Anna Katherine Szozda & Ors v NSW Trustee & Guardian & Ors

Judgment 1By their amended notice of motion of 14 February 2012, the plaintiffs seek an order under s 74K Real Property Act 1900 (the Act) extending the operation of caveat no. AG643965 and caveat no. AG643979 until further order. 2The first plaintiff (Anna), second plaintiff (Mark), and third plaintiff (Greg) are children of the fourth plaintiff (Teresa) and the late Andrew Szozda who died on 3 March 2006. 3The first defendant (NSW Trustee & Guardian) is a corporation constituted under s 5 NSW Trustee and Guardian Act 2009. The second defendant (Mr Fowler) is the person appointed to manage the estate of the sixth defendant (Aniela) under s 25M Guardianship Act 1987 as she is a person of legal incapacity. The third defendant (Barbara) is the daughter of Aniela and the sister of Andrew. The fourth defendant (Szozda Holdings Pty Ltd) is a company duly incorporated. The fifth defendant (Mr Jirsch) is a chartered accountant, who was appointed to the board of directors of Szozda Holdings on 24 November 2011. 4As a preliminary matter, on behalf of Mr Fowler it was submitted that the application should not proceed as Aniela, being an interested party, had not been served with the application as required by s 74K(3) of the Act. It was put that Mr Fowler did not consent to act as Aniela's tutor under UCPR Pt 7, r 7.16 having regard to the claims against him. However, in my opinion, the complaint is without substance. Mr Fowler is the manager of Aniela's estate, and service upon him is sufficient for present purposes (r 10.12(6)(a)). In any event, in the circumstances, it would be appropriate to dispense with service in the exercise of discretion under s 74K(3), and I do so. 5Szozda Holdings is the trustee of the Szozda Trusts namely, Szozda Holdings Trust No.1 (Trust No. 1), Szozda Holdings Trust No. 2 (Trust No. 2), and Szozda Holdings Trust No. 3 (Trust No. 3). Szozda Holdings is the registered proprietor of a property at Clarence Street, Burwood for Trust No. 1, and of a property at Raymond Road, Neutral Bay for Trust No. 2, and of a property at Robertson Street, Kogarah for Trust No. 3. The trusts derive income from the rent of these properties. 6The members of Szozda Holdings are Aniela (6 shares), Barbara (3 shares), and Anna, Mark, and Greg (1 share each). 7The trusts are discretionary trusts governed by the provisions of a trust deed dated 11 August 1975. Under cl 1(d) the present beneficiaries are Aniela, Anna, Mark, Greg, Teresa, Barbara and "... any religious scientific charitable or public educational institution". The vesting date is 1 August 2025. 8Relevantly, the terms of the trust deed are: "2.1 The Trustee may at any time prior to the expiration of each year until the vesting day determine with respect to the whole or such part (if any) as the Trustee thinks fit of the net income of the trust fund to pay apply or set aside the same to or for the benefit of or for all or such one or more exclusive of the other or other of the beneficiaries living or in existence at the time of the determination in such proportions and such manner as the Trustee thinks fit. 2.2 Notwithstanding anything contained in clauses 2.1 and 2.3 hereof the Trustee may in its absolute discretion prior to the expiration of any year prior to the vesting day determine to accumulate all or any part of the income of such year and such accumulation shall be dealt with as an accretion to the trust fund. 2.3 In default of any determination having been made by the Trustee pursuant to clauses 2.1 or 2.2 as to the distribution of the whole or any part of the net income of the trust fund (hereinafter called "the undistributed income") for a current year prior to midnight on the 30 th day of June in that year the Trustee shall hold the undistributed income in trust for such of the persons described in clause 1(d) hereof (except sub-clause (viii)) as shall then be living and if more than one as tenants in common in equal shares. ... 5 The trustee shall subject to clauses 2 and 7 hereof stand possessed of the trust fund on the vesting day in trust as to income and capital to pay and transfer the same in the absolute discretion of the trustee to all of the beneficiaries as are then living ... or to such one or more of them to the exclusions of the other or others and in such shares and proportions as the trustee in its absolute discretion may determine on or within a period of 14 days before the vesting day and in default of any such determination as aforesaid shall stand possessed of the trust fund for such of the persons enumerated in clause 1(d) as shall then be living ... and if more than one as tenants in common in equal shares PROVIDED THAT should any child of the said Boleslaw Szozda have died before the vesting day leaving a child or children him or her surviving such child or children shall take, and if more than one as tenants in common in equal shares, the share which their parent would have taken if living at the vesting day. ... 7 The trustee shall until the vesting day and during such further period if any that the law may allow have the following additional powers; ... (c) power in its absolute discretion to raise and/or apply at any time the whole or any part of the capital of the trust fund and pay or apply the same for or towards the maintenance education advancement or benefit of any one or more of the beneficiaries without being responsible for the application thereof; ... 13 In the event of the failure either as to capital or income of the trust funds vesting absolute under the foregoing provisions of this deed the trustee shall hold the same and income thereof or so much of the same as shall not have become absolutely vested or been applied under the trusts and powers herein contained or under any statutory power UPON TRUST for such person or persons who would have become entitled to the same at the death of the said Boleslaw Szozda if he had died absolutely entitled thereto intestate domiciled in New South Wales and if there shall be more than one such person for those persons as tenants in common in the shares in which they would have taken under such intestacy." 9On 9 June 2011 Mr Fowler was appointed to manage Aniela's estate by order of the Guardianship Tribunal of NSW. On 4 July 2011 directions and authorities were issued to him for the management of the estate. On 11 October 2011 an additional direction and authority was issued authorising him to exercise Aniela's voting rights in respect of her shareholdings in each of the trusts, including voting at extraordinary general meetings. 10On 24 November 2011 an extraordinary general meeting of Szozda Holdings took place when Barbara and Mr Fowler voted in favour of resolutions which removed Anna and appointed Mr Jirsch to the board. Immediately afterwards, Barbara and Mr Jirsch held a board meeting which purported to deal with the vesting of each of the Szozda Trusts and the distribution of their assets. With regard to Trust No. 1 resolutions were passed: (1)to advance the vesting day to 24 November 2011; (2)to distribute the accumulated income of the trust until 24 November 2011 (if any) equally among Mark, Anna, and Teresa; (3)to sell the property at Clarence Street and after payment of liabilities of the trust, to distribute the capital of the trust as follows: (a)an amount of $500,000 be paid to Aniela; (b)an amount of $1,115,000 be paid to Barbara; (c)the residue (if any) be divided equally between Mark, Anna, Teresa, and Barbara; (d)to do all things necessary to give effect to resolution (3) above. 11With regard to Trust No. 2, resolutions were passed: (1)to advance the vesting day to 24 November 2011; (2)to distribute the accumulated income of the trust until 24 November 2011 (if any) to Barbara; (3)to distribute the capital of the trust to Barbara. 12On 25 November 2011 Mark, as caveator in each case, caused to be lodged caveats AG643965 and AG643979 in respect of the properties at Raymond Road, and Clarence Street respectively. In each case the caveator is Mark, and the estate or interest claim is described in schedule 1 in identical terms, namely as an equitable estate in fee simple by virtue of the trust deed of 11 August 1975. The facts relied upon in support of caveat AG643979 against the Clarence Street property (Trust No. 1) are set out in Annexure A to the caveat in the following terms: "Annexure A

1. In right of Szozda Holdings Pty Ltd (as a shareholder and director of the Company) as Trustee of the Szozda Holdings Trust No. 1 constituted by a Trust Deed dated 11 August 1975 as amended, and as a beneficiary named in the Trust Deed, the Caveator contends that the subject property (namely, the land contained in folio 2/618878) is held by the Company on trust for the beneficiaries named in the Trust Deed (including the Caveator) on the terms set out in the Trust Deed with a vesting date fixed by clause 2 of the Deed as 50 years after the date of execution of the Deed (namely, 11 August 2025).
2. Further and alternatively, the Caveator contends that, if and to the extent the Company has disclaimed, or purported to discharge its obligations under the Szozda Holdings Trust No. 1 governed by the Trust Deed dated 11 August 1975 as amended, he has an entitlement (as a beneficiary named in the Trust Deed) to enforce the terms of the Trust: (a) as a trust subsisting in the terms of the Trust Deed as amended; and (b) further and alternatively, as a constructive trust on the same terms as those contained in the Trust Deed as amended.
3. Further and alternatively, the Caveator contends that, if a court should hold that a vesting date other than 11 August 2025 has been validly appointed by the Company, he is in his personal capacity absolutely entitled to an equitable estate or interest in the property by virtue of: (a) the operation of clauses 2 and 13 of the Trust Deed, and the proviso to clause 5, of the Trust Deed as amended; (b) the fact that he is a son of Andrew Szozda (identified in clause 1(d) of the Trust Deed as amended); and (c) the facts that Boleslaw Szozda died in 1981 or thereabouts and Andrew Szozda died on 3 March 2006 or thereabouts." 13Annexure A to caveat AG643965 against the Raymond Road property (Trust No. 2) is in identical terms but for the reference to Trust No. 2 in par 1 and 2 thereof. 14On 1 December 2011 at a Board meeting of Szozda Holdings attended by Barbara and Mr Jirsch it was resolved, inter alia, that Barbara collect the certificate of title for Raymond Road, and that Clarence Street be sold, and arrangements be made for the sale. 15On 3 February 2012 lapsing notices in respect of the caveats were received by the plaintiffs' solicitors. 16Each of the plaintiffs deposed that prior to the meetings of Szozda Holdings on 24 November 2011, the directors did not obtain information as to her or his financial circumstances, employment, health, or present or future needs. 17The plaintiffs' claim that Mark has a caveatable interest in the properties of Trust No. 1 and Trust No. 2 is based upon their contention that the resolutions of Szozda Holdings passed on 24 November 2011 were invalid. They claim that in right of Szozda Holdings as the registered proprietor he is entitled to lodge a caveat under s 74F(2) because he fears an improper dealing with its interest in the properties. This is the interest said to be described in par 1 of Annexure A. Further, and in the alternative, they claim that Mark, as a beneficiary, is entitled to lodge a caveat under s 74F(1) to protect an equitable interest in the properties. This is the interest said to be described in par 2 and par 3 of Annexure A. In short, their case was that Mark's claims had sufficient substance to justify an order for extension under s 74K(2). 18The defendants opposed the application for extension on grounds that Mark, as an object of a discretionary trust had no entitlement to claim in right of Szozda Holdings, and had no legal or equitable interest in the properties and, accordingly, was outside ss 74F(1) and (2). In other words, it was contended that Mark's claims lacked substance, and an order for extension should be refused.

The principles 19Relevantly, the Act provides: 74F Lodgment of caveats against dealings, possessory applications, plans and applications for cancellation of easements or extinguishment of restrictive covenants (1) Any person who, by virtue of any unregistered dealing or by devolution of law or otherwise, claims to be entitled to a legal or equitable estate or interest in land under the provisions of this Act may lodge with the Registrar-General a caveat prohibiting the recording of any dealing affecting the estate or interest to which the person claims to be entitled. (2) Any registered proprietor of an estate or interest who, because of the loss of a relevant certificate of title or some other instrument relating to the estate or interest or for some other reason, fears an improper dealing with the estate or interest by another person may lodge with the Registrar-General a caveat prohibiting the recording of any dealing affecting the estate or interest. ... 74K Power of Supreme Court to extend operation of a caveat lodged under section 74F ... (2) Subject to subsection (3), on the hearing of an application made under subsection (1), the Supreme Court may, if satisfied that the caveator's claim has or may have substance, make an order extending the operation of the caveat concerned for such period as is specified in the order or until the further order of that Court, or may make such other orders as it thinks fit, but, if that Court is not so satisfied, it shall dismiss the application." 20Under s 74F(1) any person who claims to have the relevant proprietary interest, which is a legal or equitable estate or interest in the land, may lodge a caveat against the land. Unless consented to by the registered proprietor, upon lodgement notice must be given to the registered proprietor of the estate or interest affected by the caveat (s 74F(6)). The purpose of a caveat is to protect a legal or equitable interest in the land, and to warn the Registrar-General of a claim. It acts as an injunction to the Registrar-General to prevent registration of dealings with the land until notice has been given to the caveator ( J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 at 552). 21The nature of the necessary proprietary interest was described by Hodgson J (as he then was) in Composite Buyers Ltd v Soong (1995) 38 NSWLR 286 at 288. He said: "In my opinion, what is necessary is that there be an interest in respect of which equity will give specific relief against the land itself, whether this relief be by way of requiring the provision of a registrable instrument, or in some other way giving satisfaction of the interest claimed by the caveator out of land itself, for example by ordering the sale of the land and payment out of the proceeds of an amount in respect of which the caveator has a charge." 22It follows that it is necessary for the caveator to demonstrate a proprietary interest in respect of which he could obtain equitable relief to satisfy the interest out of the land itself e.g. by an order for the sale of the land. 23Relevantly, in Redglove Projects v Ngunnawal Local Aboriginal Land Council [2004] NSWSC 880 White J said: "32 ... the position of an object of a discretionary trust reveals that merely because a person is entitled to equitable relief to restrain an improper dealing with property does not by itself confer an equitable interest in the property. A beneficiary of a discretionary trust may have no proprietary interest in the trust property, although he has standing to compel the proper administration of the trust. ( Gartside v Inland Revenue Commissioners [1968] AC 553; Spellson v George (1987) 11 NSWLR 300 at 316; Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 at 425)." 24The position of an individual beneficiary under a discretionary trust was considered in ASIC v Carey (No. 6) [2006] FCA 814; (2006) 153 FCR 509 by French J (as he then was). "26 The position with respect to an individual beneficiary of a non-exhaustive discretionary trust was also set out in a recent Australian text: 'Since the trustees of a discretionary trust have no duty to make a particular distribution, or indeed any distribution to a specific individual, the rights of the beneficiaries are limited to compelling the trustees to consider whether or not to make a distribution in their favour and to ensuring the proper administration of the trust. This is true even if the discretionary trust only has one beneficiary ( Re Weirs Settlement Trusts [1971] Ch 145).' (Parkinson P and Wright D, 'Equity and Property' in Parkinson P (ed) The Principles of Equity , (Law Book Co, 2003) at p 60) 27 Gartside v Inland Revenue Commissioners [1967] UKHL 6; [1968] AC 553 concerned a trust under which the trustees had a discretion to apply the income of a fund for the maintenance or benefit of all or any of the testator's son, daughter-in-law or children (if any) and to accumulate surplus income. A principal issue in the case was whether the potential beneficiaries of the trust had 'interests in possession' in the trust fund for estate duty purposes. The House of Lords rejected that contention. Lord Wilberforce said (at 617): 'No doubt in a certain sense a beneficiary under a discretionary trust has an "interest": the nature of it may, sufficiently for the purpose, be spelt out by saying that he has a right to be considered as a potential recipient of benefit by the trustees and a right to have his interest protected by a court of equity.' Lord Wilberforce also made the point that the term 'interest' may have different meanings according to the context in which it is used (at 618): '... it may be a right, with some degree of concreteness or solidity, one which attracts the protection of a court of equity, yet it may still lack the necessary quality of definable extent which must exist before it can be taxed.' ... 29 ... in my opinion, in the ordinary case the beneficiary of a discretionary trust, other than perhaps the sole beneficiary of an exhaustive trust, does not have an equitable interest in the trust income or property which would fall within even the most generous definition of 'property' in s 9 of the Act and be amenable to control by receivers under s 1323. I distinguish the 'ordinary case' from the case in which the beneficiary effectively controls the trustee's power of selection. Then there is something which is akin to a proprietary interest in the beneficiary. 30 I accept that there are some rights enjoyed, even by the beneficiaries of a non-exhaustive discretionary trust with an open class of beneficiaries. They include the right to inspect the trust documents - Re Londonderry's Settlement [1965] Ch 918 and the right to require the trustee to provide information about management of the trust fund - Spellson v George (1987) 11 NSWLR 300; Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405. There is also a right to enforce the proper management of the trust by the trustee - Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694; Re Atkinson [1971] VR 613." 25Section 74F(2) entitles a registered proprietor of an estate or interest to lodge a caveat because he or she fears an improper dealing with the estate or interest. All that has to be established is that the registered proprietor fears an improper dealing with his or her estate or interest by another person ( Jensen & Anor v Giugni [Unreported, NSWSC, 30 November 1994, Young J (as he then was)].

Determination 26The plaintiffs submitted that the resolutions of 24 November 2011 concerning Trust No. 1 and Trust No. 2 were invalid by reason of the defective removal of Anna from, and the appointment of Mr Jirsch to, the board of Szozda Holdings. In addition, it was put that the resolutions were passed with a lack of good faith, and without any real or genuine consideration of the exercise of power under cl 5 of the trust deed including consideration of the financial position and circumstances of Mark, Anna, Greg and Teresa, and for an ulterior purpose for the implementation of a pre-existing arrangement between Barbara, Mr Jirsch and Mr Fowler to wind up the trusts. It was also put that the procedure for appointing an earlier vesting day under cl 1(c) of the trust deed had not been followed. 27With respect to the interest claimed under s 74F(2) as described in par 1 of Annexure A, it was put that Mark was acting in right of Szozda Holdings in circumstances where it was party to a breach of trust, and in opposition to the grant of relief in these proceedings. It was put that Szozda Holdings had a right to have the resolution set aside to protect the trust assets which included the properties but, as it was controlled by Barbara and Mr Jirsch, it would not act to prevent implementation of the resolutions and the consequential winding up of the trusts. It was said, in right of Szozda Holdings, that Mark feared dealings in respect of the proposed sale of the Clarence Street property, and of the transfer of the Raymond Road property to Barbara, which would be improper dealings because they would give effect to resolutions which were invalid. In short, the plaintiffs submitted (T p 38, l 21 - l 24): "We contend that the basis for section 74F(2) being satisfied is Mark as a beneficiary suing in right of the trustee because of fear of an improper dealing by Barbara and prospective purchaser [sic]." 28With respect to the interest claimed under s 74F(1) as described in par 2 and par 3 of Annexure A, it was put that Mark's claim to an equitable interest in the properties was not merely as the object of a discretionary trust, but was in respect of a beneficial interest which vested in him either as a tenant in common with the other living beneficiaries under cl 5 or in part with his siblings under cl 13. It was submitted that his entitlement flowed from the resolutions which purported to bring forward the vesting day to 24 November 2011 and then distribute the trust assets. 29Stripped to the bone, the plaintiffs' complaint against the defendants is that Szozda Holdings threatens to dispose of trust assets pursuant to invalid resolutions. It is to restrain dealings affecting the properties that Mark claims the right to lodge the caveats under ss 74F(1) and (2). 30With respect to Mark's claim to be a person entitled to an equitable estate in the properties under s 74F(1), the defendants accepted, for the purpose of this application, that the vesting day was 1 August 2005 as alleged in par 17(a) in the proposed amended statement of claim, and did not contradict the plaintiffs' case that the resolutions to advance the vesting date to 24 November 2011 were invalid. On the plaintiffs' case, the discretionary powers of distribution of income and capital under cl 2 and cl 7 continue to apply. Accordingly, as the occasion for the operation of either cl 5 or cl 13 has not arisen, it cannot be said that Mark has an equitable interest in the properties either as a taker in default under cl 5 or in the share of any residue under cl 13. 31The reality is that Mark is a beneficiary of a discretionary trust, with the right to equitable relief to restrain an improper dealing with trust property, or to enforce the proper management of the trust by Szozda Holdings. However, he has no equitable interest in the trust income or assets and in particular in the properties affected by the caveats ( Redglove Projects par 32; ASIC pars 26-30). In other words, he does not have the necessary proprietary interest in the properties as described in Composite Buyers (p 288) which entitles him to lodge a caveat under s 74F(1). In my opinion, in the circumstances, Mark has no equitable estate in the properties by virtue of the trust deed of 11 August 1975 and pars 2 and 3 of Annexure A to schedule 1 to the caveats. It follows that extension of the caveats based on the claims to an interest under s 74F(1) must be refused. 32Furthermore, the basis of the claim under par 3 of Annexure A is expressed to be conditional upon a court holding that a vesting date other than 11 August 2025 has been validly appointed. The language indicates that the interest claimed is hypothetical only which, in my opinion, would not be an interest capable of supporting a caveat. 33I now turn to the claim to maintain the caveats in right of Szozda Holdings, the supporting facts for which are set out in par 1 of Annexure A. As I understand it, the claim is based on the assertion that Mark has standing under s 74F(2) to lodge caveats in right of Szozda Holdings as trustee because improper dealings with the properties of which it is the registered proprietor are feared. 34As earlier noted, it was the plaintiffs' case that the purpose of the caveats was to restrain dealings referable to the sale of the Clarence Street property and/or the transfer of the Raymond Road property to Barbara, which were said to be improper dealings under invalid resolutions. Mark claimed the right to lodge the caveats in right of Szozda Holdings because he was a beneficiary under the trust, and Szozda was unwilling to do so. 35In my opinion, the claim must be rejected for the reasons given for rejecting the claim to a caveatable interest under s 74F(1). Although the plaintiffs may have a right to have the trusts properly managed and to prevent, for example, misappropriation of trust capital, there is nothing which confers on Mark a proprietary interest in the properties. Mark's rights to have Szozda Holdings do nothing to his prejudice may be enforceable in equity by an injunction, but they do not create an equitable interest in the properties, or standing to assume the mantle of Szozda Holdings, or to lodge a caveat on its behalf. 36However, the short answer to the plaintiffs' claim turns on the proper construction of s 74F(2). The provision permits the registered proprietor to lodge a caveat against an improper dealing affecting his or her estate or interest. In my opinion, the language of this provision should be understood to mean that the right to lodge a caveat in circumstances where an improper dealing by another person is feared is confined to the registered proprietor. I find nothing in its language which would justify extending the right to any person who claims to be acting in right of, or on behalf of, the registered proprietor, in its capacity as a trustee or otherwise. Accordingly, as Mark is not the registered proprietor his claim to an interest under s 74F(2) fails at the threshold. 37For the above reasons, as I am not satisfied that Mark's claims have or may have substance, I decline to make an order extending the operation of the caveats under s 74K(2) of the Act. The claim for relief that the operation of caveat no. AG643965 and caveat no. AG643979 be extended is refused. 38Accordingly, it is unnecessary to determine whether the plaintiffs have demonstrated an arguable case that the resolutions of 24 November 2011 were invalid. 39The question of costs remains outstanding. My prima facie view is that the appropriate order is that the plaintiffs should pay the defendants' costs of the proceedings for an order for extension of the operation of the caveats. However, absent agreement, the parties should have the opportunity to make submissions on the issue, and may do so on application on notice to the court.

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