Arakella Pty Ltd v Paton

Application under s 81 of the Trustee Act

Sections 81(1)-(2) of the Trustee Act provide: (1) Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release or disposition, or any purchase, investment, acquisition, expenditure or transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust, or by law, the Court (a) may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, including adjustment of the respective rights of the beneficiaries, as the Court may think fit, and (b) may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne as between capital and income. (2) The provisions of subsection (1) shall be deemed to empower the Court, where it is satisfied that an alteration whether by extension or otherwise of the trusts or powers conferred on the trustees by the trust instrument, if any, creating the trust, or by law is expedient, to authorise the trustees to do or abstain from doing any act or thing which if done or omitted by them without the authorisation of the Court or the consent of the beneficiaries would be a breach of trust, and in particular the Court may authorise the trustees - (a) to sell trust property, notwithstanding that the terms or consideration for the sale may not be within any statutory powers of the trustees, or within the terms of the instrument, if any, creating the trust, or may be forbidden by that instrument, (b) to postpone the sale of trust property, (c) to carry on any business forming part of the trust property during any period for which a sale may be postponed, (d) to employ capital money subject to the trust in any business which the trustees are authorised by the instrument, if any, creating the trust or by law to carry on.
Before an order under s 81 of the Trustee Act may be made, there must be a proposed dealing, being a "sale, lease, mortgage, surrender, release, or disposition, or purchase, investment, acquisition, expenditure, or transaction". The proposed dealing must, in the opinion of the Court, be expedient in the management or administration of any property vested in trustees and incapable of being effected because of an absence of power vested in the trustee by either the trust instrument or by law: Arakella Pty Ltd v Paton (2004) 60 NSWLR 334; [2004] NSWSC 13 (Arakella) at [81]; Re Grant (as trustee of the Grant Family Testamentary Trust) [2013] NSWSC 1603 at [32]; Re Cecil Investments Pty Ltd [2021] NSWSC 211 at [46].
Section 81(1)(a) expressly permits the Court to make an order that effects an adjustment of the respective rights of beneficiaries.
Section 81 does not confer a power on the Court to vary the trust instrument but enables the Court to confer on trustees a power which overrides or supplements the provisions of the trust instrument in respect of a particular transaction or type of transaction: Re Dion Investments Pty Ltd (2014) 87 NSWLR 753; [2014] NSWCA 367 (Dion Investments) at [96]-[97].
As Brereton J (as his Honour then was) observed in Hancock v Rinehart (2015) 106 ACSR 207; [2015] NSWSC 646 at [183]: [W]hat the section authorises is an order conferring upon the trustee, either generally or in any particular instance, the necessary power for the purpose of effecting "the disposition or transaction". The Court's order does not amend the trust instrument, but confers the requisite power on the trustee despite the terms of the trust instrument.
Although the Trustees' summons seeks an order under s 81 for the power to make advances of capital and income by reference to "any residual beneficiary", it is apparent that the application has been made for the purpose of providing additional power to the Trustees to enable them to distribute the remaining trust property to Ms Luke-Gladstone in satisfaction of her interest under the Will in advance of the dates provided for in cl 5.13. As Senior Counsel for the Trustees candidly stated at the hearing, for practical purposes, the application seeks to "override the date entitlements of age 30 and 40" in cl 5.13 of the Will. If granted the additional power, the Trustees intend to promptly transfer the London residence and the money in the ANZ term deposit to Ms Luke-Gladstone for her absolute control and then take all necessary steps to wind up the estate.
The Trustees submitted that the additional power to advance capital and income to a beneficiary is a dealing of the type contemplated under s 81(1) of the Trustee Act and is concerned with the administration and management of property vested in the Trustees as it involves the distribution of trust property.
The Trustees submitted that it is expedient to grant the additional power because it will enable the Trustees to direct the capital to the sole remaining beneficiary rather than have the capital frittered away on expenses that will inevitably be incurred if the trust property has to be managed and administered by a corporate trustee or new personal trustees for a further thirteen and a half years. It was submitted that the additional power will not call for any alteration of beneficial interests under the Will as the remaining trust property is not being managed or administered for any secondary beneficiary or remainderman.
The Trustees accepted that the Will reflected an intention on the part of the deceased that the trust capital should be held for Ms Luke-Gladstone until the ages of 30 and 40. However, they submitted that, under s 81 of the Trustee Act, the Court may sanction a departure from the terms of a will and a change to beneficial interests contrary to the express intention of a testator so long as it was expedient in the management or administration of trust property, relying on Cameron v Jeffress [2014] NSWSC 702 (Cameron v Jeffress), which was referred to with approval by the Court of Appeal in Dion Investments at [114].
In Cameron v Jeffress, Hammerschlag J made an order under s 81 conferring power on trustees to accumulate income received (including from distributions) and make distributions to the widow of the testator (and other payments specified in the will) out of capital. The power was sought in order to ensure that the tax liability arising from a distribution received on the liquidation of trust property fell on the trustees, who would receive the income and were in a position to discharge the tax burden, rather than on the widow who would otherwise have been assessed on the distribution.
The Trustees submitted that the orders made in Cameron v Jeffress involved a sanctioning of a material (and not a mere) departure from the terms of the will and was, in effect, a re-writing of the will as it involved the destruction of an (indefeasible) fixed entitlement to income created by the trusts in the will and a power to pay the capital (which was the accumulated income) to persons not entitled to capital under the will. They also submitted that the orders made were contrary to the express intention of the testator, as ascertained by construing the terms of the will, but were held to be "expedient" and in the interests of some of the beneficiaries.
The orders in Cameron v Jeffress involved a departure from the terms of the will by altering the beneficial rights in respect of the income and capital of the trust, although the effect of the orders was that the beneficiaries were to receive the same payments in the same amounts as provided for by the will. In that sense, while there was an adjustment to the respective rights of the beneficiaries and an alteration of the trusts or powers conferred on the trustees, there was no material change to the entitlements of the beneficiaries under the will. His Honour also concluded that leaving the tax burden on the beneficiary, which was identified as an "anomaly", seemed "inimical to the intention of the deceased": at [38]-[44].
Having considered the submissions of the Trustees and the authorities to which I was referred, I have concluded that this is a case where the Court should exercise its discretion and grant the additional powers sought by the Trustees. This is for the following reasons.
I am satisfied that the additional power sought would involve a dealing of the type contemplated by s 81 of the Trustee Act. The distribution of income and capital to the residual beneficiary under cl 5 will entail the transfer of legal title in the London residence and the payment of part of the ANZ cash funds by the Trustees to Ms Luke-Gladstone. In my view, such transfer would be a "disposition" of, or could be characterised more generally as a "transaction" involving, trust property: see Dion Investments at [89], [91], [111] and Cisera v Cisera Holdings Pty Ltd [2018] NSWCA 286 (Cisera) at [65].
Section 81 permits dealings concerned with the "management or administration by the trustees of trust property, quoad property", namely items of trust property vested in the Trustees: Cisera at [59], citing Dion Investments at [94]-[100] and Re Downshire Settled Estates [1953] Ch 218 at 252.
The words "management or administration" refer to both the manner in which trust property is managed, administered, handled, directed or controlled and the actual carrying out of those functions by trustees. They are words that pick up everything that a trustee may need to do in practical and legal terms in respect of trust property: Arakella at [88]; Re Dion Investments at [113], citing Royal Melbourne Hospital v Equity Trustees Ltd (2007) 18 VR 469; [2007] VSCA 162 at [150]. The words do not confine the power to be exercised to the retention and continued holding of trust property but provide a means of ensuring that the question of what power should be exercised arises in the course of management or administration of the trust property: Trust Company Fiduciary Services Ltd v Challenger Managed Investments Ltd [2008] NSWSC 1155 at [29].
The distribution of capital and income to Ms Luke-Gladstone, as the remaining person beneficially entitled to trust property under the Will, forms part of what the Trustees need to do, in practical or legal terms, in the administration of the deceased's estate. The additional power sought by the summons is simply to advance the timing of those distributions. In my view, that additional power involves an administrative transaction on the part of the Trustees in relation to the estate's assets and, therefore, would involve a dealing which arises "in the management or administration" of trust property: Hornsby v Playoust (2005) 11 VR 522; [2005] VSC 107 at [19]-[20].
"Expedient" has been described as a criterion of the widest and most flexible kind, encompassing something that would be considered "advantageous", "desirable" and "suitable to the circumstances of the case": Riddle v Riddle (1952) 85 CLR 202 at 214 (Dixon J), 221-222 (Williams J); [1952] HCA 12 (Riddle). To be expedient is to benefit the trust as a whole and the interests of beneficiaries, although it is not assessed by sole reference to the best interests of beneficiaries alone: Perpetual Trustee Co Ltd v Godsall [1979] 2 NSWLR 785 (Perpetual Trustee v Godsall) at 790; Dion Investments at [92].
Based on the evidence referred to at [21], [22] and [23] above, I accept the Trustees' submission that providing them with the power to advance capital and income to the residual beneficiary is expedient. The evidence indicates that the ongoing management and administration of the trust property, which is legally vested in the Trustees, is likely to place those assets, at the very least the cash funds, in some jeopardy as the inevitable costs will, over time, reduce the available cash under the Will to very little, if not none at all. It is also apparent that the issue has arisen in the course of the management and administration of the estate and involves a practical problem due to the location of part of the trust property and of some immediacy given the ages of the Trustees, particularly Ms Tatham.
There is, of course, some tension between the additional power sought by the Trustees and the apparent intention of the deceased, as evidenced by cl 5.13 of the Will, that Ms Luke-Gladstone wait until she is 30 and 40 years old to receive the corpus of her bequest. Nevertheless, the test prescribed is that of expediency. Section 81 of the Trustee Act is not subject to any expression of contrary intention contained in the trust instrument: JD Heydon and M J Leeming, Jacobs' Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworths) at [17.06]. There is also some force to the Trustees' submission that, objectively, it could be assumed that, had the deceased known the position faced by the Trustees today, she would not have intended for her estate to be wasted on administration or other holding costs to the detriment of the residual beneficiary. It may also be said that it would be financially and administratively expedient to grant the power to enable the Trustees to decide, acting in the interests of the trust as a whole, when distributions should be made to the residual beneficiary and for the estate to be wound up after its outstanding debts are satisfied.
The additional power sought by the Trustees might also be said to depart from the terms of the Will by enabling distributions to be made prior to Ms Luke-Gladstone reaching the ages provided for under cl 5.13. However, the effect of the additional power will not, in my view, involve any radical alteration of Ms Luke-Gladstone's rights as a beneficiary under the testamentary trusts established by the Will as it will not involve a rewriting of the Will or alter its substantive nature: Arakella at [112]-[113], [117]. Ms Luke-Gladstone will continue to be entitled to, and will receive, 4.423% of that part of the deceased's estate provided for under cl 5 of the Will.
The position in this case is, thus, to be distinguished from that faced by the Court in Application of Country Road Services Pty Ltd (Re Browne Family Trust) [2019] NSWSC 779, a case in which the trustee sought an order under s 81 of the Trustee Act for the conferral of power to distribute trust income and capital to an entity which was not a beneficiary of the trust, and in Perpetual Trustees Victoria Ltd v Barns [2011] VSC 314, a case in which the trustee sought power to vary the terms of a will to enable capital advances to be made to a beneficiary who was, under the will, only entitled to trust income with the corpus to go to certain charities after the death of that beneficiary.
As noted above, other than Ms Tatham, there are no other beneficiaries whose bequests under cl 5 of the Will remain undistributed. Ms Tatham consents to the application and there is no impediment to the Trustees finalising Ms Tatham's bequest. Based on the evidence, it also appears that the previous trustees have distributed that part of the estate which represented the residue as at 2019.
There is no readily identifiable charity under cl 6 of the Will such that, in the unlikely event that the gift to Ms Luke-Gladstone failed in whole or in part and could be said to pass to the residuary estate, that gift would need to be subject of a cy-pres application or an application to the Attorney-General under s 12 of the Charitable Trusts Act 1993 (NSW). In any event, there is a question about whether, on the proper construction of the Will, Ms Luke-Gladstone's bequest would pass to the deceased's residuary estate if she does not reach the ages specified under the Will.
At the hearing, Senior Counsel for the Trustees raised that Ms Luke-Gladstone's bequest may not be conditional upon her reaching the stated ages, with the consequence that the Trustees could probably transfer her capital entitlement under clause 5.13 to her now if she called for it under the rule in Saunders v Vautier (1841) 4 Beav 115; 49 ER 282, affd (1841) Cr & Ph 240; 41 ER 482. This point had not been canvassed in the written submissions and was not the basis on which the application had been made. When asked whether the right of the beneficiary to call for her bequest raised an impediment to the Court making the order sought because s 81 of the Trustee Act refers to "the absence of any power for that purpose", Senior Counsel for the Trustees submitted that an order under s 81 would put beyond doubt that the Trustees had the necessary power and there was no reason why an order could not be made "for more abundant caution". He also submitted that the Trustees would be more comfortable exercising power pursuant to a Court order.
Senior Counsel for the Trustees did not address me on the issue of the proper construction of the Will and the application of the rule in Saunders v Vautier in any detail. However, I tend to agree with the view he advanced at the hearing that Ms Luke-Gladstone is likely to have a right to call for her capital entitlements to be transferred to her immediately under that rule. Construing the Will as a whole, it seems to me to provide for a gift of all income to Ms Luke-Gladstone followed by the capital on attaining the ages of 30 and 40, with no discretionary trust in respect of the income or the capital in the meantime and no gift-over provision in respect of Ms Luke-Gladstone's bequest. Accordingly, the Court could infer that the gift of capital was indefeasibly vested in interest when Ms Luke-Gladstone attained majority at 18, rather than being a contingent gift or vested subject to defeasance on death under the stated ages: Saunders v Vautier (1841) Cr & Ph 240; 41 ER 482 at 485; In the Estate of Lee; Perpetual Trustee Co (Canberra) Ltd v Rasker (1986) 84 FLR 268 at 271; RFD Barlow et al, Williams on Wills (10th ed, 2014, LexisNexis) at 385 n 5.
If Ms Luke-Gladstone has an absolute right to call for the legal estate in the trust property, the trust could be regarded as bare and the Trustees denuded of all the duties and powers they previously had with respect to the management of the trust property, except for the duty and sufficient powers to finalise the trust accounts and make the required distributions: HAJ Ford and WA Lee, Thomson Reuters, Principles of the Law of Trusts, vol 2 (Update 184) at 16-107 [16.090]. In that context, there is arguably no relevant question of management or administration in respect of the trust property raised by the application or any absence of power: Perpetual Trustee v Godsall at 791. That said, there is also authority that the fact that a beneficiary could insist on a transfer of the property to which they are entitled under a will does not necessarily mean that there is no question arising in the management or administration of property vested in trustees or a lack of jurisdiction to make an order under s 81 of the Trustee Act: Degan v Lee (1939) 39 SR (NSW) 234 (Degan v Lee) at 240, cited in Waine v King (Supreme Court (NSW), Hodgson J, 5 October 1994, unrep) (Waine v King) BC9403131 at 6.
In Degan v Lee, beneficiaries of a trust sought a declaration that a lease entered into by the trustee pursuant to authority which had been previously granted by the Court under s 81 of the Trustee Act was void. Nicholas J accepted that the Court had no jurisdiction under s 81 unless the property was vested in trustees and the proposed transaction arose in the management or administration of that property. However, his Honour stated that it did not follow that there was no jurisdiction because the only interested persons could have called for the transfer of the property but had not done so, noting that before the date of the transaction that was sought to be impeached, the property was vested in trustees. He also agreed that the relevant transaction could have been carried out by the trustees without intervention of the Court as they already had the relevant power but refused to overturn the order made under s 81 of the Trustee Act.
In Waine v King, a question of management of the trust property arose as the trustees had a power of sale and were liable to pay rates and taxes on the property, even though the beneficiaries had an absolute right to call for the legal estate.
Section 81 of the Trustee Act is in wide and beneficial terms and is to be construed accordingly. The powers given under the section are not restricted by any implications. Where the conditions in the section are satisfied, the discretion to give authorisation is unfettered: Riddle at 214 (Dixon J), 220 (Williams J).
The section enables the Court to bestow on the Trustees an additional power to deal with the trust property in a way not permitted by the Will. The purpose of the order sought in this case is to provide them with the powers that they otherwise do not have of management or administration to advance capital and income to Ms Luke-Gladstone. If the Court considers that to be expedient, then it may empower the Trustees to carry out those transactions.
In this case, the Trustees have legal title to the London residence and are presumably liable to continue paying the rates and taxes. They also hold the cash funds from which Ms Luke-Gladstone and Ms Tatham's bequests and the costs and expenses in managing, administering and winding up the estate are to be met, including the costs of these proceedings. The Trustees' position in their written submissions and their evidence is that the wording of cl 5.13 of the Will does not allow them to finalise payment of Ms Luke-Gladstone's capital entitlement in advance of the ages of 30 and 40 years. At the hearing, the Trustees' Senior Counsel submitted, and I accept, that there is an absence of an express power under the Will to do so and there is no evidence that Ms Luke-Gladstone has called for the trust property held on her behalf to be transferred to her immediately. I am also satisfied that the powers sought are expedient in the circumstances of this case.
While it could be argued that the Trustees may not have had to make an application under s 81 of the Trustee Act, I have concluded that it is not inappropriate for me to exercise my discretion and make the orders sought. This is a limited application that is consented to by the relevant beneficiaries and, for the reasons set out above, I do not consider it to be unjust or involve any error of principle to make the orders sought.
The Court has the power under s 93 of the Trustee Act to order that the costs and expenses relating to this application be paid out of the trust property. In this case, the application related to the management or administration of the trust and was supported by the beneficiaries, including Ms Luke-Gladstone. In those circumstances, I will order that the Trustees' costs, calculated on an indemnity basis, be paid out of the share of the estate which will pass to Ms Luke-Gladstone pursuant to cl 5.13 of the Will of the deceased.
For these reasons, I make the following orders: 1. The Plaintiffs as trustees of the Will of the Deceased Patricia Ann Withofs be authorised pursuant to s 81 of the Trustee Act 1925 (NSW) to make advances of capital and income to any residual beneficiary referred to in clause 5 of the Will dated 6 November 1998 of the Deceased, probate whereof was granted on 19 April 1999. 2. The Plaintiffs as trustees have all such powers as are necessary and incidental to the exercise by them of the power conferred in order (1). 3. The costs of the Plaintiffs be paid on an indemnity basis out of that share of the estate which passes to Ismene Luke-Gladstone pursuant to clause 5.13 of the Will of the Deceased.

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