stated[138] that based on the information available to Mr U there is no reasonable basis to believe that the trustees will make distributions having regard to the fact that it depends on the trustees’ exercise of the trustees’ discretionary power in favour of the husband, and there is no way of knowing whether the trustees will do so in the future.
[137] The MU report paragraph 79.
[138] The MU report paragraph 81(a).
Mr U expressed the view[139] that –
(a)an estimate of future cash flows to the husband from income distributions would have to take into account that the trustee can only exercise its discretionary power to make an income distribution if the trustee has net income to distribute;
(b)the trustee is not obliged to make any distribution at all in favour of the husband;
(c)there would have to be a reasonable basis for estimating the timings, amounts and risks of the net income of the trust that it might earn from its assets; and
(d)the distributions of net income the trustee might make to beneficiaries and the distributions of the net income of the trust that the trustee might make in favour of the husband would have an incrementally greater degree of uncertainty than the net income of the trust.
[139] The MU report paragraph 81.
Mr U was not cross-examined.
WHERE DOES THAT LEAVE THE EXPERT EVIDENCE?
So far as the question of whether the husband’s rights are “property” was concerned, Mr T expressed the view that they were, whereas Mr U expressed the view that such a question was a legal question to be determined by the court.
So far as the value of the husband’s rights were concerned, Mr U expressed the view that those rights could not be sold. He opined that if the property is not capable of being sold, which he said is the case with the husband’s rights, there will be no market value and, as there is no reasonable basis for estimating the expected cash flows from the husband’s rights, the value to the owner is not capable of being determined.
Mr T took the view[140] that the husband’s ongoing level of influence and past distributions provide a prima facie reasonable basis to incorporate various uncertainties into the valuation of the husband’s rights.
[140] The MU report paragraph 17.
THE WIFE’S CRITICISMS OF THE MU REPORT
On behalf of the wife, Mr Glick QC posited a collection of submissions in relation to the precise wording adopted by Mr U in his report. Specifically Mr Glick QC submitted –
(a)Mr U’s use of the words “based on the information available to me, the husband’s rights are not capable of being valued”[141] does not equate to an opinion about placing a value on those rights;
[141] T34 L10.
(b)Mr U does not say why those rights cannot be valued;[142]
[142] T34 L22.
(c)courts routinely value something despite the fact that a discretion may be involved;[143]
[143] T34 L47.
(d)Mr U’s assertion that the historical distributions “are not helpful” (his words) is erroneous as those historical distributions are very helpful;[144]
[144] T35 L33.
(e)Mr U’s assertion that the husband has limited influence is erroneous as he has enormous influence;[145]
[145] T35 L40.
(f)the husband’s influence requires testing by cross-examination;[146]
[146] T36 L1.
(g)the wife will argue that the husband’s influence is significant as the husband has received distributions of approximately $15 million, he is the CEO, he sits on all boards, he has the ability to block by reason of being a family representative and his specified percentage is 15.9%;[147]
(h)at trial, counsel for the wife will cross-examine Mr U about the circumstances in which the precise wording of his report came into existence, whether it was settled with legal advisors and how the wording unfolded;[148]
(i)that will have a bearing on whether a triable issue exists in this case;[149]
(j)in paragraph 59 of the wife’s written submissions, the wife did the analysis which Mr U did not do;[150]
(k)in order to determine whether the husband’s right have a low value, a nominal value or any value at all, a trial must be conducted;[151]
(l)the fact that any distribution is out of the control of the husband is the very purpose in valuing the chance, and this case is not about what value the husband’s rights have but rather whether those rights are capable of valuation, irrespective of how difficult it may be to ascribe a value;[152]
(m)Mr U undertook a dissection of distributions which, so Mr Glick QC submitted, was almost identical to his own dissection;[153]
(n)Mr U’s assertion “based on the information available to me” when used by him reveals the absence of a reasonable basis about value;[154]
(o)in like manner that the High Court held in Commonwealth v Amann Aviation Pty Ltd[155] that a value can be ascribed to a chance, in this case, the court should not decline to value the prospect of the trustee making a distribution;[156] and
(p)here, the distributions are not remote, the historical distributions are very helpful, a volatility of income exists, a discernible manner of making distributions exists and no evidence exists in the trustees’ minutes or financial statements in relation to how the distributions were determined.[157]
[147] T36 L4-8.
[148] T36 L10-20.
[149] L36 L28.
[150] Written submissions of the wife, paragraph 59 and T36 L33-39.
[151] T38 L36.
[152] T39 L1-4.
[153] T39 L34.
[154] T40 L29.
[155] (1991) 174 CLR 64.
[156] T40 L40.
[157] T40 L40-L46.
Mr Glick QC submitted that Mr U made statements in his report that are patently wrong, that the court should place very little reliance upon them and that the case should go to trial.[158] Mr Glick submitted that on many issues in the reports of Mr U and Mr T, reasonable minds may differ on a given issue.[159] Mr Glick contended that uncertainty created by third persons does not make it impossible to value the husband’s interest.[160] Nowhere does the husband say that the valuation of the husband’s interests is impossible,[161] nor does Mr U say that to do so is beyond the art of a valuer.[162]
[158] T41 L23-25.
[159] Federal Commissioner of Taxation v St Helen’s Farms (ACT) Pty Ltd (1981) 146 CLR 336.
[160] T42 L22.
[161] T42 L37.
[162] T42 L39.
Mr Glick QC referred to Mr U’s statement at paragraph 91 of his report. Mr Glick said that Mr T’s suggestion that the husband did not have the influence asserted did not appear to accord with the evidence of historical distributions. Mr Glick submitted that Mr U was here engaged in the process of weighing the information and reaching a conclusion.[163] Mr Glick submitted that the wife must, by credible evidence, persuade the Court, what the value of the husband’s interest is.[164]
[163] T43 L 23-27.
[164] T43 L28.
THE GENERAL STEEL FORMULATION
In their written submissions,[165] counsel for the wife relied on an analogy said to exist between the preliminary question under consideration in this case with the summary dismissal principle espoused by the High Court in General Steel Industries Inc. v Commissioner for Railways (NSW).[166]They put the proposition in the following terms –
[41] At this juncture, it is also essential to note that the questions presently asked are an “essential preliminary” to the hearing set down in June 2022, during which the Court will hear and receive all of the relevant evidence. The presently asked questions are analogous to a summary dismissal claim on the General Steel basis:[167] whether, regardless of any facts which may be found at a trial, the Husband’s rights are property which is capable of being valued. If the answer is “no”, the matter ought to be dismissed without further discovery and evidence on this question. If the answer is “yes”, further discovery and evidence can be adduced, and the experts can be briefed in full to develop their final opinions and conclusions.
[165] T43 L28.
[166] (1964) 112 CLR 125 (“General Steel”).
[167] Ibid.
Mr Glick QC added that in reaching his conclusions, Mr U made a number of critical errors and oversights and that a close analysis of Mr U’s reasons will identify that –
(a)his conclusions could be very different if Mr U had further information; and
(b)key pillars to his reasoning proceed from fundamental errors and oversights.[168]
[168] Submissions of the wife paragraph 42.
In General Steel the court held that the jurisdiction to summarily terminate a proceeding for want of a cause of action is likely to be sparingly employed and ought not to be used save where the lack of the cause of action is clearly demonstrated. Of course, Mr Glick relied on General Steel by way of analogy for the self-evident reason that no application was being made to summarily dismiss this s 79 proceeding. Conversely, Mr Glick argued that the husband was endeavouring to foreclose on the wife’s ability of putting in issue in this litigation that the husband’s rights to due consideration and due administration were property for the purpose of s 4 and s 79 of the Act.
It seemed to me that the wife’s contentions about the deficiencies in Mr U’s report were valid. Put differently, in my view, not only should the debate in this litigation about whether the husband’s rights are property be fully ventilated at trial but the value of those rights should also be fully ventilated at trial. I am not willing to hold at this interlocutory juncture in this litigation that Mr U is necessarily correct when he asserts that the husband’s rights cannot be valued. I take the view that there is real merit in the wife’s criticism of Mr U’s report in connection with valuing the husband’s interest. It seems to me that this case is not a proper case to visit upon the wife the full impact of the reasoning in General Steel. In other words, in my view, the husband’s contention that no arguable case can be advanced about the ability to value the husband’s equitable choses in action have not been made out, at least not on this application. The case, and that issue in particular, must go to trial.
But before leaving the point, it is essential to address a matter which was the subject of heavy focus on behalf of the husband, namely, the submission that the husband’s equitable choses in action take the form of objects of a mere power with the consequence that they cannot be the subject of an order of the court compelling the trustee to make a distribution.[169] Relying on Lord Wilberforce’s speech to the House of Lords in McPhail v Dalton,[170] counsel for the husband submitted as follows –
The ultimate point is that the Husband’s rights as the potential object of a mere power cannot be used to enforce a distribution. His rights rise no higher than preserving the fund or ensuring that any discretionary decision is made in good faith, upon real and genuine consideration and in accordance with the purposes for which they were granted. Such rights do not have pecuniary value.
[169] Husband’s submissions paragraph 44 & 46.
[170] [1971] AC 424, 457.
In his verbal address, Mr Myers AC QC elaborated on that written submission by advancing a collection of propositions on point.[171] Those may be distilled into the following –
[171] T58 et seq.
(a)a distinction between a trust power and a mere power, while old fashioned, remains good law;[172]
(b)in the context of this litigation, a trust power is a power which the holder of the power has a duty to exercise;[173]
(c)in this case no such duty is imposed on the holder;
(d)here, the power of the trustee to distribute income is given by the instrument but it is not a duty to do it;[174]
(e)the decision in In Re Gulbenkian’s Settlement[175] decided that class certainty was the pivotal issue;[176]
(f)thereafter, in McPhail v Dalton the House of Lords held that the test for certainty of trust powers was the same as the test for mere powers;[177]
(g)McPhail v Dalton also held that the court will not take it upon itself to exercise a mere power but it will tell the holder of the power what it should do and if the holder will not do what it is told to do, another is appointed;[178]
(h)in the case of a trust power where a duty to exercise the power exists, the court will exercise the power if the trustee does not;[179] and
(i)the trusts in this litigation are different in terms and content to the trusts in Smorgon v ES Group Operations Pty Ltd,[180] as that case turned on the fact that the plaintiff was a person who took in default at the vesting date and therefore had, throughout the life of the trust, a vested interest in the income and in undistributed capital of the trust from time to time, such vested interest being liable to be defeated by the exercise of the power of appointment.[181]
[172] T58 L26.
[173] T58 L29.
[174] T58 L37 and 38.
[175] [1970] AC 508.
[176] T59 L9.
[177] T59 L14.
[178] T50 L7-10.
[179] T60 L22 and 23.
[180] (2021) 64 VR 146.
[181] T61 L38-44.
In answer to a question from me,[182] Mr Myers AC QC submitted[183] that the husband’s right to due administration and due consideration should not be included as a balance sheet item in any s 79 application.
[182] T63 L19.
[183] T63 L27.
In his concluding submissions before me, Mr Myers AC QC contended that in certain limited circumstances, the equitable rights of a beneficiary under a discretionary trust to due consideration and to due administration may well be “property” if complied with three matters (none of which emerged in this case).[184] Those three matters are –
(a)that a person has control of the disposition of the property of the trust;[185]
(b)the person who has control can appoint property to himself or to the other party to the marriage;[186] and
(c)the property which is subject to the trust is property of the marriage.[187]
[184] T73 L37 et seq.
[185] T73 L41.
[186] T73 L47.
[187] T73 L47.
Mr Myers AC QC submitted that in this litigation the relevant trusts were established long before the husband was even an adult, that the property came from and was settled by his grandparents and has been augmented by organic growth.[188]
[188] T74 L1-4.
In his reply, Mr Glick QC joined issue with the submissions agitated on behalf of the husband concerning Smorgon v ES Group Operations Pty Ltd. Mr Glick contended that over several decisions, proximity of a person as a beneficiary under a trust is critical, those decisions including Erceg v Erceg[189] (a five member appellate court) and Chan v Valmorbida Custodians Pty Ltd.[190] Mr Glick submitted that equity looks at substance and eschews rules that operate as qualifications to the proposition that equity looks at everything and nothing is irrelevant.[191]
[189] [2017] 1 NZLR 320.
[190] [2020] VSC 590.
[191] T77 L44 and In The Juliana [1822] 165 ER 1560 where it was held that a court of law works its way to short issues, and confines its views to them but a court of equity takes a more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case.
THE DETERMINATION OF THE PRELIMINARY ISSUE
In paragraph 2 of my consent orders dated 8 December 2021, the two issues to be determined are set out. In my view, both must be answered in the affirmative.
Both parties seek orders preserving the date previously fixed for trial, namely 6 June 2022. I propose to retain that date. Yet I recognise that this decision has far reaching consequences for this litigation. An interlocutory appeal cannot be ruled out. Accordingly, once the parties have an opportunity of considering and assessing these reasons a directions hearing should be conducted to ascertain –
(a)whether the trial is likely to proceed on 6 June 2022 as previously ordered;
(b)whether any steps previously ordered with a view to proceeding at trial on 22 June 2022 require recalibrating; and
(c)any other issue.
In the meantime, by 4:00pm on 13 April 2022 the parties must bring in a minute that gives effect to these reasons.
I certify that the preceding one hundred and twenty-one (121) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Wilson. Associate:
Dated: 30 March 2022
WOODCOCK
In the Federal Circuit and Family Court of Australia
At Melbourne
No. (P)MLC13421/2020
WOODCOCK and WOODCOCKSTATEMENT OF ASSUMPTIONS
AND QUESTIONS FOR EXPERTA. ASSUMPTIONS…………………………………………………………………………36
A-1THE B TRUST…………………… …………………………………37
A-2THE F TRUST…………….…………… ……………...41
A-3THE E TRUST……………………… …………………...………..47
A-4G FAMILY TRUST..……………… ……….52
A-5THE DISCRETIONARY POWERS OF EACH OF THE TRUSTEES………54
A-6 THE HUSBAND’S RIGHTS UNDER THE TRUSTS………………………55
B. QUESTION………………………………………………………………………………56
C. ANNEXURE 1…………………………………………………………………………....57A. ASSUMPTIONS
1.The Husband is a beneficiary of the following trusts:
(1) The B Trust – section A-1 below;
(2) The F Trust – section A-2 below;
(3) The E Trust – section A-3 below; and
(4) The G Family Trust – section A-4 below.
2.The husband is the grandchild and lineal descendent of Mr G and Ms G, as represented at Annexure 1.
A-1 THE B TRUST
3.The B Trust was established by deed dated 1 December 1992.
4.The purpose of the trust is for making provision for the “beneficiaries” of the trust.
5.The trustee is B Pty Ltd.
6.The Husband is one of seven directors of B Pty Ltd, comprising five family member directors (each being a child or grandchild of Mr G and Ms G) and two external directors appointed by the family member directors.
7.In 2020, B Pty Ltd executed amending deeds (2020 amendments):
(1) “The B Trust Supplement Deed” executed on 31 August 2020;
(2) the “Deed of Variation of the B Trust” executed on or about 1 September 2020.
8.The “beneficiaries” of the trust are the “Primary Beneficiaries”, “Capital Beneficiaries” and “General Beneficiaries”, where:
(1) The “Primary Beneficiaries” are the children of Mr G and Ms G (refer Annexure 1).
(2) The “Capital Beneficiaries” are:
a. the lineal descendants of Mr G and Ms G (refer Annexure 1), including the Husband;
b. the estates of Mr G and Ms G; and
c. related body corporates and related trusts.
(3) The “General Beneficiaries” are:
a. the Primary Beneficiaries;
b. the Capital Beneficiaries;
c. the trustees of four named related trusts;
d. a charity.
9.Following the 2020 amendments, a person is unable to be nominated to be one of the directors of the trustee company for the B Trust if that person is a “Disqualified Person”, where:
(1) a “Disqualified Person” is a person in respect of whom a “Disqualifying Event” has occurred but a “Lapsing Event” has not occurred;
(2) a “Disqualifying Event” includes where, in the knowledge of the trustee company, the person suffers a relationship breakdown within the meaning of the Family Law Act 1975 or who separates from their spouse to the extent of a separation within the meaning of the Family Law Act 1975;
(3) a “Lapsing Event” occurs where the trustee company in its absolute discretion resolves that the Disqualifying Event has lapsed, that a relevant period of time has elapsed, or that in the circumstances the Disqualifying Event is such that it should not apply or no longer applies.
10.The Husband is prima facie a person in respect of whom a Disqualifying Event has occurred (separation from his spouse).
11.However, given that the Husband, notwithstanding the Disqualifying Event, remains a director of the trustee company, you should assume that a Lapsing Event has occurred and that the trustee company has resolved that the Disqualifying Event should not apply or no longer applies to the Husband.
i)DISTRIBUTION OF INCOME OR CAPITAL – BEFORE 2020 AMENDMENTS
12.Before the 2020 amendments, the powers of the trustees to distribute income or capital were as follows:
(1) In relation to the income of the trust fund each financial year, the trustee may decide to distribute all or part of the income for any one or more of the General Beneficiaries, or accumulate the income.
(2) As and from the “Vesting Date”, the trustee is to hold the trust fund on trust:
a. for one or more of the General Beneficiaries in such proportions as specified by the trustee;
b. otherwise, for all of the Primary Beneficiaries in equal shares,
where the “Vesting Date” is the earlier of:
c. 30 June 2072; or
d. such earlier date declared by the trustee in its discretion.
ii)DISTRIBUTION OF INCOME OR CAPITAL – AFTER 2020 AMENDMENTS
13.Following the 2020 amendments, the powers of the trustees to distribute income or capital are now as follows:
(1) In relation to the income of the trust each financial year, the trustee may decide:
a. by a “majority decision” of at least four (75%) of the five family member directors and both non-family member directors voting to distribute all or part of the income to one or more beneficiaries;
b. by a "majority decision" of at least four (75%) of the five family member directors and both non-family member directors voting to accumulate income; or
c. by an "ordinary decision" of at least four (a majority) of all of the directors voting to distribute all or part of the income to one or more of the trustees of the four named related trusts, or to any subsidiary of those trustees or of B Pty Ltd; and
in default of such a decision, the income accumulates
(2) In relation to the capital of the trust fund, the trustee may decide:
a. by a "majority decision" of at least four (75%) of the five family member directors and both non-family member directors voting to allocate capital to any Capital Beneficiary; or
b. by an "ordinary decision" of at least four (a majority) of all of the directors voting to allocate capital to one or more of the trustees of the four named related trust beneficiaries.
(3) As and from the "Vesting Date", the trustee is to hold the trust fund on trust:
a. for one or more Capital Beneficiaries;
b. otherwise, in the following proportions, for:
i.a default company associated with Ms X, or for her or her lineal descendants, as to 21.66%;
ii.a default company associated with Ms Y, or for her or her lineal descendants, as to 23.68%;
iii.a default company associated with Ms Z, or for her or her lineal descendants, as to 20.65%;
iv.a default company associated with Ms AA, or for her or her lineal descendants, as to 18.63%; and
v.a default company associated with the Husband, or for him or his lineal descendants, as to 15.38%,
where the "Vesting Date" is the earlier of:
c. 30 June 2072; or
d. such earlier date declared by the trustee by "majority decision" of at least four (75%) of the five family member directors and both nonfamily member directors voting and with the consent of the Guardian.
A-2 THE F TRUST
14.The F Trust was established by deed dated 28 August 1995.
15.The purpose of the trust is for making provision for the "beneficiaries" of the trust.
16.The trustee is F Pty Ltd.
17.The Husband is one of seven directors of F Pty Ltd, comprising five family member directors (each being a child or grandchild of Mr G and Ms G) and two external directors appointed by the family member directors.
18.In 2020, F Pty Ltd executed amending deeds (2020 amendments):
(1) "The F Trust Supplemental Deed" executed on 31 August 2020;
(2) the "Supplemental Deed of Variation of the F Trust" executed on or about I September 2020.
19.The "beneficiaries" of the trust are the "Primary Beneficiaries", "Capital Beneficiaries" and "General Beneficiaries", where:
(1) The Husband is one of five named "Primary Beneficiaries", together with:
a. Ms Y;
b. Ms X;
c. Ms AA; and
d. Ms Z.
The original trust deed named only the above four Primary Beneficiaries as the children of Mr G and Ms G. The Husband was specifically included as a named fifth Primary Beneficiary by a 2003 deed of variation.
(2) The "Capital Beneficiaries" are:
a. the lineal descendants of Mr G and Ms G (refer Annexure 1), including the Husband;
b. the estates of Mr G and Ms G;
c. related body corporates and related trusts.
(3) The "General Beneficiaries" are:
a. the Primary Beneficiaries;
b. the Capital Beneficiaries;
c. the trustees of four named related trusts;
d. a charity.
20.Following the 2020 amendments, the F Trust precludes a person from being nominated to be one of the directors of the trustee company if that person is a "Disqualified Person", in the same form as described under the B Trust at paragraphs 9 to 11 above.
21.For the same reasons explained above, you should assume that in respect of the F Trust that:
(1) the Husband is prima facie a person in respect of whom a Disqualifying Event has occurred (separation from his spouse);
(2) however, a Lapsing Event has occurred and the trustee company has resolved that the Disqualifying Event should not apply or no longer applies to the Husband.
i)DISTRIBUTION OF INCOME OR CAPITAL – BEFORE 2020 AMENDMENTS
22.After the deaths of Mr G in 2009 and Ms G in 2013, and until the 2020 amendments, the powers of the trustees to distribute income or capital were as follows:
(1) In relation to the income of the trust fund each financial year, the trustee may decide:
a. by a "majority decision" of at least 75% of the directors including each of the family member directors (all of whom must be present) voting to distribute all or part of the income to one or more beneficiaries;
b. by a "majority decision" of at least 75% of the directors and each of the family member directors (all of whom must be present) voting to accumulate income; or
c. by an "ordinary decision" of at least 75% of the directors voting to distribute all or part of the income to "specified beneficiaries" in the "specified proportions"; and
in default of such a decision, the income accumulates.
(2) In relation to the capital of the trust fund, the trustee may decide:
a. by a "majority decision" of at least 75% of the directors including each of the family member directors (all of whom must be present) voting to allocate capital to any Capital Beneficiary; or
b. by an "ordinary decision" of at least 75% of the directors voting to allocate capital to "specified beneficiaries" in the "specified proportions".
(3) As and from the "Termination Date", the trustee is to hold the trust fund on trust:
a. for one or more beneficiaries;
b. otherwise, for the "specified beneficiaries" m the "specified proportions",
where the "Termination Date" is the earlier of:
c. 29 November 2072; or
d. such earlier date declared by the trustee by a "majority decision" of at least 75% of the directors and each of the family member directors (all of whom must be present).
(4) The "specified beneficiaries" and "specified proportions" are as follows:
a. Ms X (or her lineal descendants) as to 16.574%;
b. Ms Y (or her lineal descendants) as to 16.574%;
c. Ms Z (or her lineal descendants) as to 16.574%;
d. Ms AA (or her lineal descendants) as to 16.574%;
e. the Husband (or his lineal descendants) as to 16.574%;
f. fourteen other named descendants as to 1.11% each; and
g. the trustee of the BB Emergency Fund as to 1.59%.
ii)DISTRIBUTION OF INCOME OR CAPITAL – AFTER 2020 AMENDMENTS
23.Following the 2020 amendments, the powers of the trustee to distribute income or capital are substantially the same as for the B Trust set out in section A l above:
(1) In relation to the income of the trust fund each financial year, the trustee may decide:
a. by a "majority decision" of at least four (75%) of the five family member directors and both non-family member directors voting to distribute all or part of the income to one or more beneficiaries;
b. by a "majority decision" of at least four (75%) of the five family member directors and both non-family member directors voting to accumulate income; or
c. by an "ordinary decision" of at least four (a majority) of all of the directors voting to distribute all or part of the income to one or more of the trustees of the four named related trusts, or to any subsidiary of those trustees or of F Pty Ltd; and
in default of such a decision, the income accumulates.
(2) In relation to the capital of the trust fund, the trustee may decide :
a. by a "majority decision" of at least four (75%) of the five family member directors and both non-family member directors voting to allocate capital to any Capital Beneficiary; or
b. by an "ordinary decision" of at least four (a majority) of all of the directors voting to allocate capital to one or more of the trustees of the four named related trusts.
(3) As and from the "Termination Date", the trustee is to hold the trust fund on trust:
a. for one or more Capital Beneficiaries;
b. otherwise, in the following proportions, for:
i.a default company associated with Ms X, or for her or her lineal descendants, as to 21.66%;
ii.a default company associated with Ms Y, or for her or her lineal descendants, as to 23.68%;
iii.a default company associated with Ms Z, or for her or her lineal descendants, as to 20.65%;
iv.a default company associated with Ms AA, or for her or her lineal descendants, as to 18.63%; and
v.a default company associated with the Husband, or for him or his lineal descendants, as to 15.38%,
where the "Termination Date" is the earlier of:
c. 29 November 2072; or
d. such earlier date declared by the trustee by "majority decision" of at least four (75%) of the five family member directors and both non family member directors voting and with the consent of the Guardian.
A-3 THE E TRUST
24.The E Trust was established by deed dated l March l 995.
25.The purpose of the trust is for making provision for the "beneficiaries" of the trust.
26.The trustee is E Pty Ltd.
27.The Husband is one of seven directors of E Pty Ltd, comprising five family member directors (each being a child or grandchild of Mr G and Ms G) and two external directors appointed by the family member directors.
28.In 2020, E Pty Ltd executed amending deeds (the 2020 amendments):
(1) "The E Trust Supplemental Deed" executed on or about 3 l August 2020;and
(2) the "Supplemental Deed of Variation of the E Trust" executed on or about I September 2020.
29.The "beneficiaries" of the trust are the "Primary Beneficiaries", "Capital Beneficiaries" and "General Beneficiaries", where:
(1) The Husband is one of five named "Primary Beneficiaries", together with:
a.Ms Y;
b.Ms X;
c.Ms AA; and
d.Ms Z.
The original trust deed defined the Primary Beneficiaries as only the children of Mr G and Ms G (being those four named above). The Husband was specifically included as a named fifth Primary Beneficiary by a 2003 deed of variation.
(2) The "Capital Beneficiaries" are:
a. the lineal descendants of Mr G and Ms G (refer Annexure 1), including the Husband;
b. the estates of Mr G and Ms G;
c. related body corporates and related trusts.
(3) The "General Beneficiaries" are:
a. the Primary Beneficiaries;
b. the Capital Beneficiaries;
c. the trustees of four named related trusts;
d. a charity.
30.Following the 2020 amendments, the E Trust precludes a person from being nominated to be one of the directors of the trustee company if that person is a "Disqualified Person", in the same form as described under the B Trust at paragraphs 9 to 11 above and the F Trust at paragraphs 20 to 21 above.
31.For the same reasons explained above, you should assume that in respect of the E Trust that:
(1) the Husband is prima facie a person in respect of whom a Disqualifying Event has occurred (separation from his spouse);
(2) however, a Lapsing Event has occurred and the trustee company has resolved that the Disqualifying Event should not apply or no longer applies to the Husband.
i)DISTRIBUTION OF INCOME OR CAPITAL – BEFORE 2020 AMENDMENTS
32.After the deaths of Mr G in 2009 and Ms G in 2013, and until the 2020 amendments, the powers of the trustees to distribute income or capital were substantially the same as for the F Trust set out in Section A-2 above:
(1) In relation to the income of the trust fund each financial year, the trustee may decide:
a. by a "majority decision" of at least 75% of the directors including each of the family member directors (all of whom must be present) voting to distribute all or part of the income to one or more beneficiaries;
b. by a "majority decision" of at least 75% of the directors and each of the family member directors (all of whom must be present) voting to accumulate income; or
c. by an "ordinary decision" of at least 75% of the directors voting to distribute all or part of the income to "specified beneficiaries" in the "specified proportions"; and
in default of such a decision, the income accumulates.
(2) In relation to the capital of the trust fund, the trustee may decide:
a. by a "majority decision" of at least 75% of the directors including each of the family member directors (all of whom must be present) voting to allocate capital to any Capital Beneficiary; or
b. by an "ordinary decision" of at least 75% of the directors voting to allocate capital to "specified beneficiaries" in the "specified proportions".
(3) As and from the "Termination Date" (28 February 2075), the trustee is to hold the trust fund on trust:
a. for one or more beneficiaries;
b. otherwise, for the "specified beneficiaries" in the "specified proportions",
and noting, unlike the other trusts mentioned, that the trustee does not have the power to determine an earlier Termination Date.
(4) The "specified beneficiaries" and "specified proportions" are as follows:
a. Ms X (or her lineal descendants) as to 15.688%;
b. Ms Y (or her lineal descendants) as to 19.608%;
c. Ms Z (or her lineal descendants) as to 19.608%;
d. Ms AA (or her lineal descendants) as to 15.688%;
e. the Husband (or his lineal descendants) as to 15.688%; and
f. fourteen other named descendants as to 0.98% each.
ii)DISTRIBUTION OF INCOME OR CAPITAL – AFTER 2020 AMENDMENTS
33.Following the 2020 amendments, the powers of the trustees to distribute income or capital are substantially the same as for the B Trust and the F Trust set out in sections A-1 and A-2 above:
(1) In relation to the income of the trust fund each financial year, the trustee may decide:
a. by a "majority decision" of at least four (75%) of the five family member directors and both non-family member directors voting to distribute all or part of the income to one or more beneficiaries;
b. by a "majority decision" of at least four (75%) of the five family member directors and both non-family member directors voting to accumulate income; or
c. by an "ordinary decision" of at least four (a majority) of all of the directors voting to distribute all or part of the income to one or more of the trustees of the four named related trusts, or to any subsidiary of those trustees or of E Pty Ltd; and
in default of such a decision, the income accumulates.
(2) In relation to the capital of the trust fund, the trustee may decide:
a. by a "majority decision" of at least four (75%) of the five family member directors and both non-family member directors voting to allocate capital to any Capital Beneficiary; or
b. by an "ordinary decision" of at least four (a majority) of all of the directors voting to allocate capital to one or more of the trustees of the four named related trusts.
(3) As and from the "Termination Date" (28 February 2075), the trustee is to hold the trust fund on trust:
a. for one or more Capital Beneficiaries;
b. otherwise, in the following proportions, for:
i.a default company associated with Ms X, or for her or her lineal descendants, as to 21.66%;
ii.a default company associated with Ms Y, or for her or her lineal descendants, as to 23.68%;
iii.a default company associated with Ms Z, or for her or her lineal descendants, as to 20.65%;
iv.a default company associated with Ms AA, or for her or her lineal descendants, as to 18.63%; and
v.a default company associated with the Husband, or for him or his lineal descendants, as to 15.38%,
and noting, unlike the other trusts mentioned, that the trustee does not have the power to determine an earlier Termination Date.
A-4 THE G FAMILY TRUST
34.The G Family Trust was established by deed dated 30 June 1977.
35.The purpose of the trust is for making provision for the "Primary Beneficiaries" and the "General Beneficiaries" of the trust.
36.The trustee is C Pty Ltd.
37.The Husband is the sole director of C Pty Ltd.
38.The Husband is one of five "Family Representatives" who are joint appointors of the trust.
39.The "beneficiaries" of the trust are the "Primary Beneficiaries" and "General Beneficiaries", where:
(1) The Husband is one of twenty named "Primary Beneficiaries", being Mr G and Ms G and their children and grand-children as at the date of the deed, together with the spouses and future children, grand children and great-grandchildren of those named.
(2) The "General Beneficiaries" include:
a. the Primary Beneficiaries;
b. the relatives of a Primary Beneficiaries, and their relatives; and
c. various other categories or persons and entities.
i)DISTRIBUTION OF INCOME OR CAPITAL
40.The powers of the trustee to distribute income or capital for the Mr GG Family Trust is as follows:
(1) In relation to the income of the trust fund each financial year, the trustee may decide:
a. to distribute all or part of the income to one or more of the General Beneficiaries and/or to charitable purposes;
b. to accumulate all or part of the income; or
c. to hold all or part of the income on trust for any Primary Beneficiary.
(2) In relation to the capital of the trust fund, the trustee may decide to allocate capital to any General Beneficiary.
(3) As and from the "Vesting Day", the trustee is to hold the trust fund on trust:
a. for charitable purposes; and/or
b. for such of the General Beneficiaries appointed by instrument in writing; or
c. in default of such an appointment under (i) or (ii), for those Primary · Beneficiaries as are living,
where the "Vesting Date" is the earlier of:
d. 30 June 2056; or
e. such earlier date declared by the trustee in its discretion.
A-5 THE DISCRETIONARY POWERS OF EACH OF THE TRUSTEES
41.Under each of the trusts, the powers of the relevant trustee to distribute income and capital are discretionary, so that the trustee may in its discretion:
(1) decide whether or not to exercise a power to make a distribution or accumulation of income;
(2) decide whether or not to exercise a power to make a distribution of capital;
(3) consider the potential beneficiaries in whose favour the power may be exercised; and
(4) consider the extent or value of any distribution.
42.The trustee must exercise such a power or discretion:
(1) in good faith;
(2) upon real and genuine consideration of the matters referred to in paragraph 41 above; and
(3) in accordance with the purposes of the trust.
43.In the exercise of these powers, the trustees for each of the trusts have made prior distributions of income and capital to the Husband and other beneficiaries. Minutes recording prior distributions of income and capital have been separately provided to you. The financial statements for each of the trusts have also been separately provided to you.
A-6 THE HUSBAND’S RIGHTS UNDER THE TRUSTS
44.You should assume that as a beneficiary of each of the trusts, the Husband has a right:
(1) to compel the trustee to give real and genuine consideration as to:
a. whether or not it should exercise its powers to distribute income or capital;
and if so,
b. the range of potential beneficiaries to whom such a distribution may be made;
c. the amount or extent of any such distribution; and
(2) to compel due administration of the trust by the trustee to perform and administer the trust in accordance with the trust deed and the duties and powers of the trustee.
45.The Husband as a beneficiary does not have a right to compel the trustee to exercise its powers to make a distribution in his favour as a beneficiary.
46.The Husband's rights set out in paragraph 44 are property for the purposes of section 79 of the Family Law Act 1975.
47.These rights are not assignable or alienable .
B. QUESTION
1. Is the property referred to in section A-6 above capable of being valued?
Dated: 31 January 2022
NEDOVIC LAWYERS
C. ANNEXURE 1
Lineal Descendants of Mr G and Ms G
Name Children
Ms X, Ms Y (deceased), Ms Z, and Ms AA
Ms AA's first married name was Woodcock
Grandchildren
Ms BB, Ms DD, Mr FF, and Ms EE
Ms CC, Ms GG, Ms HH, Ms II, Mr JJ, and Mr KK
Ms LL, Mr MM, and Ms NN
Ms OO, and Mr W Woodcock
Great Grandchildren
Mr PP, Mr QQ
Ms RR, Mr SS, Mr TT
Mr UU, Mr VV, Mr WW
Mr XX
Ms YY, Ms ZZ
Ms AB, Mr AC
Mr AD, Mr AE
Mr AF, Mr AG, Ms AH
Ms AJ, Mr AK, Mr AL, Ms AM
Ms AN, Ms AO, Ms AP, Ms AQ
Mr AR, Ms AT, Mr AU
Great Grandchildren
Ms AV
Child of Mr PP (name not known)
5
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