Ability One Financial Management Pty Limited and Anor v JB by his Tutor AB

Solicitors: Plaintiff: McLaughlin & Riordan First Defendant ("S"): No appearance Second Defendant: Bartier Perry File Number(s): 2016/00191323

INTRODUCTION

1. By these proceedings, the parents of an incapacitated young person (their 16-year old daughter) seek: 1. to replace the trustee of a trust fund that represents the substance of the wealth of their daughter; 2. in anticipation of a determination of the trust when she attains the age of majority (18 years), if not earlier, to have her estate brought under a regime of management governed by the NSW Trustee and Guardian Act 2009 NSW by the appointment of a protected estate manager; and 3. to endeavour, in the course of an orderly transition from a trust regime to a protected estate management regime, to minimise their daughter's exposure to a tax liability anticipated as potentially consequential upon a determination of the trust, whenever that should occur.
2. The young person is incapacitated, not only by age, but physically. Her parents, and doctors, anticipate that, following her attainment of the age of majority, she will remain incapable of managing her affairs for the foreseeable future.
3. These proceedings are driven, principally, by a need to establish a protected estate management regime as the young person approaches her majority, at which time the term for which the trust was established will in the ordinary course expire by effluxion of time.
4. They are driven also, in part, by a perception on the part of the young person's parents (her guardians and carers) that their personal relationship with the trustee has broken down and that a better, and cheaper, service is available elsewhere.

THE CONSTITUTION OF THE PROCEEDINGS

1. In formal terms, the plaintiff is the young person's mother. Her husband, the father of the young person, is not a party to the proceedings but he is actively engaged in them. Both parents have filed affidavits in support of the relief claimed by the plaintiff.
2. The first defendant has not, in formal terms, appeared in the proceedings, although her interests are sufficiently protected by others involved in the proceedings.
3. The second defendant is the trustee of the first defendant's trust, a trustee company licensed under the Corporations Act 2001 Cth.
4. The NSW Trustee appears before the Court, as an amicus curiae, at the invitation of the Court and without any objection from any quarter.

THE SUMMONS AND PROCEDURAL PARAMETERS OF THE CASE

1. By her summons, the plaintiff seeks orders designed: 1. to have the first defendant declared incapable of managing her affairs, with a protected estate manager appointed, under section 41 of the NSW Trustee and Guardian Act 2009; and 2. to put in train, if not immediately to effect, steps to determine the trust, allowing the parties an opportunity to obtain rulings from Commonwealth and State revenue authorities about the first defendant's exposure to tax liabilities upon determination of the trust.
2. Having taken advice from senior counsel (Blackburn-Hart SC), the second defendant announced a "submitting appearance", nevertheless remaining active in the proceedings to provide information and assistance to the Court as required.
3. The plaintiff and the second defendant have each filed, and read, a substantial number of affidavits bearing upon the decisions to be made by the Court.
4. At the invitation of the Court, the NSW Trustee has filed, and served, three reports bearing on those questions.
5. In presentation of the plaintiff's case, senior counsel for the plaintiff has disclaimed any intention to seek, or to obtain, findings of fact critical of the second defendant's management of the first defendant's trust. On the plaintiff's case, it is sufficient for her to establish that the orders she seeks are for the benefit, and in the interests, of the first defendant.
6. In any event, a determination of the trust, in the ordinary course when the first defendant attains her majority, is likely to necessitate the appointment of a protected estate manager from a class of persons ("suitable" persons within the meaning of section 41 of the NSW Trustee and Guardian Act) not confined by the trust deed. At that point, if not earlier, the first defendant's family could reasonably expect their views about the selection of a manager to carry considerable weight. There is, in a real sense, a new beginning to be made in management of the first defendant's estate.

PROCEDURAL HISTORY : ESTABLISHMENT OF A TRUST IN LIEU OF A PROTECTED ESTATE MANAGEMENT REGIME

1. Several years ago, in settlement of proceedings in the Common Law Division of the Court, the first defendant (represented by a tutor) recovered a substantial award of damages for personal injuries which caused her to be incapacitated.
2. The judge who approved the settlement, under the then equivalent of Part 6 Division 4 (sections 74-80) of the Civil Procedure Act 2005 NSW, ordered that the compensation payable to the first defendant be paid into court. Pursuant to the equivalent of section 77 of the Act, he directed that the moneys paid into court be paid out to the second defendant.
3. In directing that the first defendant's compensation moneys be paid out to the second defendant the judge intended, as has happened, that those moneys would be held by the second defendant (as "Trustee") on the terms set forth in a deed ("the Trust Deed").
4. The first defendant is "the Principal Beneficiary" named in the Trust Deed.
5. Subject to a power in the Trustee to appoint an earlier "determination date", the Trust will determine on the death of the first defendant or her attainment of the age of 18 years, whichever is earlier.
6. Pending determination of the Trust, the Trustee holds the Trust Fund on trust for the first defendant with a broad discretionary power to apply it for the maintenance, education, advancement or benefit of the first defendant.
7. The Trust Deed provides that, on and from the determination date, the Trustee must stand possessed of the Trust Fund on trust as follows: 1. Where the event giving rise to the determination date is the death of the first defendant, to pay the whole of the remaining income and capital of the Trust Fund in accordance with the will of the first defendant or, if there is no will, in accordance with law; or 2. Where the event giving rise to the determination date is other than the death of the first defendant, to pay or transfer the whole of the remaining income and capital of the Trust Fund to any one or more of "the General Beneficiaries", including the first defendant as "the Principal Beneficiary", in such shares and amounts and in such manner as the Trustee may in its absolute discretion determine and without any obligation to make payments to or for the benefit of any one or more of the General Beneficiaries, including the first defendant as Principal Beneficiary, or to ensure equality amongst the Beneficiaries to whom payments are made.

EXTRACTS FROM THE NSW TRUSTEE'S REPORTS

1. The NSW Trustee's reports provide a convenient means of summarising the context in which the plaintiff's summons must be determined.
2. In the second of its reports the NSW Trustee made observations to the following effect (incorporating editorial adaptation): "On the basis that [the first defendant] is not a person capable of managing her own affairs and requires a manager/trustee, the NSW Trustee considers, going forward, that it would be in the [interests] of and for the benefit of [the first defendant] to have a manager of a protected estate rather than to continue [the first defendant's trust], for the following reasons: a) The placement of the [first defendant's compensation award, including her share of a family home purchased with compensation moneys] into the trust, in effect removes the assets from [the first defendant] and subjects the assets to the terms of the trust. b) There is no oversight of the trustee. In a protected estate regime [utilising, as the first defendant's parents seek, the services of a private manager] there will be oversight of the appointed private manager by the NSW Trustee. c) In a regime of protected estate management there are the principles under section 39 of the NSW Trustee and Guardian Act 2009 that an appointed manager must follow. d) There is recourse to appeals and reviews of decisions of the NSW Trustee as the monitor of a private manager, to the Court and/or the NSW Civil and Administrative Tribunal. e) There is the ability to approach the Court to seek directions, and even to vary the management order. f) There is more flexibility in a protected estate regime to take into account changed circumstances of [the first defendant] and, for example, if appropriate, [to] allow [the first defendant] to have control over some of the assets (section 71(2) NSW Trustee and Guardian Act 2009) and even, where and when appropriate, for the [revocation] of the protected estate [orders]. g) There is also flexibility in what the funds of the protected estate can be used for as long as it is in the [interests] of and for the benefit of the protected person. [For example,] in a protected estate regime the Court and/or the NSW Trustee can authorise a protected estate manager to make provision, not only for [the first defendant] but [for] appropriate other persons in [her] life, as long as such provision is in the interests of and for the benefit of [the first defendant]."

ALTERNATIVE FORMS OF ORDERS TENDERED FOR REVIEW

1. At the invitation of the Court each of the plaintiff and the second defendant filed draft orders canvassing a full range of possibilities about the types of orders which might be made in disposition of the proceedings. As was the case with affidavits read in the proceedings, those draft orders were made available to the NSW Trustee for its review so that it might make submissions about the practical operation of such orders, if made.
2. The plaintiff's preferred, primary draft form of orders favours an immediate appointment of a private protected estate manager for reward (Ability One Financial Management Pty Limited, not a licensed trustee company), coupled with an order for that same entity to replace the second defendant as Trustee of the Trust, and directions designed to move towards a determination of the Trust under the supervision of the NSW Trustee.
3. The main objective of the plaintiff and her husband is to move management of the first defendant's estate from a trust regime to a protected estate management regime. They accept that that might inevitably come at a cost to the estate in terms of a taxation liability. What they seek, by orders designed to facilitate their obtaining tax rulings, is an opportunity to consider whether there are advantages to be had for the first defendant's estate in moving towards a protected estate management regime at one pace or another.
4. As their primary draft orders evidence, they have been tempted by a possibility that a protected estate management regime might coexist with a trust regime. However, a dual regime involves practical, administrative difficulties (arising from potential conflicts of interest and duty affecting management of protected and trust estates, and a lack of control for the NSW Trustee in supervision of a trust estate as property distinct from an estate under protective management) such that the Court can not readily countenance it as an ongoing state of affairs.
5. The burden of the second defendant's draft orders, and submissions, is that the first defendant's interests would be served best by allowing the term of the trust to expire by effluxion of time (when she turns 18) without a premature determination of the Trust, or replacement of the second defendant as Trustee.
6. Having reviewed the evidence, submissions and draft orders before the Court, I formulated a further set of draft orders (loosely based on an alternative propounded by the plaintiff) and circulated it with an invitation for the expression of objections, comments or submissions as to form.

A finding of Incapacity

1. I am satisfied that the first defendant is, and will be for the foreseeable future, physically "incapable of managing her affairs" within the meaning of section 41 of the NSW Trustee and Guardian Act as explained in CJ v AKJ [2015] NSWSC 498 at [27]-[42].
2. Her incapacity is functional, not limited to legal incapacity defined by her status as a minor. The physical injuries she sustained in circumstances that gave rise to a substantial award of damages in Common Law proceedings involved a brain injury.
3. Her specialist paediatric rehabilitation medical practitioner (one of two doctors who certify her current incapacity for self-management) recommends that her capacity should be reassessed at the age of 25 years; that is, in nine years' time.

Draft Orders - An "Acceptable" Scheme

1. Upon an assumption that relief is to be granted along the lines sought by the plaintiff, the NSW Trustee favours as the most practical, not the plaintiff's primary draft, but an alternative form of orders which the plaintiff has announced is "acceptable" to herself and her husband. The Court's draft was based on that "alternative" draft.
2. Those orders would see a protected estate manager appointed (and administration of the trust remain for the time being with the second defendant, with directions), pending clarification of the first defendant's exposure to tax liabilities. They contemplate that, following clarification of that exposure, by applications to Commonwealth and State revenue authorities for formal rulings, the Trust might reasonably be expected to be determined, by orders of the Court or by the second defendant acting under directions of the Court, in advance of the first defendant's attainment of her majority.

Availability of Protective Orders

1. The fact that the first defendant is a minor is not, of itself, an impediment to the making of protected estate management orders, although it is a factor to be borne in mind in deciding whether any (and, if so, what) orders should be made: AG v AP-G [2013] NSWSC 272 at [7]; JP v CP [2013] NSWSC 273 at [2].
2. The legislative warrant for the making of such orders, under the NSW Trustee and Guardian Act, does not distinguish between minors and adults. The fact that, with a change in perspective from that of a minor to that of an adult, the historical origins of the Court's inherent jurisdiction shift from what was the wardship jurisdiction of the English Lord Chancellor to what was the Chancellor's lunacy jurisdiction is neither here nor there because, under the rubric "parens patriae jurisdiction" or "protective jurisdiction", the two historical prototypes have coalesced: Re Eve [1986] 2 SCR 388 at 407-411; 31 DLR (4th) 1 at 14-17, approved by the High Court of Australia in Secretary, Department of Health and Community Services v JWB and SMB (Marion's case) (1992) 175 CLR 218 at 258-259.
3. Whatever its historical origins, or the present form of administrative machinery aiding its operation, the protective jurisdiction of the Court is plenary and seamless. It may be informed, but it is not constrained, by procedural categories that attended the Lord Chancellor's exercise of similar jurisdiction over lunatics and children at the time, in the 1820s, that the "inherent" jurisdiction of this Court was defined by reference to the Chancellor's jurisdiction: Re AAA; Report on a protected persons attainment of the age of majority [2016] NSWSC 805 at [49]-[53].
4. The fact that the first defendant is fast approaching the age of majority is not an impediment to the making of protected estate management orders extending beyond that age in circumstances, as exist here, where there is a confident, reasonable expectation, based upon empirical observation, that the first defendant's present incapacity will continue well beyond the age of majority.
5. Following a pattern established by White J in AG v AP-G [2013] NSWSC 272 at [9] and JP v CP [2013] NSWSC 373 at [4], it is customary to include in protected estate management orders affecting young people a mechanism for review of their capacity for self-management at a defined future time: Re AAA at [7]-[11]. That practice is appropriate in the current proceedings, although, in light of the recommendation of the first defendant's specialist, the time for review should be set at or about the age of 25 years, not the customary 18 years.

Rationale of Transitional Orders

1. However, there is utility, at least, in foreshadowing the making of protected estate management orders in circumstances in which the term of the Trust will soon expire; alternative arrangements must inevitably be made if (as is to be expected) the first defendant becomes an adult; her parents have resolved (on reasonable grounds) that her estate should come under protective management; there is a clear mechanism within the Trust Deed for variation of the term of the Trust; and the prospective, provisional appointment of a protected estate manager may facilitate the process of moving from a trust regime to a protected estate management regime.
2. The utility that there is in the foreshadowing of such orders resides in the provisional establishment of a management regime which, upon a determination of the Trust, can operate without an interregnum. As presently advised, I see no utility in the operation of a dual regime with management orders and the Trust on a long-term basis.
3. By making orders and selectively postponing their operative effect, I intend to provide an administrative framework within which the NSW Trustee's statutory powers can be engaged, reinforced by an interlocutory appointment as receiver and manager of the first defendant's protected estate, for the purpose of facilitating an orderly progression towards management of the estate without the intervention of the Trust. Orders made but postponed in their effective operation are designed to establish "in waiting" a protected estate management regime able to come into effect when the Trust is determined. Postponement of the commencement of a protected estate management regime will enable the Trustee to continue to manage the trust estate of the first defendant in the meantime without interference from a protected estate manager anxious to commence business.
4. Enlistment of the services of the NSW Trustee, clothed in its statutory powers, reinforced by its appointment as receiver and manager, is intended to allow it to mediate between the old regime and the new in an orderly move towards the new.
5. There will be little, if any, work to be done by the prospective protected estate manager between now and when (absent a discharge or variation of the Court's orders) its appointment takes effect. All going as expected, the appointment will take effect, at the same time as the Trust is determined, after clarification of concerns about the first defendant's taxation liabilities. In the meantime, the manager's role will, in substance, be limited to that of a watching brief, liaising with the first defendant's parents and (if necessary, only through the NSW Trustee) the second defendant. Its provisional, postponed appointment is, however, intended to provide an element of certainty in preparations for determination of the Trust, whenever that should occur.

ORDERS

1. For these reasons, and having taken into account the views of affected persons, I make orders and notations to the following effect:

Protected Estate Management Orders 1. DECLARE, pursuant to section 41(1)(a) of the NSW Trustee and Guardian Act 2009 NSW, that the first defendant is incapable of managing her affairs. 2. ORDER, pursuant to section 41(1)(a) of the NSW Trustee and Guardian Act 2009, that the estate of the first defendant be subject to management under the Act. 3. ORDER, pursuant to section 41(1)(b) of the NSW Trustee and Guardian Act, that Ability One Financial Management Pty Limited be appointed manager of the estate of the first defendant subject to the orders and direction of the NSW Trustee. 4. ORDER that Ability One Financial Management Pty Limited may not do anything in reliance on its appointment as manager of the estate of the first defendant until the NSW Trustee has authorised it to assume management of the first defendant's estate. 5. ORDER, pursuant to section 68 of the NSW Trustee and Guardian Act, that Ability One Financial Management Pty Limited give such, if any, security in respect of its management of the first defendant's estate as the NSW Trustee may determine to be appropriate. 6. ORDER, subject to further order of the Court or any order or direction of the NSW Trustee, that Ability One Financial Management Pty Limited submit to the NSW Trustee annual accounts in a form prescribed or approved by the NSW Trustee. 7. ORDER, subject to further order, that Ability One Financial Management Pty Limited, as manager of the estate of the first defendant, provide to the NSW Trustee, or as the NSW Trustee may in writing direct, an accounting for its management of the estate of the first defendant as and when directed by the NSW Trustee so to do. 8. NOTE the orders and notations made in the judgments reported as Ability One Financial Management Pty Limited and Anor v JB by his Tutor AB [2014] NSWSC 245 and Re Managed Estates Remuneration Orders [2014] NSWSC 383. 9. ORDER, subject to: 1. further order; 2. due performance by it of its obligations as a manager of a protected estate; and 3. its ongoing liability to account for estate property, 4. that Ability One Financial Management Pty Limited be allowed out of the estate of the first defendant such, if any, remuneration for its provision of services as manager of the estate of the first defendant (including any fees of a financial adviser approved by the NSW Trustee from time to time) as may be just and reasonable, not exceeding the amount or amounts disclosed to the Court upon its appointment as manager or such other amounts or rates as may, from time to time, be fixed by the NSW Trustee. 1. ORDER that the plaintiff and the manager of the estate of the first defendant advise the first defendant in writing, after she has reached the age of 25 years, but before she attains the age of 26 years, of her right to apply to the Court to seek a revocation of the declaration and orders subjecting her estate to administration as a protected estate. 2. ORDER that, after the first defendant attains the age of 25 years and prior to her 26th birthday, the manager of her estate provide a report to the Court (including a medical assessment as to the first defendant's then capacity) in relation to whether or not the defendant has sufficient capacity to manage her own affairs and whether or not these management orders should or should not be revoked or varied.

Trust Orders 1. ORDER that the Trust, constituted by the Trust Deed, be administered under the direction of the Court. 2. ORDER that the date referred to in paragraph (c) of the definition of "Determination Date" in clause 1.1 of the Trust Deed be determined to be the date upon which this order takes effect. 3. ORDER that, in the event that clause 3.2(b) of the Trust Deed applies, the whole of the remaining income and capital of the Trust Fund (as defined by clause 1.1 of the Trust Deed), after allowance for any and all just claims that the second defendant may have on the Trust Fund, be paid or transferred to the NSW Trustee, or as the NSW Trustee may in writing direct, on the account and for the benefit of the first defendant.

Transitional Orders 1. ORDER (pursuant to section 64 of the NSW Trustee and Guardian Act, rule 54.3 of the Uniform Civil Procedure Rules 2005 NSW and the inherent jurisdiction of the Court) that the second defendant by itself, its servants and agents be restrained from exercising or purporting to exercise, without the leave of the Court, any power it has or may have: 1. to determine that the Trust is to determine otherwise than on the death of the first defendant or her reaching 18 years of age; or 2. to pay, transfer or apply any part of the Trust Fund otherwise than: 1. pursuant to clause 3.1 of the Trust Deed; or 2. by way of a payment or transfer to the NSW Trustee or as the NSW Trustee may in writing direct. 1. ORDER (pursuant to section 64 of the NSW Trustee and Guardian Act, sections 23 and 67 of the Supreme Court Act 1970 NSW and the inherent jurisdiction of the Court) that, until orders 1-14 inclusive take effect or further order, the NSW Trustee be appointed receiver and manager of the protected estate of the first defendant with all the powers and discretions it would have if management of the estate were committed to it pursuant to section 41(1)(b) of the NSW Trustee and Guardian Act. 2. ORDER, subject to further order, that, in the performance of its role as receiver and manager of the protected estate of the first defendant, the NSW Trustee use its best endeavours to facilitate an orderly determination of the Trust as soon as may be practicable (so as to allow the whole of the estate to be managed as a protected estate, without the intervention of the Trust), leaving the second defendant to administer the Trust (subject to orders of the Court) in the meantime. 3. ORDER, pursuant to section 64 of the NSW Trustee and Guardian Act, that the NSW Trustee, in consultation with: 1. the plaintiff and her husband (as parents, guardians and carers of the first defendant); 2. the second defendant; and 3. Ability One Financial Management Pty Limited, apply to the respective revenue authorities of the Commonwealth of Australia and the state of New South Wales for rulings as to the exposure, if any, of the estate of the first defendant to liability for the payment of taxation on determination of the Trust. 1. ORDER (pursuant to section 64 of the NSW Trustee and Guardian Act, rule 54.3 of the Uniform Civil Procedure Rules 2005 and the inherent jurisdiction of the Court) the second defendant, as trustee of the Trust: 1. lend its name to any application made by the NSW Trustee pursuant to order 18 of these orders; and 2. use its best endeavours to assist the NSW Trustee in the making and prosecution of any and all such applications. 1. ORDER, pursuant to section 64 of the NSW Trustee and Guardian Act, that the NSW Trustee file (and serve on the plaintiff, the second defendant and Ability One Financial Management Pty Limited) , as soon as may be practicable, a report to the Court on the fact and outcome of any application made by the NSW Trustee pursuant to order 18 of these orders.

General Orders 1. ORDER that the costs of these proceedings (including the costs of the NSW Trustee) to date be paid by the first defendant or out of her estate on the indemnity basis. 2. ORDER, subject to further order, that these proceedings be listed before the Protective List judge on 25 September 2017 (or such other date as the Court might appoint) for directions. 3. RESERVE for further consideration whether any (and, if so, what) orders should be made (including, if thought fit, orders for these orders to be discharged or varied) upon a review of the report of the NSW Trustee required by order 20 of these orders. 4. RESERVE to all interested persons (including the NSW Trustee) liberty to apply as they may be advised. 5. ORDER (pursuant to rule 36.4 of the Uniform Civil Procedure Rules) that orders 1-2 and 15-24 (inclusive) of these orders take effect today. 6. ORDER (pursuant to rule 36.4 of the Uniform Civil Procedure Rules and subject to further orders of the Court) that orders 3-14 (inclusive) of these orders are to take effect on a date to be appointed by the Court after its review of the report of the NSW Trustee required by order 18 of these orders. 7. ORDER that these orders be entered forthwith.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 June 2017