Application by Barry McMahon Nominees Pty Ltd [2021] VSC 351 (18 June 2021)

2 Kathleen McMahon ('Kathleen') has been a director of the plaintiff since its registration on 28 January 1976. Kathleen was married to Barry McMahon ('Barry'), who passed away in 2011. Kathleen and Barry have four children together - Julie Moyle ('Julie'), Paul McMahon ('Paul'), Michael McMahon ('Michael') and Rachel Williams ('Rachel') - and have ten grandchildren (the 'grandchildren').

3 In 1991, the plaintiff became the registered proprietor of three lots of property said to be assets of the trust: Lot 3, Lot 4 and Lot 5 on Plan of Subdivision 348572L[1] (together, the 'properties'). The plaintiff seeks to distribute Lot 4 to Michael and in due course develop or sell of Lots 3 and 5 and distribute the proceeds.

4 Despite expansive searches, neither the original trust deed nor a copy has been located. There is, however, in existence a deed of variation dated 23 July 1997 (the '1997 deed'), which purports to recite some of the provisions of the original trust deed, including a power of amendment.

5 The plaintiff proposes to use the power of amendment to adopt a new trust deed by executing another deed of variation (the 'proposed deed') in order to address, amongst other things, duty and tax implications of the distributions.

6 The plaintiff seeks determination of the following questions:

(a) Does the plaintiff, as trustee of the trust, have power under the original deed to amend that deed by executing the proposed deed?

(b) If the answer to (a) is yes, will the execution of the proposed deed result in the property of the trust being held on the same trust, or will it create a new trust?

(c) In respect of the properties:

(i) Are the requirements of s 53 of the Property Law Act 1958 (Vic) met such that the properties are currently held on the trust?

(ii) Alternatively, have the properties been held, at all times, by the plaintiff on constructive trust for the benefit of the trust?

(d) Further and/or alternatively, if the answer to the question in (a) above is no:

(i) Will the Court make orders authorising and approving the plaintiff to execute the proposed deed pursuant to s 63 and/or s 63A of the Trustee Act 1958 (Vic)?

(ii) If the Court makes orders pursuant to s 63 and/or s 63A, will the execution of the proposed deed result in the trust continuing in existence (as opposed to the trust being terminated and a new trust being created)?

7 A preliminary question is whether the existence and execution of the original trust deed can be proved on the evidence before the Court.

8 There is no specific provision of the Evidence Act 2008 (Vic) (the 'Act') which deals with how the existence of a document is to be proved. That depends on the common law as modified by the general provisions of the Act.[2]

9 Section 48(4) of the Act sets out how a party may adduce evidence of the contents of a document:

A party may adduce evidence of the contents of a document in question that is not available to the party, or to the existence and contents of which are not in issue in the proceeding, by -

(a) tendering a document that is a copy of, or an extract from or summary of, the document in question; or

(b) adducing from a witness evidence of the contents of the document in question.

10 A document is taken not to be available to a party if it cannot be found after reasonable inquiry and search by the party.[3]

11 Thus, where a document cannot be found after due search, its contents may be proved by secondary evidence. That evidence could be from a person who has seen the document and who can give evidence about what it contained, and could also take the form of another document that purported to record the contents of the document that is not available.[4]

12 Where secondary evidence is relied upon, there must be clear and convincing proof not only of the existence of the lost document, but also of its contents.[5] However, this does not mean that what is required is other than proof on the balance of probabilities.[6]

13 The presumption of regularity may also be relevant. That presumption applies to the effect that where an act is done which can be done legally only after the performance of some prior act, proof of the later act carries with it a presumption of the due performance of the prior act.[7]

(a) Kathleen;

(b) Julie;

(c) Jessica Louise Moyle ('Jessica') of Dawes Vary & Riordan, solicitors acting for the plaintiff (Jessica is also Julie's daughter and Kathleen's granddaughter); and

(d) Steven John Stubberfield ('Mr Stubberfield') of Stubberfield Partners, the plaintiff's current accountant.

15 Exhibited to Jessica's affidavit is a historical company extract from the Australian Securities and Investment Commission ('ASIC') in respect of the plaintiff. That extract records that:

(a) the plaintiff was registered on 28 January 1976;

(b) two directors were appointed on 28 January 1976 - Kathleen and Gwendoline Sharman ('Gwendoline');

(c) on 30 June 1983, Gwendoline ceased to be a director and Barry was appointed as a director;

(d) Julie, Paul and Michael were appointed directors on 6 January 1999;

(e) Julie ceased to be a director on 24 February 2003;

(f) Michael and Paul ceased to be a directors on 9 October 2008;

(g) Michael was re-appointed as a director on 20 February 2013;

(h) between 28 January 1976 and 18 January 1987, the plaintiff's registered office was Wallan Road, Upper Plenty (Kathleen and Barry lived in Upper Plenty between 1966 and 1984);

(i) between 19 January 1987 and 26 July 1998, the plaintiff's registered office was 33-35 Nish Street, Echuca;

(j) the plaintiff's present registered office is Stubberfield Partners.

16 Kathleen deposed that in the early to mid-1970s, Barry told her he had decided to establish a discretionary trust. She said that Barry told her the trust was required to protect his building business from creditors and to avoid insolvency and that the trust would allow distributions to be made to their children when they grew up and could provide financial support to their family.

17 Kathleen deposed that at the time, G.F Higham & Co (now Vaughan Storer & Associates) was an accounting firm that was acting for her and Barry and Barry was using Pentilla Lawyers (now Pentilla & Henderson) as his solicitor. No evidence was filed on behalf of these former accountants or solicitors.

18 Kathleen deposes that in 1975, Barry told her that his accountant Mr Frank had a trust deed and that Mr Frank would come to their house to sign the relevant paperwork.

19 Exhibited to Jessica's affidavit is an email from John Storer of Vaughan Storer & Associates. In that email, Mr Storer wrote 'I contacted [Mr Frank] - he said Trusts were not that common back then, and he cannot remember setting up the [original trust]. He thinks the clients came to us with the Trust already in place, otherwise we would have the deed'. This is hearsay and cannot be relied on. Mr Storer's email proceeds to say that '[b]ack then Trusts were set up by a Secretarial Company, or local solicitor, probably Home Wilkinson & Lowry in Preston (no longer there) ... Try contacting Adrian Skinner from Corporate Professional Aust ... in my time they done [sic] most of our Deeds'. Jessica contacted Mr Skinner, who informed her that his business only commenced in 1988 so it would be unlikely that they prepared the original deed.

20 There is no evidence about instructions given for the creation of the trust and original trust deed or the source of original trust deed.

21 Kathleen deposed that in about December 1975, she signed the original trust deed and saw Barry sign the original trust deed.

22 However, Kathleen has not given evidence about many other aspects relevant to the purported execution of the original deed. For example:

(a) where she was when she signed the original deed;

(b) whether anyone else was present when she and Barry signed the deed;

(c) in which capacity did she and Barry sign the deed;

(d) whether Gwendoline signed the deed as director of the plaintiff;

(e) whether the original deed was signed by the settlor;

(f) whether she read the original deed before or after signing the original deed;

(g) whether the contents of the original deed were explained to her by anyone;

(h) whether any settled sum was given from the settlor to the trustee.

23 As the source of the original trust deed is unknown, there is no evidence from the source as to its terms or any precedent trust deeds that may have been used.[8]

24 Kathleen does not remember all of the terms of the trust. However, Kathleen deposes that she recalls that:

(a) the trust was called the B.L. & K.M. McMahon Family Trust;

(b) the trustee was a company named Barry McMahon Nominees Pty Ltd;

(c) Barry was the appointor and she was to be the appointor if Barry died;

(d) the beneficiaries of the trust were herself, Barry and Barry's lineal descendants; and

(e) the trustee had a broad discretion as to the distribution of any trust income.

25 Kathleen did not depose to the basis for this recollection (for example, that she had read the original trust deed or that it had been explained to her). She also did not depose to having a recollection about any power of amendment.

26 Kathleen deposed that she signed the 1997 deed. A copy is exhibited to her affidavit.

27 Relevantly, the recitals to the 1997 deed include:

1. By a Deed of Settlement dated 1st day of January 1976 between KAY PRIDHAM as Settlor and BARRY McMAHON NOMINEES PTY. LTD. ACN 005 155 662 as Trustee ('the Trust Deed') a Trust Fund was created known as the B.L & K.M. McMahon Family Trust.
2. The Trustee was appointed Trustee of the B.L. & K.M. McMahon Family Trust by the Trust Deed and has continuously held such office up to and including the date hereof.

1. Clause 6 of the Trust Deed provides as follows:-

'(a) The Trustee may at any time alter or amend any of the provisions of this Deed provided however that:-

(i) no such alteration or amendment shall affect any payment or appropriation which has previously been made or any right which has vested and is not subject to being divested;

(ii) no such alteration or amendment shall be exercised so as to enable the Settlor or Trustee to acquire (directly or indirectly) any beneficial right or interest in or relation to the income or corpus of the Trust Fund or any benefit or advantage therefrom whatsoever;

(iii) neither Clause 12. Nor the name of the Appointor shall be altered without the consent of the Appointor.

(b) Any Beneficiary may at any time by notice in writing to the Trustee declare that henceforth he will not be a Beneficiary hereunder and as from the time of receipt of such notice by the Trustee this Deed shall in all respects be read and construed so that such person shall not thenceforth be a Beneficiary.

(c) Without prejudice to the generality of paragraph (a) hereof the Trustee may at any time by Deed add the name or description of any person or class of persons (but expressly excluding the Settlor or Trustee or any class including the Settlor or Trustee unless they are expressly excluded from such class) as beneficiary or beneficiaries hereunder and such person or class of persons shall thereafter be beneficiaries for all purposes of the Trust Fund and this Deed.'

28 Clause 1 of the 1997 deed amended the original trust deed by including new clauses 15 to 22. Those clauses provided new powers including:

• power to lend and borrow and give security over trust property;
• power to open bank accounts and deal with certain instruments;
• broad powers to deal with real or personal property in a variety of ways;
• power to delegate;
• powers to give guarantees and indemnities; and
• an entitlement for the trustee to be indemnified out of trust assets.

29 Clause 4 provided that that in all other respect the terms of the original deed remain unaltered.

30 The 1997 deed includes signed execution clauses for Barry McMahon Nominees Pty Ltd by its common seal and Barry and Kathleen personally and a witness. Kathleen says she recognises Barry's signature on the deed. Julie deposed to signing as the witness and that she recognised her signature.

31 The 1997 deed records that it was prepared by Morrison & Sawers Solicitors, 33-35 Nish Street, Echuca. The initials 'PJK:PG' are provided as the reference. Kathleen deposed that Mr Peter Kotsiakos prepared the deed, presumably 'PJK' are his initials. Kathleen deposed that Mr Kotsiakos has passed away. There is no evidence about the identity of 'PG'. There is no evidence of any instructions given to Morrison & Sawers in respect of the 1997 deed.

32 Recital A to the 1997 deed records that the original deed was 'dated 1st January 1976 KAY PRIDHAM as Settlor and BARRY McMAHON NOMINEES PTY. LTD. ACN 005 155 662 as Trustee'. However, the ASIC extract referred to at para 15 above records that the plaintiff was not registered until 28 January 1976, at which time it would have be designated an ACN. Further, Kathleen's evidence is that she signed the original trust deed in 1975. While it is accepted that equity will not allow a trust to fail for want of a trustee, these inconsistencies raise doubt as to the weight of the various pieces of evidence.

33 Kathleen says that the 1997 deed was the only variation or amendment to the original trust deed since its creation.

Awareness that the original deed was missing and efforts to locate it

34 Kathleen deposed that she did not, at any time, retain the original or a copy of the trust deed. She said she assumed Barry and/or a professional adviser held the original trust deed.

35 In 2012, Kathleen and Julie began clearing and cleaning out Barry's office. They went through each document in the office to determine which needed to be kept and which could be thrown out. Neither saw the original trust deed or a copy of it. Kathleen said that she also began clearing Barry's shed, in which he sometimes kept documents. She was not able to locate any documents evidencing the trust in the shed. Between 2012 and the present, Kathleen has searched the entire property and has not been able to locate the original trust deed or a copy of it.

36 Around 2013, Kathleen began making inquiries as to the whereabouts of the missing trust deed and also asked Julie to make inquiries. Kathleen asked Mr Stubberfield whether he retained the original or a copy and if the Stubberfield Group could search their deed register and deed boxes.

37 Mr Stubberfield deposed that he has never seen a copy of the original deed for the trust. He said that when his firm commenced acting for the trust in about the mid-1980s, he requested a copy of the original deed from G.F Higham & Co, but never received a copy of it from them. He said he also tried to obtain a copy of the trust deed from the trust's bankers.

38 Kathleen said there was a delay in making further inquiries because there was no immediate reason to quickly deal with the problem. In about September 2018, Kathleen was prompted to make further inquiries with her current solicitors, Dawes & Vary Riordan. She instructed the firm to undertake various searches and inquiries.

39 Jessica deposed that she conducted various unsuccessful searches to locate the original trust deed or a copy thereof, including:

(a) obtaining a search from the Law Institute of Victoria for the purpose of locating deeds which previously belonged to Sewell, King & Hedstrom, a firm which Kathleen used in the 1970s;

(b) contacting various law firms in accordance with the results from the Law Institute of Victoria search;

(c) contacting various accounting firms for information about which firm held G.F. Higham & Co's documents;

(d) contacting Vaugh Storer & Associates, the firm which took over G.F. Higham & Co;

(e) contacting the Australian Tax Office and State Revenue Office;

(f) conducting a Google search for Kay Pridham and contacting one result;

(g) making enquiries with the Dawes Vary & Riordan office in Shepparton;

(h) contacting Mr Stubberfield; and

(i) searching through the filing cabinets at Julie's home.

40 Notably, however, Jessica does not depose to having contacted Pentilla & Henderson, the firm which Kathleen said that Barry used in the 1970s.

41 Further, and crucially, while Jessica deposed to having arranged in March 2018 for Kathleen to sign an authority for Morrison & Sawers to release the original 1997 deed and 'any other documents held by them in safe custody', there is no evidence about whether any documents were provided other than the original 1997 deed (such as file notes and draft deeds) and whether enquiries were made of Morrison & Sawers specifically in respect of the original deed. As Morrison & Sawers drafted the 1997 deed, which purports to refer back to the original deed, it is likely that Morrison & Sawers had at least a copy of the original deed in its possession at some stage. Further, Morrison & Sawers was the registered office of the plaintiff from 1987 to 1998 and it would have reasonably been expected to have possession of relevant documents. While Mr Stubberfield deposed to having asked G.F Higham for documents, including the original deed, when his firm took over the plaintiff's accounting work, there is no evidence of him having made enquiries of Morrison & Sawers. Given the length of time that has elapsed, Morrison & Sawers' file may have been destroyed, but enquiries should still be made. While Mr Kotsiakos has passed away, 'PG' may be identifiable and available to give evidence.

42 Julie deposed to making enquiries with the National Australia Bank and the ANZ bank which were unsuccessful. Julie said she also unsuccessfully searched her personal files at her home.

43 The plaintiff became the registered proprietor of the properties on 1 February 1991.

44 Kathleen deposed that the properties are assets of the trust and have always been treated as so. She says she has searched the family home and has not been able to find any documents recording declarations of trust over the properties.

45 Kathleen deposed that she and Barry always instructed the trust's accountants, including Mr Stubberfield, to:

(a) treat the properties as assets of the trust in the trust's financial statements;

(b) treat any income from the properties as income of the trust in the trust's financial statements and income tax returns;

(c) treat any expenses relating to the properties as expenses of the trust in the trust's financial statements and income tax returns.

46 Exhibited to Mr Stubberfield's affidavit are copies of documents prepared by G.F. Higham & Co including the plaintiff's 1985 annual report, minutes of meetings of the directors of the plaintiff dated 21 November 1986 and 5 December 1986, directors' report and financial statements for the year ended 30 June 1986, and a letter from G.F. Higham dated 27 November 1986.

47 The 1985 annual report for the plaintiff states that the 'sole activity of the Company in the course of the financial year was to provide trustee services'. It also states in its notes that 'The Company acts as Trustee of a Trust only, and has a right of indemnity from Trust Assets in respect of liabilities incurred on behalf of the Trust'. A right of indemnity 'from B.L. & K.M. Mc Mahon Family Trust' of $131,070 is recorded.

48 The directors' report for the year ended 30 June 1986 states that the 'principal activities of the company in the course of the financial year were to act as trustee of B.L. & K.M. McMahon Family Trust' and that the company 'did not trade in its own right during the year, but acts in the capacity of trustee'. The balance sheet as at 30 June 1986 records a right of indemnity over trust assets of $133,073.

49 Mr Stubberfield deposed that since his firm starting acting for the trust, distributions of income of the trust were made to Barry, Kathleen, Julie, Paul, Michael, Rachel and the grandchildren. He said that distributions were not made to any other persons or companies or trusts.

50 Exhibited to Mr Stubberfield's affidavit are copies of income tax returns for the trust for the years ended 30 June 2006 to 30 June 2019. The income tax returns record the plaintiff as the trustee and distributions of income to Kathleen and Barry (and Barry's estate) and the grandchildren. Mr Stubberfield deposed that his firm no longer holds copies of any other income tax returns. Electronic lodgement declarations signed by Kathleen for the income tax returns for the years ended 30 June 2016 to 30 June 2019 are also exhibited.

51 The financial statements for the trust for the years ended 30 June 1994, 30 June 1995, 30 June 2015 to 30 June 2019 are also exhibited to Mr Stubberfield's affidavit. The 1994 and 1995 statements record 'beneficiary loans' and 'profit distributions' to Barry, Kathleen, Paul and Michael. The latter statements record 'beneficiary loans' to Kathleen and Barry (and Barry's estate) and the grandchildren. Trustee declarations relating to the financial statements for the years ended 30 June 2016, 2018 and 2019 are exhibited. Notably, these declarations are signed by Kathleen as trustee, and not by the plaintiff.

52 Also exhibited to Mr Stubberfield's affidavit are copies of the minutes of directors' meetings for the trustee for the years ended 30 June 2015, 30 June 2016 and 30 June 2018. These minutes record resolutions for the new income of the trust for those years to be distributed to Kathleen.

53 Exhibited to Jessica's affidavit were documents she found in Julie's filing cabinets in February 2019 including bank statements dating back to 2006 in the name of the trustee as trustee for the trust, documentation showing that the trust was registered for an ABN and for GST in 2000, and a handwritten ledger accounts of the trustee for the financial year ended 30 June 1994.

54 In order to answer the plaintiff's questions, the Court must be satisfied of at least three preliminary aspects: first, that the original deed existed; second, that the original deed is not available; third, the contents of the original deed. As observed above, while clear and convincing proof is necessary, the standard of proof remains the balance of probabilities.

55 As referred to throughout the above reasons, there are significant gaps in the evidence.

56 Of particular concern is the a dearth of evidence about the circumstances surrounding the creation and execution of the deed. There is no evidence that Gwendoline, one of the two directors of the plaintiff at the time, signed the trust deed. There is also no evidence that the settlor signed the trust deed, or paid any settlement sum. It is well established that it is the intention of the settlor and payment of the settlement sum that is relevant in the creation of a trust.[9] The inconsistencies in the evidence about the date of the execution of the deed are also concerning.

57 There is also a real question over whether a due search has been conducted for the original deed, such that it is considered under the Act to not be available. While it is accepted extensive searches have been conducted, there is a lack of evidence about enquiries made of Pentilla & Henderson and Morrison & Sawers. These are crucial lines of inquiry and should be addressed by the evidence.

58 In respect of the contents of the original deed (assuming that its existence can be proved), the only evidence of the power of appointment is Recital C in the 1997 deed. Kathleen does not give any evidence that she recalled this term. As referred to above, there is a lack of evidence about the preparation of the 1997 deed. The inconsistencies in the evidence about the date of the original deed may suggest that there was an error in Recital A, which may have an effect on the reliability with the document. As for the remainder of the terms, Kathleen does not depose to the basis for her recollection.

59 Finally, if the plaintiff wishes to adduce evidence from Mr Frank, this should be done by affidavit sworn by him.

60 The plaintiff will be given the opportunity to file further evidence addressing the matters raised in this ruling, as well as any further written submissions. Given that this may take some time, the plaintiff's solicitors are to inform the Court of an appropriate date for the filing of the further evidence and submissions.

[1] Being the land in Certificate of Title Volume 10311 Folio 589, Volume 10825 Folio 725 and Volume 10825 Folio 726, respectively.

[2] Minassian v Minassian [2010] NSWC 708, [45] (Ball J) ('Minassian').

[3] Evidence Act 2008 (Vic) Dictionary Pt 2 cl 5.

[4] Minassian(n 2) [49] (Ball J), citing Lewis v Nortex Pty Ltd (in liq) [2002] NSWSC 337.

[5] Maks v Maks (1986) 6 NSWLR 34, 36 (McLleland J); see also Cahill v Rhodes [2002] NSWSC 561, [56] (Campbell J) ('Cahill'); Minassian (n 2) [44] (Ball J); Lincu v Krnjulac [2014] NSWSC 532, [49] (Lindsay J); DR McKendry Nominees Pty Ltd [2015] VSC 560, [7] (Digby J); Barp Nominees Pty Ltd [2016] NSWSC 990, [6] (Pembroke J); Application by South Melbourne Continental Pty Ltd [2018] VSC 398, [5] (McMillan J) ('South Melbourne Continental'); Yap v Lee [2019] VSC 743, [21] (McDonald J); Chase v Chase [2020] NSWSC 1689.

[6] See Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66, [3] (Mason CJ, Brennan, Deane and Gaudron JJ); Cahill (n 5), quoting In the Estate of Ralston (Supreme Court of New South Wales, Hodgson J, 12 September 1996); Payten v Perpetual Trustee Co Ltd [2005] NSWSC 345, [90]-[92] (Austin J).

[7] South Melbourne Continental Pty Ltd (n 5) [6] (McMillan J); McLean Bros & Regg v Grice [1906] HCA 1; (1906) 4 CLR 835, 850; Re Thomson [2015] VSC 370, [12]-[13] (McMillan J).

[8] Exhibited to Jessica's affidavit were two 1980s precedents provided to her by Mr Storer. Neither precedent matches the purported excerpt of the original deed which is in the 1997 deed. At the hearing, counsel conceded that the two precedents could not have been used to draft the original deed.

[9] See Re Lauer; Corby & Anor v Lyttleton [2017] VSC 728 (McMillan J).