Arakella v Paton

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5454/03 BOWMIL NOMINEES PTY LIMITED as Trustee of the Williamson Superannuation Fund JUDGMENT 1 HIS HONOUR: This is an application by the trustee of a superannuation fund known as the Williamson Superannuation Fund ("the Fund"). The trustee is an entity owned by the partners of PKF Chartered Accountants. Neither PKF Chartered Accountants nor the trustee act as the trustee of any other superannuation fund. The Fund was established on 14 December 1990 by Industrial Equity Limited which is described in the trust deed governing the fund ("the trust deed") as the principal employer. An unexecuted copy of the trust deed is in evidence. There is also in evidence an unexecuted copy of a form of deed of variation which was executed in 1995 in relation to the trust deeds of all funds which with PKF Chartered Accountants were then associated ("the amending deed"). Search has been made for the original of the trust deed and the original of the amending deed. There is evidence that the original documentation did exist and has been seen but that, despite diligent search, it cannot now be found. I find that those originals did exist and that there are deeds in that form governing the Fund. The Fund has at all times been administered in accordance with those deeds. Gregory Bede Williamson ("the deceased") was at the time of his death on 25 September 2000, the sole member of the Fund. The Fund currently holds cash assets of about $653,500. The deceased left no death benefit nomination nor advice of his wishes in relation to the distribution of his death benefit held in the fund. 2 It was the Superannuation Industry (Supervision) Act 1993 (Cth) ("the Act") which led to the creation of the amending deed in 1995. Upon the passing of the Act in 1999 there was a requirement that the trustee elect that the Fund become a self-managed superannuation fund (and satisfy the relevant trusteeship and membership requirements of s 17A of the Act) and be regulated by the Australian Taxation Office or that it appoint an approved trustee within the meaning of the Act and be regulated by the Australian Prudential Regulatory Authority ("APRA") as a small APRA fund. Between October 1999 and the time of the deceased's death, Mr Mark Wilkinson, a director of the trustee, sought, but did not receive, instructions from the deceased as to the election which the trustee should make to enable the relevant structural changes to be put in place. After the deceased's death the trustee sought the agreement of APRA to take no action to revoke the complying status of the Fund pending the dissolution of the Fund in its existing format and the takeover and reconstitution of the Fund by the relatives of the deceased who are mentioned below. The Fund remains a complying fund within the meaning of the Act by virtue of APRA having determined not to remove the Fund's complying status pending the resolution of this application. 3 The deceased left on his death a de facto wife (Linda Jane Kirk-Williamson), an ex-wife (Rosa Williamson) and two daughters (Simona Williamson and Natira Williamson). The available moneys were divided among those persons by an exercise of discretion by the trustee, as to which there is no ongoing controversy. Linda Jane Kirk-Williamson is content to take (and has partly received) her share as a lump sum. The ex-wife and the daughters wish their shares to remain in the Fund so that they may receive them in the form of allocated pensions, as this has taxation advantages so far as they are concerned. For the Fund to continue as a self-managed superannuation fund and to be able to provide that facility to them it is necessary, pursuant to the legislative arrangements, for all members of the ongoing fund to be trustees of the Fund and all trustees of the Fund to be members of the Fund. The present trustee is willing to resign or withdraw from its position in favour of the ex-wife and the daughters and they wish for this regime to be implemented. It is also necessary for the trust deed to be amended to permit the payment of benefits by way of pension. 4 The difficulty in following the desired course arises from provisions of the trust deed which are as follows: "Clause 32.1 The Trustees may at any time and from time to time either by deed executed by the Trustees or by oral resolution, with the approval of the Principal Employer, vary, add to or rescind all or any of the provisions from time to time of this Trust Deed and the Rules annexed hereto and the new provisions so made shall have the same validity and effect as if they had been originally contained herein and shall be subject to being varied, added to or rescinded in like manner …… ……… Rule 3.1 In the event of the death of a Member before attaining the Retiring Age, the amount of the Member's Benefit shall be held by the Trustees upon trust for the benefit of such one or more of the Member's Dependants, to be paid in a lump sum in such shares and proportions as the Trustees, in their absolute discretion, determine."

There was tendered before me as Ex D a deed poll by the trustee to substitute rules for the original rules which would permit payment of benefits by way of pension, as well as updating the rules generally. 5 It has been recognised in the highest judicial quarters that changes in the constitutions of trusts through which superannuation schemes are conducted are in modern times frequently necessary because of changing circumstances: Commissioner of Taxation v Commercial Nominees of Australia Ltd (2001) 75 ALJR 1172 at [32]. Among the circumstances which may necessitate changes to the trust provisions are frequent amendments to relevant regulatory and revenue legislation, as have occurred in this case. One difficulty that has arisen in this case is that the principal employer refuses to approve the amendment of the trust deed or, indeed, to have anything further to do with the trust. This is, apparently, on the basis that it no longer has any employee who is a member of the Fund but in any event it matters not, it simply refuses to do it. 6 The trustee has claimed an order that the Court should vary the trust deed by deleting from the trust deed the reference to the approval of the principal employer and that the deed poll should be regarded as varying the terms of the trust, substituting new rules for the conduct of the trust for the old. As I have said, these will vary the terms of the trust to permit payment of benefits by way of pension. 7 The law as to the variation of trusts is not in a very satisfactory state in New South Wales. In Chapman v Chapman [1954] AC 429 the House of Lords is perceived to have ruled that courts of equity have no power to vary beneficial interests under trusts, absent legislative provision. There has been no full consideration at appellate level as to whether the decision in Chapman v Chapman should be accepted in Australia. Even so, it has been accepted that, in general terms, there is no power in the Court in New South Wales to make alterations to the terms of, or vary, the beneficial interests in a trust. That proposition is subject to some debate which there has been as to whether there may be alterations to beneficial interests incidental to a valid exercise of jurisdiction under s 81 of the Trustee Act 1925 ("the TA"), which is discussed below: see Ku-ring-gai Municipal Council v The Attorney General (1954) 55 SR(NSW) 65 per curiam at 74; Re A S Sykes (dec'd) and The Trustee Act [1974] 1 NSWLR 597 at 601 per Helsham J; Perpetual Trustee Company Limited v Godsall [1979] 2 NSWLR 785 at 795 per Rath J; and two decisions of Young J (as his Honour then was) in Tickle v Tickle (1987) 10 NSWLR 581 at 584 and Re Cosaf Pty Limited SCNSW 18 December 1992 unreported. And see the recent discussion by Austin J in Arakella v Paton [2004] NSWSC 13. 8 There is not in New South Wales a statutory power to vary beneficial interests in trusts. In the United Kingdom and some other Australian States there is statutory power to approve on behalf of incapable or unascertained beneficiaries an arrangement varying or revoking trusts: see Variation of Trusts Act 1958 (UK) s 1; and, eg, Trustee Act 1958 (Vic) s 63 and Trusts Act 1973 (Qld) s 95. There seems to be no reason why this provision should not have been adopted in New South Wales and this Court has commented unfavourably on earlier occasions about its absence. Its absence is, however, mitigated by two factors. 9 First, variation by the Court is not necessary where the beneficiaries who are all ascertained and sui juris agree to the variation. This is a consequence of what is known as the rule in Saunders v Vautier (1841) 1 Cr & Ph 240; 41 ER 482 which has the effect that, where beneficiaries are all ascertained and sui juris, they may call on the trustee for the transfer to them of all the assets of the trust, which transfer will terminate the trust. It is a corollary of this rule that beneficiaries who are all sui juris may agree that the trust should be varied or reconstituted and continued as varied or reconstituted and that it may not be alleged that a trustee who acts on that basis is guilty of a breach of trust. 10 Secondly, the Court may, in many instances, act under the provisions of s 81 of the TA, which relevantly provides as follows: "(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."

Section 81 is a provision common to the UK and all other Australasian jurisdictions. It is said to have been given a particularly robust application in New South Wales: Ford and Lee, Principles of the Law of Trusts (3rd ed, looseleaf) [15040]. Of modern days, the lack of the statutory power of variation may in part explain this robustness, but the cases that establish this robust application go back beyond Chapman supra. 11 In Re J T C Mayne (1928) 28 SR(NSW) 157 that well respected NSW Equity Judge, Sir John Harvey, when Chief Judge in Equity, said, of an application concerning the number and identity of trustees (at 160 - 161): "But I see no reason why, if there is any objection to such a course, an application, should not be made under s 81 of the Trustee Act 1925, to vary that power of appointment. In my opinion, s 81 is deliberately framed in the widest possible terms to enable the Court to do any administrative act in the administration of a trust. Subs 2 of that section says that these provisions are to be deemed to empower the Court to authorise the trustees to do or omit to do any act which if done or omitted would be a breach of trust. In my opinion it would be a breach of trust to appoint the Queensland Trustees Limited as a single trustee, but I think the Court could authorise them to make that appointment if it was desirable to do so, and I think proper proceedings could be taken in this Court to obtain such an order." 12 The ambit of the power was discussed in the High Court in Riddle v Riddle (1952) 85 CLR 202. Dixon J said at 214: "Section 81 is a provision conferring very large and important powers upon the Court which depend upon the Court's opinion of what is expedient, a criterion of the widest and most flexible kind. The power necessarily carries with it responsibilities of equal extent. The responsibilities imposed involve business and financial considerations, but responsibilities of that description have always fallen on courts of administration.

I do not think that the powers given by s 81 were intended to be restricted by any implications."

Williams J at 224 quoted with approval the position of the judgment of Harvey CJ in Eq cited above. 13 In Re Strang (1941) 41 SR(NSW) 114 at 115 Jordan CJ said: "Section 81 is expressed in very general terms, and it would be unwise to run the risk of imposing fetters on a discretion which is intended to be large in its scope by attempting to lay down general conditions for the exercise of jurisdiction under the section."

The amplitude of the power was also adverted to by Helsham J in Sykes supra at 600 - 601 and by Young J in Cosaf supra. 14 The following propositions emerge from these authorities:

(1) The criterion for the exercise of the power is expediency. (2) The expediency must be "in the management or administration of" property. (3) The expediency must relate to property of the trust, not some other property. (4) What must be expedient is "any sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure, or transaction". (5) Once the above criteria are met the powers of the Court are ample and its discretion is unfettered. (6) The extent to which the respective rights of the beneficiaries may be affected is a subject matter of debate, which it is unnecessary to consider for the purposes of deciding this case. 15 In my view, the question of the amendment of the trust deed, both as to the necessity of the approval of the principal employer and the substitution of the new rules generally, do arise in the management or administration of the property of the trust. The only problem as to whether there is an occasion for the exercise of the discretion is whether the amendment of the trust deed falls within the rubric of "any purchase, investment, acquisition, expenditure, or transaction". 16 A similar question was dealt with in the High Court of New Zealand under the corresponding provision of the New Zealand Trustee Act in Re Philips New Zealand Ltd [1997] 1 NZLR 93. In that case the trustees of a retirement plan for employees sought an order enabling them to amend a trust deed to allow apportionment of a sum held between the settlor/employer and members of the plan. Baragwanath J (at 101) held that the amendment of the trust deed was a "transaction" within the meaning of the section and could therefore be authorised by the Court. His Honour's characterisation of the amendment of the trust deed as a "transaction" was not the subject of any analysis by him, but is in my view correct. "Transaction" is a word of wide import. In the Macquarie Dictionary (rev 3rd ed, 2001) the verb "transact" is defined as "to carry through (affairs, business, negotiations, etc) to a conclusion or settlement". "Transaction" is defined as "that which is transacted; an affair; a piece of business". In my view the amendment of a trust deed readily falls within that definition and the Court has power under the section to empower the amendment of a trust deed. In that case, all the beneficiaries were sui juris and consented to the amendment. His Honour took the view that in those circumstances he should not exercise the power conferred by the section, since that was unnecessary in the light of the consent. However, as the trustee had doubts as to the extent of the power and had made the application bona fide, his Honour took the view that the trustee should have relief, but in the form of a declaration that the proposed amendment to the trust deed was expedient. 17 When I came to consider the matter after the completion of evidence and submissions two things became plain to me:

(1) that the evidentiary situation as to the beneficiaries' consent was not clear; (2) that the form of the deed poll, Ex D, was not satisfactory. 18 What was unsatisfactory about the evidence of consent was that the relevant beneficiaries deposed that they had had the opportunity to see the trust deed, but not whether in fact they had paid any attention to or received any advice about it. Whilst the Court has power to empower the amendment of the trust deed under s 81 without the consent of the beneficiaries, it should not in my view act in one way or another without the attitude of the beneficiaries being made entirely clear to it. Insofar as the form of the deed is concerned, it was deficient in that it did not properly provide for the ongoing beneficiaries and new trustees to be party to it. Furthermore, despite the complaint about the power of amendment being fettered by the requirement of approval of an unwilling principal employer, the deed did not do anything to correct that situation for the future. I have already indicated that, in modern times, there is a distinct potentiality for a trust deed governing a superannuation fund to need to be amended from time to time. It is not desirable that every amendment, large or small, should have to be brought back to the Court for want of the approval of an entity which has already demonstrated itself to be unwilling to have anything further to do with the superannuation scheme. I restored the matter to the list and expressed to the trustee's representative the above views concerning the inadequacy of the evidence of approval and the deficiencies in the deed as it stood. At the same time I indicated that, if these matters were satisfactorily resolved, I was in general terms minded to give relief, either by empowering the amendment or by declaratory relief along the lines followed by Baragwanath J in the New Zealand case. 19 I have now had laid before me a fresh form of amending deed. This proceeds by in effect removing the operative clauses of the trust deed and embodying all necessary provisions relating to the trust in a new set of rules which will replace the existing rules in the trust deed. The new rules provide for amendment of the trust deed by the trustee without qualification. As the new trustees will be the beneficiaries and they are all sui juris, this is entirely appropriate and will foreclose the necessity of future applications to the Court in at least some instances. Furthermore, it has now been made plain that the ongoing beneficiaries (and proposed trustees) have received the fresh form of amending deed and had it explained to them. It also shows that they have had advice concerning it and consent to the amendment of the existing provisions governing the trust into that form. I am now prepared to give relief as previously indicated. 20 Since it is appropriate that the trustee act upon the informed consent of beneficiaries who are sui juris and unnecessary applications to the Court for empowerment are not to be encouraged, I propose to adopt the course followed by Baragwanath J in the New Zealand case. I do not propose to make an order under s 81 of the TA empowering the making of the amendment, although I have expressed the view that the Court has power to do so and would be prepared to do so if it were necessary. Rather, I shall make an appropriate declaratory order to the effect that it is expedient that the proposed deed of amendment be entered into and that it will be appropriate for the trustee to act in accordance with it. 21 Although I am proceeding in this fashion, I am not to be taken as expressing a view that it was inappropriate for the trustee to apply to the Court in this instance, although the beneficiaries were minded to consent to the course (albeit the evidence of that was initially unsatisfactory). The legal situation, as appears from these reasons, is not an entirely easy one; it was quite reasonable for the trustee to approach the Court in the uncertain situation in which it found itself. 22 I make the following order: I declare that the proposed further amendment contained in the form of deed which is annexure A to the affidavit of Mark Wilkinson sworn 18 February 2004 and filed in these proceedings to the trust deed of the Williamson Superannuation Fund as amended to date is expedient and that upon the execution of that deed it will be appropriate for the trustee of that fund to act in accordance with it.

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