Air Jamaica Ltd v Charlton

Supreme Court of NSW|2018-09-17|Before: Rees J

eeming, Jacobs' Law of Trusts in Australia, 8th ed., LexisNexis Butterworths (2016) Jowitt's Dictionary of English Law, 4th ed., Thomson Reuters (2015) Parkinson, The Principles of Equity, 2nd ed., Lawbook Co. (2003) Category: Principal judgment Parties: Anloma Pty Ltd ACN 001 327 448 as trustee for the Sourry Family Trust - Applicant Representation: Counsel: D. Barlin - Applicant

Solicitors: ESY Lawyers Pty Ltd - Applicant File Number(s): 2018/169068

Judgment

HER HONOUR: In this matter, Anloma Pty Ltd (the Trustee) as Trustee of the Sourry Family Trust seeks judicial advice under section 63 of the Trustee Act 1925 (NSW). Section 63(1) of the Act provides: A Trustee may apply to the Court for an opinion advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument.

FACTS

Andrew Sourry was a pharmacist. He and his wife Lois Sourry had one child, Marika Sourry.
In 1969, Incaflame Pty Ltd was incorporated. Andrew and Lois Sourry were directors and Lois Sourry was the secretary of the company. Incaflame had two ordinary shares. Andrew and Lois Sourry held one share each.

Establishment of the trust

On 24 November 1975, Anloma was incorporated. Eric Maunder, Ian Duffield, Bernard O'Donoghue and Andrew Coroneo were appointed directors. Annette Rodriguez and Bernard O'Donoghue were appointed secretaries. Bernard O'Donoghue was Andrew Sourry's accountant. Anloma had two ordinary shares, which were allotted to Eric Maunder and Ian Duffield. The directors resolved to affix the company's seal to a Deed of Discretionary Trust (Trust Deed) between Donald Mayes and the company, and did so.
Under the Trust Deed, Donald Mayes was the settlor and Andrew Sourry was the appointor. Anloma was appointed Trustee of the Trust Fund. The distribution date under the Trust Deed was: "The distribution date" shall mean the first to occur of the following three days, viz:- (i) the 24th day of November, 2025; and (ii) the date of the death of the last survivor of the lineal descendants born before and living at the date hereof of his late Majesty King George V, and (ii) the date (if any) which the Trustee shall in its discretion appoint as the distribution date of this settlement; As such, the trust was to be managed by Anloma for some 50 years.
Clause 1(c) of the Trust Deed provides: "The beneficiaries" shall mean the persons and corporations set out in the Schedule hereto.
The Schedule listed the following beneficiaries: (i) Andrew Sourry (ii) Lois Sourry (iii) Marika Sourry (iv) All children grandchildren and great-grandchildren of … Marika … and their respective spouses. (v) The spouse of … Marika… (vi) Australian Conservation Foundation. (vii) National Trust Australia (NSW). At the time of establishing the Sourry Family Trust, Andrew and Lois Sourry were aged in their 50s and Marika Sourry in her 20s. Apart from the charitable beneficiaries, there were no other beneficiaries then alive as Marika was not married and had no offspring.
Clause 6 of the Trust Deed contained the powers of the Trustee, including a power in Clause 6(iv) to amend the Trust Deed. This power will be considered in detail below.
The directors of Anloma resolved to acquire various property from Andrew and Lois Sourry and also from Incaflame. The property comprised real estate in Marrickville, Matcham and Gosford as well as shares, debentures and life insurance policies. The directors of Anloma resolved to borrow moneys from and lend monies to Andrew and Lois Sourry and Incaflame and to borrow monies from third parties as well. As I understand it, the only assets of Incaflame over time were the loans which it made to Anloma, and Incaflame's only income was interest on those loans.
In 1976, Anloma's directors became Bernard O'Donoghue and Andrew Coroneo only, and Bernard O'Donoghue its only secretary. Anloma's shares were transferred to Bernard O'Donoghue and Andrew Coroneo. In 1979, Anloma made its first distributions to beneficiaries, being to Andrew, Lois and Marika Sourry.
In 1981, Marika Sourry married Roman Leibrandt. In 1982, they had a son, Julian Leibrandt. In 1982, Andrew Sourry became a director of Anloma. In 1983, Anloma made a distribution to its beneficiaries Andrew and Lois Sourry and to Marika and Julian Leibrandt. In 1984, Marika and Roman Leibrandt had another son, Tristan Leibrandt. In 1985, Anloma made a distribution to its beneficiaries Andrew and Lois Sourry and Marika, Julian and Tristan Leibrandt. In 1987, Lois Sourry died. Marika Leibrandt became a director, secretary and the beneficial owner of one share in Incaflame. Marika Leibrandt also became a director and secretary of Anloma.

First variation of trust deed

In 1988, Anloma sought finance from Westpac Banking Corporation to buy an investment property. In June 1988, the bank advised that the Trust Deed was deficient in several respects, including that it did not contain the power to mortgage trust assets. The bank proffered various draft clauses for Anloma's consideration.
On 29 July 1988, Andrew Sourry and Marika Leibrandt executed a Deed of Variation of Trust, amending the Trust Deed in accordance with each of the concerns expressed by the bank. In addition, the schedule of beneficiaries was amended to remove Lois Sourry, change Marika's name to her married name, and add two additional charitable objects being to establish an environmental school in Gosford and a scholarship for Gosford City Orchestra. Relevantly, the following beneficiary was deleted, (v) The spouse of … Marika… The validity of this amendment is now in issue before this Court.
From 1989 on, Anloma continued to make distributions. In 1989 and 1990, distributions totalling $57,441 were made to the Estate of Lois Sourry, which does not appear to have been correct in light of the removal of Lois Sourry as a beneficiary on 29 July 1988. As these payments were made some 28 years ago, I do not think it is necessary, or possible for that matter, for the Trustee to seek to recover these payments: s 47(1)(c) Limitations Act 1969 (NSW).

Second variation of trust deed

In 1998, Andrew Sourry sent his solicitor, Anthony Cordato, various notes and articles about changes in tax laws and asked that the Trust Deed be amended to address these changes, including by adding a corporate beneficiary. On 11 May 1998, Andrew Sourry and Marika Leibrandt executed a Second Deed of Variation of Trust prepared by Mr Cordato. Amongst other things, the Second Deed of Variation of Trust added a power to re-characterise "income" as "capital" and vice versa and a power to separately identify and pay different receipts to particular beneficiaries. The deed also amended the beneficiaries as follows: 1. deleting "and their respective spouses" from item (iv) in the Schedule of beneficiaries, that is, the spouses of Marika's children, grandchildren and great grandchildren; 2. revoking the charitable beneficiaries; and 3. inserting a new corporate beneficiary as follows: (x) any corporation (excepting the Trustee) of which any one or more of the beneficiaries specified in (i), (iii) and (iv) are members or directors. The validity of this amendment is now in issue before this Court.
Incaflame was a company of which Andrew Sourry and Marika Leibrandt were members and directors. As such, it was now a beneficiary of the Sourry Family Trust. Thereafter, Anloma made distributions to Incaflame in the financial years ended 30 June 1998, 30 June 1999 and 30 June 2000 totalling $274,889.31.
In June 2002, Bernard O'Donoghue ceased to be a director and secretary of Anloma and died later that year. In October 2002, Andrew Sourry sought legal advice as to why Bernard O'Donoghue and Andrew Coroneo were the shareholders of Anloma, and whether the shares could now be transferred to Andrew Sourry and Marika Leibrandt with a consequential change in officeholders. Mr Sourry was advised that there was no reason why he could not now become the sole shareholder of Anloma if he wished, or that he and his daughter could become shareholders "subject to the family law matters referred to above". The considerations which may explain the initial shareholders were expounded upon in the advice as follows: There are only two reasons the solicitor could think of as to why this would have been done. The first possible reason was to provide additional security in the event that any of the shareholders of Anloma Pty Limited fell into financial difficulties and were pursued by creditors. Creditors could have required the shareholders to exercise their discretion in a particular way in relation to distributions from the Family Trust. The second possible reason related to family law matters. Having the shareholders as persons remote from the family meant that in the event of any family breakdown, the shareholding in Anloma Pty Limited, and thus the ultimate control of the trust, would not have been subject to family disputation. All of these reasons remain valid theoretical reasons for not changing the shareholding in Anloma Pty Limited, however if with the passage of time these reasons are no longer of concern, there is no taxation reason why you cannot now become the sole shareholder of Anloma Pty Limited, with Anloma Pty Limited being converted to a single director/shareholder company. Alternatively you could require Andrew Coroneo and the Estate of Bernard O'Donoghue to Transfer their shareholdings to yourself and Marika, should you so desire, subject to the family law aspects referred to above.
In December 2002, Mr Sourry's solicitor instructed Mr Sourry's accountant accordingly: We have been asked to request you to carry out the necessary work to arrange for the shareholding in Anloma Pty Limited to be transferred into the names of Andrew Peter Sourry as to one share and Marika Alexandra Leibrandt as to the other share. In addition Andrew Sourry and Marika Leibrandt are to become directors of Anloma Pty Limited, and Roman Leibrandt is to be appointed as an alternate director of Anloma Pty Limited with power to execute documents on behalf of Anloma Pty Limited or to attend and vote at meetings of directors of Anloma Pty Limited in the event that either of Marika or Andrew is unable to sign such documentation or attend such meetings. The instruction is slightly odd in that Andrew Sourry and Marika Leibrandt were already directors of Anloma, having been appointed as such in 1982 and 1987 respectively.
In December 2002, Andrew Sourry also made a Will leaving his Estate to Marika Leibrandt and providing, I authorise my Trustee [Marika] to exercise any power of appointment I may have under the Sourry Family Trust.
In March 2003, Andrew Sourry and Marika Leibrandt resolved, as directors of Anloma, to appoint Roman Leibrandt as an alternate director, and that Andrew Coroneo and Bernard O'Donoghue's shares in the company be transferred to Andrew Sourry and Marika Leibrandt respectively. Andrew Coroneo resigned as a director. Until his appointment as an alternate director, Roman Leibrandt had had no involvement in the Sourry Family Trust.
On 30 June 2004, Andrew Sourry and Marika Leibrandt resolved, as directors of Anloma, to make distributions to beneficiaries including $26,505 to Roman Leibrandt. Assuming that the variations were valid, Roman Leibrandt was not a beneficiary under the Trust Deed as it then stood, having been deleted from the schedule of beneficiaries in 1988. The minutes of meeting were signed by Andrew Sourry. The same thing happened on 30 June 2005, 30 June 2006, 30 June 2007 and 30 June 2008, with further distributions made to Roman Leibrandt on each occasion. It is important to note that Andrew Sourry approved these distributions, as did Marika Leibrandt.
In November 2008, an annual return was lodged for Anloma with the Australian Securities and Investments Commission (ASIC). Curiously, the shareholders of Anloma were reported to be Andrew Sourry and Bernard O'Donoghue. It would appear that the transfer of Bernard O'Donoghue's share to Marika Leibrandt in 2003 had not been registered by Anloma's accountant, O'Donoghue Services Pty Ltd.
On 30 June 2009, Andrew Sourry, Marika Leibrandt and Patrick O'Donoghue met. Patrick O'Donoghue was the son of Bernard O'Donoghue and also an accountant. It was resolved that Anloma would make distributions to beneficiaries including $118,676 to Roman Leibrandt. Again, Roman Leibrandt was not a beneficiary under the Trust Deed and had not been for 21 years.
In September 2009, a Change to Company Details form was lodged for Anloma with ASIC. Compounding the error in the annual return lodged in November 2008, a change of director from Bernard O'Donoghue (who wasn't a director) to Patrick O'Donoghue, as well as a change of shareholder from Bernard O'Donoghue (who wasn't a shareholder) to Patrick O'Donoghue, was recorded. Whilst the details in respect of the officeholders were corrected in an annual return was lodged for Anloma with ASIC in November 2010, the incorrect shareholding remained.
On 30 June 2010, Anloma made a distribution to beneficiaries including $86,794.95 plus 55% of the income of the Sourry Family Trust to Roman Leibrandt. Again, Roman Leibrandt was not a beneficiary under the Trust Deed as it then stood.
On 7 December 2010, Andrew Sourry died. Marika Leibrandt, Roman Leibrandt and Patrick O'Donoghue met. It was resolved that Andrew Sourry's share in Anloma would be sold to Marika Leibrandt, and Marika Leibrandt's share would be sold to Roman Leibrandt. As a consequence, Marika and Roman Leibrandt were now the directors and shareholders of Anloma.
In March 2011, probate was granted in respect of Andrew Sourry's Estate, following which: 1. A Change to Company Details form was lodged for Anloma with ASIC. Again, the form contained errors, this time being that Marika and Roman Leibrandt each held one share in the company non-beneficially. 2. Roman Leibrandt was appointed a director of Incaflame. 3. Roman Leibrandt became a shareholder in Incaflame. Presumably, Marika Leibrandt transferred one of her shares to him. Apparently, Roman Leibrandt's shareholding was notified to ASIC incorrectly in that he was described as a non-beneficial shareholder. There errors in respect of the non-beneficial ownership of shares in Anloma and Incaflame were corrected in 2013.
On 30 June 2011, Anloma made a distribution to beneficiaries including $408,823.02 to Roman Leibrandt. On 30 November 2011, Anloma made a further distribution to the corporate beneficiary, Incaflame, of $206,949.20.
On 12 June 2012, Marika Leibrandt, Roman Leibrandt and Patrick O'Donoghue met. It was resolved that Marika Leibrandt would receive 45% of the Trust Fund Income for the year (presumably the year ending 30 June 2012) and Roman Leibrandt would receive 55% of the Trust Fund Income. The minutes of the meeting of Anloma stated: Eligible beneficiaries under the Trust Deed: The Chairperson [Marika Leibrandt] noted that the Company acts as Trustee of the Sourry Family Trust established by deed dated 24 November 1975. The Trust Deed has been amended by Deed of Variations on 29 July 1988 and 11 May 1998. The Beneficiaries of the Trust are relevantly defined in the Schedule to the Trust Deed and are as follows: Marika Alexandra Leibrandt All children grandchildren and great-grandchildren of the said Marika Alexandra Leibrandt The spouse of the said Marika Alexandra Leibrandt (Roman Leibrandt) Australian Conservation Foundation National Trust Australia (N.S.W.)
This statement was repeated in the minutes of Anloma in 2013, 2014 and 2015 and was wrong. It did not record the beneficiaries under the Trust Deed as originally executed or as a consequence of the 1988 or 1998 variations, but a unique amalgam.
For completeness, in 2013 and 2014, Anloma resolved to distribute the income of the Sourry Family Trust to Marika and Roman Leibrandt in the proportions of 48:52. In 2015, Anloma resolved to distribute the income of the Sourry Family Trust to Marika Leibrandt (37%), Roman Leibrandt (38%), Julian Leibrandt (13%) and Julian's wife Lee Leibrandt (12%). I was told that Anloma's accountant, O'Donoghue Services, recommended the distribution to Lee Leibrandt. By reason of the second variation of the trust deed, the spouses of Marika Leibrandt's children were not beneficiaries.
In 2016, Anloma resolved to distribute the income of the Sourry Family Trust to Marika Leibrandt alone.

Third variation of trust deed

It was not until May 2017 that Adam King, a director of O'Donoghue King, informed Marika and Roman Leibrandt that the Trust Deed did not permit the distribution to Roman Leibrandt and Lee Leibrandt. Searches were made in bank deposit boxes and at Andrew Sourry's former home for any documents varying the Trust Deed to permit such distributions.
On 30 June 2017, Marika and Roman Leibrandt as directors of Anloma executed a Deed Poll. The Recitals to the Deed Poll referred to the "purported" amendments to the Trust Deed in 1988 and 1998, noted the Trustee's power in Clause 6(iv) to amend the Trust Deed, noted that the Trustee had formed the view that the amendments to the beneficiaries in 1988 and 1998 affected beneficial interests and was therefore prohibited by Clause 6(iv) and invalid ab initio, but if the Trustee was wrong, then the Trustee wished to amend the Trust Deed to include Roman Leibrandt as a beneficiary. Clause 2 of the Deed Poll then provided: The Purported Amendments 2.1 The Trustee is of the view that to the extent that the Purported Amendments to the Trust Deed made on 29 July 1988 and 11 May 1998 attempted to vary the "beneficiaries" of the Trust as that term is defined in paragraphs 1(c) and the Schedule to the Trust Deed, those Purported Amendments are not within the power contained in paragraph 6(iv) of the Trust Deed and therefore invalid ab initio. 2.2 For the avoidance of doubt the Trustee considers that notwithstanding the Purported Amendments to the Trust Deed made on 29 July 1988 and 11 May 1998, Roman Leibrandt, being the spouse of Marika A Leibrandt, to (sic) fall within the definition of "beneficiaries" as provided for in paragraph 1(c) and the Schedule of the Trust Deed. If the Purported Amendments are within the power of paragraph 6(iv) of the Trust Deed, then the Trustee hereby exercises its power contained in paragraph 6(iv) of the Trust Deed to include Roman Leibrandt being the spouse of Marika A Leibrandt, as a person who meets the definition of "beneficiaries" for the purposes of paragraph 1(c) and the Schedule of the Trust Deed
On 30 June 2017, Marika and Roman Leibrandt as directors of Anloma also resolved to allocate trust income for that financial year. The minutes record: The Chairperson noted the Beneficiaries of the Trust are defined in the Schedule to the Trust Deed (dated 24 November 1975) and are as follows: Marika Alexandra Leibrandt All children, grandchildren and great-grandchildren of the said Marika Alexandra Leibrandt The spouse of the said Marika Alexandra Leibrandt (Roman Leibrandt) Incaflame Pty Ltd The Chairman noted that the said spouse of Marika Alexandra Leibrandt, Roman Leibrandt was subject to the Deed of Variations dated 29 July 1988 and 11 May 1998. It was further noted that the Trustee is currently seeking clarification via Judicial Opinion, for amongst other matters, the effectiveness of the aforementioned Deed of Variations and therefore the eligibility of Roman Leibrandt as a beneficiary of the trust. Notwithstanding the aforementioned pending Judicial Opinion resolution, the Trustee RESOLVED that the Trust Income for the Trust Year be paid, applied or set aside to or for the benefit of the beneficiaries as follows: Beneficiaries Trust income Marika Alexandra Leibrandt 50% Roman Leibrandt 50% The Trustee further resolved that should the Judicial Opinion resolve that Roman Leibrandt not be deemed an eligible beneficiary of the Trust, that his entitlement to the Trust Income is to be made presently entitled to Marika Alexandra Leibrandt. The payment to Roman Leibrandt has not yet been made.
On 30 May 2018, these proceedings were commenced. Notice of the proceedings has been given to Tristan, Julian and Lee Leibrandt.
In total, $481,838.51 has been distributed to Incaflame, $1,705,696.32 has been distributed to Roman Leibrandt. Only one distribution was made to Lee Leibrandt, being 12% of the income of the Trust Fund in the 2015 year.

WERE THE CHANGES TO THE BENEFICIARIES VALID?

The initial group of questions in respect of which judicial advice is sought concern the power of the Trustee to amend the Trust Deed and whether the change of beneficiaries in the first, second and third variations was valid. The power to amend is contained in Clause 6(iv) of the Trust Deed, which provides: the Trustee shall have power by Deed to alter revoke or add to any of the provisions in this Deed and make new provisions to the exclusion of or in addition to any of the provisions for the time being in force and any such alteration revocation or addition to the provisions of this Deed shall be subject in like manner to be altered revoked or added to by a subsequent variation PROVIDED THAT no such alteration revocation or addition shall result in the Trust Fund or income thereof or any part thereof being paid to the Settlor or Trustee AND PROVIDED FURTHER that any such alteration revocation or addition shall insofar as it affects the beneficial interests in the Trust Fund be only for the benefit of any one or more to the exclusion of the others or other of the persons entitled or contingently or presumptively entitled under the provisions hereof living at the time such alteration revocation or addition is made.

Does power to amend including changing beneficiaries?

I was asked whether the power to "alter, revoke or add to any of the provisions" of the Trust Deed extends to adding or removing beneficiaries. In Kearns v Hill (1990) 21 NSWLR 107, the Court of Appeal considered a similar clause which provided, The Trustee may be deed release or revoke any power or powers conferred on the Trustee under this Deed and may vary or amend any of the provisions contained in this Deed …
His Honour Meagher JA, (with whom Mahoney and Clarke JJA agreed) considered that the power was extensive enough to remove or add a new class of beneficiaries, noting the power of variation extended not only to powers but also to "any provision". At 110: Secondly, it is said that to add a new class of beneficiaries can hardly be described as a variation of a "provision". I do not understand this argument. The language of cl 24(a) makes it clear enough that any clause of the deed is a "provision" of that deed.
His Honour further noted two features of the trust deed which are apposite here, at 109: Two preliminary points should be made: one is that the deed of trust is an example of many such documents which have been commonly used for many years which are designed to deal with the disposal of family assets in such a way that the Trustees are furnished with the most ample powers of management and disposition of the settled fund coupled with maximum flexibility in the use of those powers, so as to accommodate the settled fund to emerging and ever-changing economic and revenue considerations. The other is that the deed is conspicuously, but not atypically, ill-drafted. … The fact that a document happens to contain infelicities and mistakes is not a sufficient reason for a court called upon to interpret one or other of its provisions to do so in a narrow or unreal way or to depart from its cardinal duty to construe each provision according to its natural meaning, and in such a way to give it its most ample operation. His Honour Mahoney JA expressed similar sentiments that a power of variation of the provisions of a trust should be construed broadly to confer the power to make fundamental changes if needed: at 108. This broad approach to construction remains the view of the Court of Appeal: see Lewis v Condon (2013) 85 NSWLR 99; [2013] NSWCA 204 (Leeming JA, with whom McColl JA and Sackville AJA agreed).
More recently in Mercanti v Mercanti (2016) 50 WAR 495; [2016] WASCA 206, Clause 28 of the Trust Deed in that case provided: Subject to Clause 10 hereof the Trustees for the time being may at any time and from time to time by deeds revocable or irrevocable revoke add to or vary all or any of the Trust's terms and conditions hereinbefore contained …
The Court of Appeal of the Supreme Court of Western Australia held that the power to vary extended to the variation of the holder of the positions of appointor / guardian. Buss P noted at [80]-[82]: The words of the clause in a trust deed are therefore to be given their ordinary and natural meaning, read in the context of the trust deed as a whole, unless the words have a special or technical meaning. … However, a trust deed may contain an express power of variation. Most modern trust deeds contain an express power which enables the trusts and the provisions of the trust deed to be varied, but the nature, form and extent of the permitted variations depend, in general, upon the language and apparent purpose of the variation clause in the context of the trust deed as a whole.
The President concluded at [145] that "the trusts terms and conditions hereinbefore contained" referred to: (a) in the case of "the trusts", to the Trust created or declared in provisions of the Deed appearing before cl 28; and (b) in the case of "the … terms and conditions", to the other provisions of the Deed (that is, the provisions apart from those declaring or creating trusts) appearing before cl 28. As the details of the appointer / guardian were contained in a Schedule, which was incorporated by reference in Clause 1 of the deed, the power to vary included the power to vary the schedule. This was consistent with the ordinary and natural meaning of the language of Clause 28. Their Honours Newnes and Murphy JJA agreed at [352]-[353].
Consistently with these authorities, I consider that the power to vary the Trust Deed in Clause 6(iv) should be interpreted expansively and includes adding or removing beneficiaries. Such a change to the Trust Deed is clearly encompassed within the plain terms of the Clause 6(iv) and there is no other indication in the Clause or the Trust Deed that the power to vary the Trust Deed should be otherwise read down or restricted in some way.

The provisos to the power to amend

The Trustee's power to amend the Trust Deed is subject to two provisos which, for ease of reference, are as follows: … PROVIDED THAT no such alteration revocation or addition shall result in the Trust Fund or income thereof or any part thereof being paid to the Settlor or Trustee AND PROVIDED FURTHER that any such alteration revocation or addition shall insofar as it affects the beneficial interests in the Trust Fund be only for the benefit of any one or more to the exclusion of the others or other of the persons entitled or contingently or presumptively entitled under the provisions hereof living at the time such alteration revocation or addition is made.
The first proviso is not relevant as the Trustee did not, by the first, second or third variations, vary the terms of the Trust Deed to allow for payments to the Settlor or the Trustee. The second proviso is relevant if changing the beneficiaries "affects the beneficial interests in the Trust Fund". The "beneficial interests in the Trust Fund" are simply the equitable interests of a beneficiary in the trust property as distinguished from the legal interest of the Trustee: Jowitt's Dictionary of English Law, 4th ed., Thomson Reuters (2015). The beneficial interest entitles the beneficiary to enjoy their interest in accordance with the terms of the trust instrument and to enforce the trust: Australian Law Dictionary, 2nd ed., Oxford University Press (2015). It is necessary, therefore, to examine the Trust Deed to ascertain the precise nature of the beneficiaries' interests in the Sourry Family Trust.

Beneficiaries' interest in capital

As far as the capital of the Trust Fund is concerned, Clause 3 of the Trust Deed provides that the Trustee may pay the capital on the distribution date as follows: Subject to the provisions hereinafter in this clause contained if all the beneficiaries shall be living at the distribution date the Trust Fund shall be held upon trust for all of the beneficiaries living at the distribution date as tenants-in-common in such proportions as the Trustee may in its absolute discretion determine PROVIDED THAT the Trustee may distribute the Trust Fund to such one or more of the beneficiaries exclusively of the others. And provided further that the Trustee may not distribute the Trust Fund at the distribution date to any beneficiary under paragraph (x) of the Schedule to the Trust Deed. The last sentence was added by the second variation, such that Incaflame, or any like corporate beneficiary, is not entitled to any capital on the distribution date.
Read literally, Clause 3 has the result that the beneficiaries' right to the capital on the distribution date depends upon all of the beneficiaries being alive at the distribution. However, this cannot have been the intention of the parties in circumstances where the appointer, Andrew Sourry, was in his 50s when the Sourry Family Trust was established and the distribution date was likely some 50 years later. Further, some of the beneficiaries had yet to come into existence but may be thought likely to in the ensuing 50 years, in particular, Marika Sourry's spouse, children and grandchildren. Rather, I consider that Clause 3 gives the Trustee the power to pay or "appoint" capital on the distribution date, with the potential objects of the power being the beneficiaries then living.
Whilst Clause 3 provides that, on the distribution date, the Trust Fund is to be held for all of the beneficiaries then living as tenants in common, the clause does not provide that the beneficiaries are to receive the Trust Fund as tenants in common in equal shares but rather that the proportions are to be determined by the Trustee and, further, the Trustee may determine that the Trust Fund be distributed to one of the beneficiaries only. That is, the entitlement of the beneficiaries to the Trust Fund on the distribution date is subject to the exercise of the Trustee's power to appoint the Trust Fund. Clause 3 does not provide who is entitled to the Trust Fund in the event that the Trustee does not exercise its power. That is, Clause 3 does not provide for a taker in default of appointment by the Trustee.
Clause 6(i) of the Trust Deed gives the Trustee a power to pay capital to beneficiaries before the distribution date as follows: Notwithstanding anything hereinbefore contained the Trustee shall have power: (i) in its absolute discretion from time to time to pay or apply the whole or any part of the capital of the Trust Fund to or for the maintenance education advancement in life or benefit of any or all of the beneficiaries and the Trustee shall be entitled in the case of infancy to pay any sum or sums so applied to the parent guardian or other person for the time being having the care or custody of any such person or persons and the Trustee shall not be bound as such Trustee to see the application of any monies so applied or paid; The Clause gives the Trustee the power to pay or "appoint" capital at any time before the distribution date, with the potential objects of the power, again, being the beneficiaries, including infant beneficiaries. Clause 6(i) gives the Trustee the power to appoint capital, but does not require the Trustee to do so and does not state what will happen if the Trustee does not exercise this power. That is, Clause 6(i) does not provide for a taker in default of appointment by the Trustee.

Beneficiaries' interest in income

In respect of the income of the Trust Fund, Clause 4 of the Trust Deed provides that the Trustee may pay the income of the Trust Fund each year as follows: Until the distribution date - (1) The Trustee shall have the power to pay or apply prior to the expiration of any year the whole or any part of the income of the Trust Fund for that year to or for the maintenance education advancement or benefit of such one or more exclusively of the others or other of the beneficiaries in such proportion as the Trustee in its absolute discretion may determine and the Trustee shall be entitled in the case of infancy to pay any sum or sums so applied to the parent guardian or other person for the time being having the care or custody of any such person or persons and the Trustee shall not be bound as such Trustee to see the application of any monies so applied or paid (for the purpose of this clause a year means a year ending on the 30th June); and (2) The Trustee may from time to time and at any time in its absolute discretion resolve before the 30th June in any year (but not thereafter) to accumulate the whole or any part of the income of the Trust Fund for the year for such of the infant beneficiaries as shall be named in writing by the Trustee until the beneficiary in question shall attain the age of 21 years … and invest the same and the resultant income therefrom to the intent that the accumulation and income therefrom shall not be added to and form part of the capital of the Trust Fund but shall be available for payment to the parent or guardian of the beneficiary in question for the maintenance education advancement support or benefit of the beneficiary in question and shall otherwise be held by the Trustee for such infant beneficiary's own use and benefit absolutely … Further sub-clauses 4(3) to 4(9) were added by the second variation, and these will be considered further in due course. "Income" is not defined in the Trust Deed and the content of that term is to be found in the general law of trusts, under which income is not capital: Commissioner of Taxation v Bamford (2010) 240 CLR 481 at [36]-[41].
By Clause 4, the Trustee has power to appoint part or all of the income to the beneficiaries of the Trust and, in Clause 4(2), to accumulate income for infant beneficiaries with such accumulated income not forming part of the capital of the Trust Fund, but held on trust for the infant. Clause 4 does not provide for a taker in default of appointment by the Trustee. Indeed, the Trust Deed is silent as to what happens to the income of the Trust Fund if it is not paid by 30 June each year. As Clause 4 and Clause 6(i) of the Trust Deed confer powers on the Trustee rather than establish trusts, and the Trustee is not obliged to exercise these powers, then in the event that the Trustee does not exercise these powers, the income must be an accretion to the capital of the Trust Fund.
Clause 5(n) of the Trust Deed gives the Trustee power to re-characterise income as capital and vice versa, as follows: The Trustee may determine whether any sum is received or disbursed either on account of capital or income or partly on account of one and party on account of the other and in what proportions and the decision of the Trustee whether made in writing or implied from the acts of the Trustee shall be conclusive and binding. However, this is an administrative rather than a dispositive power and it cannot be used to re-classify capital as income when, in truth, it is capital, or vice versa: Forrest v Federal Commissioner of Taxation [2010] FCAFC 6 at [28] and [29].
Clause 6(iii) of the Trust Deed gives the Trustee the power to pay income or capital to another trust under which some or all of the beneficiaries are also beneficiaries. Again, this clause gives the Trustee the power to appoint capital or income to another trust, but does not require the Trustee to do so and does not state what will happen if the Trustee does not exercise this power.

Interest of beneficiaries where no takers in default

Having regard to these clauses, it can be seen that the beneficiaries of the Trust may receive capital and income. The Trustee is not obliged to pay capital or income to any particular beneficiary, and may pay capital or income to one beneficiary only. There is no provision that, in the event that the Trustee does not exercise its power to pay income or capital, a beneficiary is entitled to the income or capital. That is, the Trust Deed does not provide for a taker in default of appointment by the Trustee.
The interests of beneficiaries under such provisions were examined by Campbell J (as his Honour then was) in Stein v Sybmore Holdings [2006] NSWSC 1004. The Court of Appeal has not followed this case in respect of his Honour's application of section 81 of the Trustee Act (see Re Dion Investments Pty Ltd (2014) 87 NSWLR 753 and Cisera v Cisera Holdings Pty Ltd [2018] NSWCA 286), but his Honour's analysis of the property rights of beneficiaries under the trust deed remains good law. In Stein v Sybmore Holdings, Mr Stein established a trust. The Specified Beneficiaries were inter alia Mr Stein, his wife, children and grandchildren. Mr Stein's children, Tanya and Ian, were also Residual Beneficiaries. The trust deed provided for the nomination of Primary and Secondary Beneficiaries, but none had been nominated.
Clause 3 of the Trust Deed concerned the payment of income to the beneficiaries. Clause 3(a) of the Trust Deed provided that the Trustee could pay income to the Primary or Second Beneficiaries. Clause 3(b) provided that the Trustees could, instead of paying income to the Primary or Second Beneficiaries, accumulate the income. Clause 3(c) provides that, in the event that the Trustees neither paid nor accumulated the income, then "the Trustee shall stand possessed of such income upon trust for the Residuary Beneficiaries and if more than one in equal shares". His Honour explained the interest which the Residuary Beneficiaries had in the trusts for income at [25]: (emphasis added, citations omitted) In circumstances where Tanya and Ian are both alive and without children the effect of Clause 3(c) of the Trust Deed is that the income of any year is held on trust for Tanya and Ian in equal shares, except to the extent that the Trustee decides to appoint that income to someone else under Clause 3(a), or accumulate it under Clause 3(b). In the language of property law, under Clause 3(a) and (b) there is a power to appoint the income, and under Clause 3(c) there is a gift over to Tanya and Ian in default of appointment. Where there is a power to appoint property amongst members of a class, and a gift over in default of appointment, the takers in default have a vested, but defeasible, interest in the property.
Further, Clause 6 provided for the payment of capital on the Vesting Day as follows: On the Vesting Day the Trustee shall stand possessed of the capital of the Trust Fund UPON TRUST for all or such one or more of the Primary Beneficiaries as the Trustee may by Deed or by oral declaration and recorded in the Minutes of the Trustee determine and if more than one in such shares as the Trustee may by Deed or by declaration declare but if on the Vesting Day the Trustee has not made such a declaration then for the Residuary Beneficiaries and if more than one in equal shares …
His Honour explained the interest which the Residuary Beneficiaries had in the trusts for capital at [26] (emphasis added): … Clause 6 of the Trust Deed gives Tanya and Ian as Residuary Beneficiaries a vested but defeasible interest in the capital of the Trust. The interest of, say, Tanya in the capital is a contingent interest, because it is contingent on her surviving until the Vesting Day. It is defeasible because if the Trustee appoints the property to someone else, under the power of appointment contained in Clause 6 or 7, it will no longer flow to her as a taker in default of appointment. Even so, such a defeasible contingent interest in the capital is a right of property, which is vested in interest but not in possession.
As such, although Mr and Mrs Stein and their children were all potential objects of the Trustee's power of appointment of income and capital, at [27]: Being a potential object of a power of appointment is not enough to confer any rights of property in the assets which can be appointed. Thus it is only Tanya and Ian who have any present rights of property in the Trust assets.
That is, a taker in default of appointment has a present interest in trust property which is: 1. vested in interest, but not in possession; 2. defeasible, that is, it may be defeated by the exercise of the power to appoint the property; and 3. contingent on their survival until the end of the vesting period, which is typically the vesting date for capital, or 30 June for income.
Applying the approach in Stein v Sybmore Holdings here, as the Trust Deed provides for objects of the power to appoint income and capital but does not provide for a taker in default of appointment, the beneficiaries do not have any rights of property in the income or capital. Any amendment to the Trust Deed which introduces new objects of the power to appoint does not "affect the beneficial interests in the Trust Fund". By adding beneficiaries, there are additional competitors for the Trustee's appointment of income or capital. By removing beneficiaries, there is less competition. But this does not change the nature of the beneficiaries' rights or interests under the Trust Deed. Rather, as Lord Wilberforce explained in Gartside v Inland Revenue Commissioners [1968] AC 553 at 617, the beneficiary under a discretionary trust has a right to be considered as a potential recipient of a benefit by the Trustees and a right to have their interest protected by a court of equity. The authorities gathered by Buss P in Mercanti v Mercanti at [96] are apposite: In Cachia v Westpac Financial Services Ltd (2000) [2000] FCA 161, Hely J applied Pepe v City & Suburban Permanent Building Society [1893] 2 Ch 311 and Gra-Ham Australia Pty Ltd v Perpetual Trustees WA Ltd (1989) 1 WAR 65, and decided that an amendment to a unit trust deed was not invalidated by reason of the fact that it may defeat what would otherwise have been an entitlement of a unitholder who had requested redemption of his or her units prior to the operative date of the amendment [64]-[66]. See also ING Funds Management Ltd v ANZ Nominees Ltd (2009) [2009] NSWSC 243, where Barrett J commented: The rights arising under a constitution or a trust deed or a set of rules which is susceptible to amendment are rights that exist subject always to the possibility that the governing instrument will be changed. It is an incident or aspect of every right arising from that instrument that the amendment power may alter or abolish the right subject, no doubt, to the doctrine of fraud on a power [149].
As, in my view, changing the beneficiaries does not "affect the beneficial interests in the Trust Fund", I consider that amending the Trust Deed to add or delete beneficiaries in the Schedule is not subject to the second proviso of Clause 6(iv) and it need not be further examined. I note that prayers 1, 2 and 3 of the summons merge the chapeau of the second proviso with its content and present composite questions. I consider that the application of the second proviso should be approached differently. As changing the beneficiaries does not "affect the beneficial interests in the Trust Fund" (the chapeau), it is not necessary to consider the remainder of the second proviso and I do not propose to answer the composite questions as they do not arise given the way I have construed the clause.

Implied trust

I was asked whether the Trust Deed contains an implication of a gift to the beneficiaries, that is, whether an "implied trust" arises in default of appointment as explained in Perpetual Trustee Co Ltd v Tindal (1940) 63 CLR 232. That case concerned interests under a life insurance policy made under the Life, Fire and Marine Insurance Act 1902 (NSW), made by Mr Tindal for the benefit of his wife and four children. At the time of judgment, the wife and three of the children had died. The Act meant that this otherwise contractual relationship was transformed into a trust with the named persons as objects. The policy was payable: 1. to the wife should she become his widow; 2. "failing which" to the son Charles Tindal if he survived and attained the age of 21 or to such other children of the assured as the assured may by way of substitution appoint.
Mrs Tindal predeceased Mr Tindal, by which time the son Charles had also died. The meaning of the "failing which" subclause had to be considered. At first instance, Nicholas CJ in Eq held that the words created an implied gift to those children who survived both Mr and Mrs Tindal, which was the only surviving son Arthur. On appeal Latham CJ explained the general principle in respect of an implied trust in the absence of a taker in default of appointment, at 239: But where the instrument contains no express gift over in default of appointment, the difficulty is to determine who are to take in default of appointment. The general principle seems to be this: If the instrument itself gives the property to a class, but gives a power to A to appoint in what shares and in what manner the members of that class shall take, the property vests, until the power is exercised, in all the members of the class, and they will all take in default of appointment; but if the instrument does not contain a gift of the property to any class, but only a power to A to give it, as he may think fit, among the members of that class, those only can take in default of appointment who might have taken under an exercise of the power. In that case the court implies an intention to give the property in default of appointment to those only to whom the donee of the power might give it.
In the nineteenth century, certain authorities raised this principle to the status of a presumption (Ford and Lee: The Law of Trusts, looseleaf, Thomson Reuters at [5.7270]). Whilst Perpetual Trustee Co Ltd v Tindal continued an old line of English authorities, and it may be accepted that it formed part of the law of Australia at that time, Ford and Lee proceeds on the basis that the decision may have been surpassed by new conceptions of trust powers in McPhail v Doulton [1971] AC 424. The term "implied trust" is now used more often to mean a resulting trust (see Heydon & Leeming Jacobs' Law of Trusts in Australia, 8th ed., LexisNexis Butterworths at [12-01]).
Perpetual Trustee Co Ltd v Tindal has been followed in respect of "implied trusts" in Re Annandale [1986] 1 Qd R 353. I consider the better view is that it is a matter of construction rather than a presumption: Re Weekes' Settlement [1897] 1 Ch 289; Lutheran Church of Australia South Australia District Inc v Farmers' Co-op Executors and Trustees Ltd (1970) 121 CLR 628 per Barwick CJ. Indeed, in Perpetual Trustee Co Ltd v Tindal, Dixon J emphasised the importance of ascertaining the intention of the settlor when determining whether an implied trust arose. At 261: … the failure by the donee to exercise the power does not necessarily defeat the expectations of those qualified to take an appointment. Prima facie an implication is made by which the objects of the power take, in equal shares, the estate or interest which might have been appointed among them. It is of course a question of intention, but the implication will be made if, from the nature or terms of the power or the circumstances, it appears that the settlor or testator meant that it should be incumbent upon the donee to exercise the power confided to him or that the objects should take even if he did not. … But where the power is entrusted to the donee for the purpose of effectuating an intention that the property should devolve upon the objects of the power or some of them according to the donee's discretion, the latter's neglect to exercise the power cannot be allowed to defeat the purpose, which will be carried into effect by the implication of an estate or interest in equal shares among those capable of taking by appointment.
Like contracts, ascertaining the intention of the settlor is done by objectively construing the trust deed rather than ascertaining the subjective intention of the settlor by extrinsic evidence: Segelov v Ernst & Young Services Pty Ltd (2015) 89 NSWLR 431; Byrnes v Kendle (2011) 243 CLR 253; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2009) 240 CLR 45. Having regard to Clause 3 and the Trust Deed as a whole, it seems to me that the intention of the settlor was that the Trust Fund would be distributed on the distribution date amongst a class of persons who met the definition of beneficiary as at the distribution date. A person fulfilled this description by reason of two matters: 1. that the person was specified amongst the beneficiaries in the Schedule to the Trust Deed as at the distribution date; and 2. that the person was alive as at the distribution date.
In the event that the Trustee did not exercise its power of appointment on the distribution date, then I consider that the settlor intended that the beneficiaries who fulfilled these two criteria would not be disappointed by reason only of the Trustee's failure to exercise the power of appointment and all eligible beneficiaries would take in default of appointment in equal shares.
Such an implied trust will only arise in the future and only then if two things happen: first, there is more than one beneficiary as at the distribution date and, second, the Trustee does not exercise its power under Clause 3. I do not think that the possibility that an implied trust may arise at the distribution date transforms the rights of current beneficiaries into any rights of property in the Trust Fund. Nor does it impede the Trustee's ability in Clause 6(iv) to "alter, revoke or add" any provisions of the Trust Deed including the beneficiaries listed in the Schedule.
Were it otherwise, a charity listed in the Schedule in 1975 could not be deleted and another charity added because the original charity might be a taker in default of appointment under an implied trust on the distribution date in 50 years' time. It cannot have been the intention of the settlor, in my view, that all beneficiaries added at any time since the inception of the Trust Fund would be the object of the Trustee's decision to appoint capital at the distribution date. The same intention in my view pertained to adding or deleting spouses of the Sourry family and its descendants. The "family law matters" averted to correspondence in 2002 are common reasons why family trusts are established and modified from time to time: to endeavour to preserve the assets of a family for the benefit of that family alone notwithstanding marital misfortunes which may befall its members.
As such, the existence of any takers in default of appointment under an implied trust which may arise on the distribution date does not have the result that current beneficiaries are takers in default of appointment. Current beneficiaries do not have any rights of property in the Trust Fund. Any amendment to the Trust Deed which introduces new objects of the power to appoint does not "affect the beneficial interests in the Trust Fund" and amending the Trust Deed to add or delete beneficiaries in the Schedule is not subject to the second proviso. As such, I consider that the changes to the beneficiaries made in the first, second and third variations of the Trust Deed were validly made pursuant to Clause 6(iv) of the Trust Deed, and the Trustee is justified in managing and administering the Trust Fund in accordance with the Trust Deed as so varied.

CAN THE TRUSTEE AMEND THE TRUST DEED FURTHER TO ADD SPOUSES AS BENEFICIARIES?

It follows that adding beneficiaries will not "affect the beneficial interests in the Trust Fund". The second proviso in Clause 6(iv) of the Trust Deed does not apply to such a variation. The Trustees may amend the Trust Deed to add the spouses of current beneficiaries as beneficiaries as well.
It was suggested that the power to amend may be limited by varying the definition of "beneficiaries" to include any spouses of natural persons who are beneficiaries, but only for the purposes of those persons being objects of the power to appoint income or capital and not for those persons being takers in default of appointment. As I consider that any implied trust may only arise for takers in default on the distribution date and not before, I do not think these limitations are necessary.

SHOULD THE TRUSTEE RECOVER DISTRIBUTIONS MADE TO NON-BENEFICIARIES?

The Trustee has distributed income and capital to persons who did not meet the definition of "beneficiary". This is a breach of trust. An action by the Trustee to recover distributions made to Roman Leibrandt in 2004, 2005 and 2006 is now out of time: section 47(1)(c), Limitations Act 1969 (NSW). Recovery of subsequent distributions to Roman Leibrandt, and the only distribution to Lee Leibrandt, are not out of time and the Trustee would, ordinarily, be obliged to recover the trust funds.
All of the current beneficiaries are aware of these distributions. No claim or complaint has been made against the Trustee. In particular, Tristan Leibrandt and Julian Leibrandt have been provided with the summons, amended summons, statement of facts, Trust Deed and variations. They were asked to indicate whether they consented to the application for judicial advice, and in particular the advice that the Trustee is justified in not seeking to recover any past distributions made to Roman Leibrandt and Lee Leibrandt. It was noted that they may wish to obtain independent legal and / or financial advice before they indicated their attitude. Each consented to the application for judicial advice, although none specifically referred to this aspect of it.
The Trustee operates the Trust Fund for the benefit of the beneficiaries. If the beneficiaries are aware of the breach of trust and are content for the Trustee not to seek to recover distributions made to Roman Leibrandt or Lee Leibrandt, then the Trustee is justified in not seeking to recover those monies. As matters presently stand, however, the beneficiaries have not released the Trustee in respect of any claims they have, nor formally excused the breach. Those to whom a fiduciary duty is owed may ratify or excuse a breach after the event if they are given sufficient information: Bamford v Bamford [1970] Ch 212; Winthrop Investments Ltd v Winns Ltd [1975] NSWLR 666; Parkinson, The Principles of Equity, 2nd ed., Lawbook Co. (2003) at [1077]. It is a defence to a breach of trust that the breach was subsequently excused. The beneficiary must have full knowledge of the facts and of what exactly they are doing and the legal effect thereof and must not be subject to undue influence. As Lord Westbury LC said in Farrant v Blanchford (1863) 46 ER 42 at 46-7: The duty of moving an effectual discharge lies on the Trustee. Where a breach of trust has been committed, from which a Trustee alleges that he has been released, it is incumbent upon him to show that such release was given by the cestui que trust deliberately and advisedly, with full knowledge of all the circumstances, and of his own rights and claims against the Trustee; for it is impossible to allow a Trustee who has a personal liability to deal with his cestui que trust for his own discharge upon any other ground than the obligation of giving the fullest information, and of showing that the cestui que trust was well acquainted with his own legal rights and claims, and gave the release freely and without pressure or undue influence of any description.
Where beneficiaries with full knowledge of a breach of trust take no steps to obtain relief for breach of trust, their delay may itself amount to acquiescence in the breach which may be a defence to any such claim: Jacobs' Law of Trusts at [22-33].
The Trustee is justified in not seeking to recover these distributions as the beneficiaries have indicated they are agreeable to this course. However, I do not consider that the beneficiaries have formally excused the breach of trust or have released the Trustee in respect of it, and thus remain entitled to bring an action for breach of trust if they so wish.

WERE OTHER CHANGES TO THE TRUST DEED VALID?

As earlier mentioned, the Second Deed of Variation of Trust added a power to re-characterise "income" as "capital" and vice versa and a power to separately identify and pay different receipts to particular beneficiaries, that is, the ability to stream distribution. In particular, Clause 4(3) was added as follows (emphasis added): Subject to any appointment or application under clause 4(1), the Trustee may in each year pay, apply or set aside the whole or part (if any) of the income of the Trust Fund of that year to or for the benefit of or for all or such one or more exclusive of the others or other of the beneficiaries then living in such proportions and in such manner as the Trustee may in its absolute discretion determine. The amounts so set aside for any beneficiary shall no longer form part of the Trust Fund but shall be held by the Trustee as a trust separate from the Trust Fund on trust for such beneficiary absolutely with power to the Trustee pending payment over thereof to such beneficiary to invest or apply of deal with such fund or any income therefrom or any part thereof in the manner provided for in clauses 5 and 6 hereof. In default of application of the full amount of the income of the Trust Fund in each year, the amount that has not been applied shall be applied pro rata according to the amount and to the beneficiaries to whom the income of the Trust Fund of that year has been applied.
Clause 4(3) is a taker in default of appointment provision in respect of income. However, the takers in default of appointment are the "… beneficiaries to whom the income of the Trust Fund of that year has been applied …". There needs to be an appointment of income to which the remaining unapplied income will follow. As such, Clause 4(3) still does not give the beneficiaries a vested but defeasible interest in the income of the Trust Fund or confer any rights of property in the assets of the Trust Fund. The addition of Clause 4(3) does not, therefore, affect the beneficial interests in the Trust Fund and the second proviso of Clause 6(iv) does not apply. The amendment was valid.
As earlier mentioned, the power in Clause 5(n) of the Trust Deed cannot be used to re-characterise capital as income (if the amounts are properly characterised as capital) and vice versa. However, the second variation of the Trust Deed does seek to re-characterise "income" as including that defined in the Income Tax Assessment Act (which would include capital gains), or otherwise in the Trustee's discretion. Clause 4(9) was added as follows: For the purposes of this Deed, the expression "income of the Trust Fund" shall include any amounts which the Trustee shall in its absolute discretion determine to form income of the Trust Fund whether or not: (a) such amounts constitute income for the purposes of the Income Tax Assessment Act, or (b) such amounts arise from investments or personal exertion, or (c) such amounts constitute gains of a capital nature (which have accrued actually notionally) for the purposes of the Income Tax Assessment Act. If the Trustee shall fail to make a determination under this sub-clause (9) prior to midnight on 30 June in any financial year, then the amount which under the provisions of the Income Tax Assessment Act represents the "Net Income" (as that term is defined by the Act) for that year in relation to the Trust shall be included as income of the Trust Fund for the purposes of this Deed.
There may be a difference between the beneficiaries as to income and as to capital, as Incaflame and any like corporate beneficiaries are not eligible to receive capital on the distribution date. But Clause 4(9) does not provide for a taker in default of appointment in respect of income or capital, but rather for the Trustee to characterise income as capital. Overall, Clause 4 as amended by the second variation still does not give the beneficiaries a vested but defeasible interest in the income or capital of the Trust Fund or confer any rights of property in the assets of the Trust Fund. The amendments to Clause 4 do not, therefore, affect the beneficial interests in the Trust Fund and the second proviso of Clause 6(iv) does not apply. The amendments were valid.

CAN THE TRUSTEE CHANGE THE DISTRIBUTION DATE?

The Trustee wishes to amend the Trust Deed to delete paragraph 1(b)(i) of the Trust Deed, that is, the distribution date being potentially on 24 November 2025. If the amendment is made, then the Trust Fund will vest, not on 24 November 2025, but on the earlier of: 1. the Royal lineage determination (in paragraph 1(b)(ii) of the Trust Deed; or 2. an earlier date determined by the Trustee.
There are two things to consider here. First, whether the amendment is within the scope of the power contained in Clause 6(iv) of the Trust Deed; and, second, whether the amendment is prohibited by the rule against perpetuities.
As to the first matter, an extension of a vesting date may affect a beneficial interest. Returning to Stein v Sybmore Holdings, Campbell J noted that an extension of the vesting date would have that result in the trust deed before him which, it will be recalled, provided that the children were takers in default of appointment. At [28]: If the date by which the Vesting Day must occur is delayed for several decades, and if, say, Ian dies before the Vesting Day, but Tanya remains alive, the effect of the extension of the Vesting Day will be to change the beneficial interests in the Trust Fund from what they are now. In particular, if Ian leaves a child or children, that child or children will as a result come to have a vested but defeasible interest in half of the capital, while if Ian dies without children Tanya will come to have a vested but defeasible interest in the whole of the capital. If Ian dies before the Vesting Day leaving a child or children, that child or children will also acquire corresponding rights in the income. Other possible events, concerning who dies, who remains alive, and who has children, will result in other changes to the beneficial interests in the Trust Fund from what those beneficial interests are now. …
Here, unlike the situation in Stein v Sybmore Holdings, there are no takers in default save, potentially, takers in default of appointment of capital on the distribution date under an implied trust arising at that date. The fact that one of three potential distribution dates is to be deleted does not, in my view, affect the beneficial interests in the trust. Indeed, a deletion of paragraph 1(b)(i) of the Trust Deed will not necessarily mean that there will be an extension past 24 November 2025, as the trust may determine prior to that date under Clause 1(b)(iii) of the Trust Deed (as it is unlikely to determine prior to 2025 under Clause 1(b)(ii)). As a result, I consider that a deletion of paragraph 1(b)(i) of the Trust Deed does not affect the beneficial interests in the trust and the second proviso to Clause 6(iv) of the Trust Deed does not apply.
As to the second matter, the common law rule against perpetuities was reformed by the introduction of the Perpetuities Act 1984 (NSW). However, the Act does not apply to the Sourry Family Trust as the trust was created in 1975 and the Act only applies to a settlement that takes effect before 31 October 1984: section 4(1) of the Act. The common law rule against perpetuities applies here, under which the perpetuity period for the trust is a human life (or lives) in being at the date of the establishment of the trust plus 21 years: see Congregational Union of NSW v Thistlethwayte (1952) 87 CLR 375 and Air Jamaica Ltd v Charlton [1999] 1 WLR 1399 (PC) in respect of common law rule and Shead Real Estate Pty Ltd (in the matter of EA & F Shead (Chatswood) Trust) [2018] NSWSC 614 (Emmett AJA at [25]) in respect of a similar royal lineage clause. The rule is and will continue to be satisfied with the limitation contained in paragraph 1(b)(ii) of the Trust Deed.
Having considered these matters, in my view the Trustee may amend the distribution date as proposed.

CAN THE TRUSTEE APPOINT INCOME AND CAPITAL TO ANOTHER TRUST?

As mentioned earlier, Clause 6(iii) of the Trust Deed gives the Trustee the power to pay income or capital to another trust under which some or all of the beneficiaries are also beneficiaries, as follows: Notwithstanding anything hereinbefore contained the Trustee shall have power: … (iii) at any time in its absolute discretion with or without consideration to pay or transfer the whole or any part of the Trust Fund or the income thereof to the Trustee or Trustees for the time being of any settlement whereunder all or any of the beneficiaries are beneficiaries whether absolutely contingently presumptively or prospectively to be held by such Trustee or Trustees as an addition to the property comprised in such other settlement (freed and discharged from the Trust powers and provisions hereof) whether such other settlement shall be governed by the laws of the State of New South Wales or by the law of some other state or country and whether or not the Trustee or Trustees thereof shall be within the jurisdiction of the Courts of the State of New South Wales;
The Trustee seeks advice as to whether it can appoint income or capital of the Trust Fund to another trust estate, of which any of the current "beneficiaries" are also beneficiaries under this power. Given that this what Clause 6(iii) says, the answer is yes, provided that the recipient trust estate vests earlier than the Trust Fund such that the rule against perpetuities is not infringed.
The rule against perpetuities may be breached if there is a transfer of trust property from the Trust Fund to another trust and the perpetuities period of the recipient trust estate is longer, or may be longer, than that of the Trust Fund. This was explained by Viscount Radcliffe (with whom Lords Hodson, Jenkins and Devlin agreed, and with whom Lord Reid agreed on this point) in Re Pilkinton's Will Trusts [1964] AC 612 at 642: I think that the important point for the purpose of the rule against perpetuities is that the new settlement is only effected by the operation of a fiduciary power which itself "belongs" to the old settlement. In Nemesis Australia Pty Ltd v Commissioner of Taxation [2005] FCA 1273, Tamberlin J called this "reading back" into the original instrument: at [33]-[35].
At general law, the question as to whether a contingent interest satisfies the rule against perpetuities must be decided at the time of its purported creation (Harris v King (1936) 56 CLR 177 at 185 per Dixon J). The harshness of the general law rule has been ameliorated by the Perpetuities Act. Whilst the Trust Fund is not subject to the Act, an appointment of income and / or capital to another trust would itself be an "interest created under a settlement" under section 7 of the Act and therefore be subject to the Act. Section 8 allows for a period of waiting in which to ascertain whether a contingent interest which would have infringed the common law rule will, or will not, in fact vest within the perpetuity period. This is called the "wait and see" rule: Nemesis Australia Pty Ltd v Commissioner of Taxation.
In order to ensure that the rule against perpetuities is not infringed, I consider that any recipient trust's vesting period must be (say) a day shorter than the distribution date of the Trust Fund, or 80 years, whichever occurs first. In this event, the certainty of the proposed settlement can be determined without resort to section 8.

ORDERS

Pursuant to section 63 of the Trustee Act 1925 (NSW), the Court advises that Anloma Pty Ltd in its capacity as Trustee of the Sourry Family Trust is justified in: 1. managing and administering the Trust Fund pursuant to the terms of the Trust Deed as amended by the Deed of Variation of Trust made on 29 July 1988; 2. managing and administering the Trust Fund pursuant to the terms of the Trust Deed as amended by the Second Deed of Variation of Trust made on 11 May 1998; 3. managing and administering the Trust Fund pursuant to the terms of the Trust Deed as amended by the Deed Poll dated 30 June 2017, and in particular, on the basis that Roman Leibrandt is a "beneficiary" as that term is defined in Clause 1(c) and the Schedule of the Trust Deed; 4. not seeking to recover any distributions made from the Trust Fund to either of: 1. Roman Leibrandt; or 2. Lee Leibrandt; 1. exercising the power contained in Clause 6(iv) of the Trust Deed to vary the definition of "beneficiaries" to include any spouses of natural persons who are "beneficiaries" as that term is defined in Clause 1(c) and the Schedule of the Trust Deed; 2. appointing income and / or capital of the Trust Fund to another trust estate (Transferee Trust) pursuant to Clause 6(iii) of the Trust Deed provided that: 1. any or all of the beneficiaries of the Sourry Family Trust are beneficiaries of the Transferee Trust; and 2. the Transferee Trust vests before the Trust Fund and within 80 years of creation of the Transferee Trust. 1. exercising the power contained in Clause 6(iv) of the Trust Deed to delete Clause 1(b)(i) of the Trust Deed.

Amendments 28 November 2018 - amend decision date 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: 28 November 2018

Life, Fire and Marine Insurance Act 1902(NSW)

Limitations Act 1969(NSW)

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