Auspac Corporate Managers Pty Ltd v J Noble Pty Ltd

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2579/03 AUSPAC CORPORATE MANAGERS PTY LTD v J NOBLE PTY LTD EX TEMPORE JUDGMENT 1 By summons and statement of facts, the applicant seeks the aid of the Court under the Trustee Act 1925, s 63(1). Under that provision, a trustee may apply to the court for an opinion, advice or direction on any question respecting the management or administration of the trust property or respecting the interpretation of the trust instrument. 2 An application under s 63(1) is usually made ex parte. Section 63(4) provides that unless the Rules of Court otherwise provide, or the Court otherwise directs, it shall not be necessary to serve notice of the application on any person. 3 J Noble Pty Ltd ("Noble") was named as a respondent to the application. Counsel informed me, however, that it did not intend to appear as it regarded the application as that solely of the applicant. The hearing before me proceeded on an ex parte basis. 4 From the statement of facts, the following facts appear to emerge. 5 Noble is a contributor under the trust deed, required to pay to the applicant a specified contribution for each member employed by it. The trust deed was brought into existence to enable Noble to demonstrate to its senior employees and other personnel that, in the event of its insolvency, funds were set aside and available for payment of the liabilities it would owe to its staff consequent upon termination of their employment. 6 The trust deed declares that the applicant stands possessed of a fund and will hold it on trust on the terms and conditions of the trust deed. The fund is defined to mean all money, investments and property paid, transferred to, or accepted by, the applicant pursuant to the trust deed and all accretions thereto. 7 It is not clear that there is, as yet, any trust property. Noble has paid moneys into its solicitor's trust account to be paid to the applicant in the event that the Court gives appropriate advice on this summons. Because of the view I hold, however, it is unnecessary for me to resolve this issue. 8 The trust deed provides for the admission of members being employees of Noble upon acceptance by the applicant. While not entirely clear, it appears that the beneficial entitlement under the trust deed inures for the members or their beneficiaries. 9 The applicant executed the trust deed on the basis that Noble was carrying on business, employed staff in that business, senior members of that staff wished assurance that in the event of Noble's insolvency, funds would be available to discharge its obligation for long service leave, holiday pay and other outgoings, Noble gave those employees an assurance that the fund for that purpose had been established and its contributions had been made as part of, and integral to, the carrying on of its business. 10 The applicant sought an answer to three questions: whether the Noble contributions when paid to it will constitute assessable income in its hands under the Income Tax Assessment Act 1997 (Cth), s 6-5(1), whether they will be deductible to Noble under s 8-1 and whether they will attract liability under the Fringe Benefits Tax Assessment Act 1986 (Cth). I had before me the opinions of two senior counsel and junior counsel that the answers to the questions should be "no", "yes" and "no". 11 I doubt that the questions raise issues respecting the management or administration of trust property. Taxes are burdens we all have to bear and taxpayers, whether trustees or not, must make provision for the payment of imposts properly exigible. This raises no question peculiar to the fund. It does not raise an issue with respect to beneficiaries inter se. It does not raise an issue between trustee and beneficiaries. It does not raise the question whether a trustee should commence or defend proceedings on behalf of the trust. 12 Mr Raphael, who with Mr O'Sullivan, appeared for the applicant submitted that it needed to know what it should include in its income tax return as assessable income for otherwise its officers run the risk of committing an offence under the Taxation Administration Act 1953 (Cth), s 8Y. Again that is a risk run by the officers of all corporate taxpayers. It raises no issue peculiar to a trustee and I doubt that a matter dependent upon the determination of the Commissioner of Taxation is appropriately characterised as a matter of management or administration of trust property. Again, because of the view I hold, it is unnecessary for me to determine this issue. 13 Mr Raphael sought leave to raise a further question: whether, if the Commissioner of Taxation sought to include the Noble contributions in assessable income or sought to raise a fringe benefits tax assessment, the applicant should prosecute or defend proceedings against the Commissioner. 14 That is clearly a question within the purview of the statute. A trustee who so acts without the sanction of the Court is at risk of an order for costs (Re Beddoe [1893] 1 Ch 547, Re Atkinson deceased [1971] VR 612 at 615). 15 There is, however, no present indication that the Commissioner will take this course. Mr Raphael submitted that I should take into account contingent liabilities. He relied on Re Littlewood deceased (1954) QWN 41. There trustees had power to dispose of a property provided adequate provision was made for securing the payment of an annuity to one beneficiary. It was proposed to divide the property between two other beneficiaries each of whom would charge his interest to secure payment of half the annuity. The Court expressed the opinion that such course constituted adequate provision. That is far removed from the question before me. 16 Mr Raphael submitted that current statements by the Commissioner of Taxation indicate that it is virtually inevitable that an assessment will issue. The material before me contains an announcement by the Commissioner with respect to aggressively marketed schemes. Mr Raphael submitted that the fund did not answer this description. The other statement contained a generally expressed concern that the Fringe Benefits Tax Assessment Act 1986 (Cth) might apply to an employer contribution to an employee benefit trust. 17 In my view, to answer this question would be premature. The Commissioner of Taxation may never issue an assessment. In Re George Sinnamon deceased (1940) QWN 41, E A Douglas J refused to advise with respect to breaches of trust which might never have resulted in a claim. I decline to answer this question. 18 Under general principles of equity, a trustee had the right to approach the Court for directions. This course obviated the expense of an administration suit and the consequent payment by the trustee of all assets of the trust into Court. 19 The Trustee Act 1925, s 63 is largely declaratory of this inherent jurisdiction. A useful historical analysis of the legislation is to be found in Re Permanent Trustee Australia Ltd (1994) 33 NSWLR 547. 20 However, the Court will not always exercise power to give advice. It will not do so in contentious situations. As Needham J explained in Harrison v Mills [1976] 1 NSWLR 42 at 45, there are many reasons for a Court refusing to hear a summons under the Trustee Act 1925, s 63 to determine matters of basic controversy. An immediate reason is that the proceedings are essentially private advice given by the Court ex parte to a trustee upon information supplied by the trustee. His Honour went on to say at 46, that where there is controversy, it is undesirable that the rights of the parties should depend to any degree upon facts that have not been established in the normal manner. 21 Needham J was asked to deal with a dispute between trustees. He concluded that the proper remedy for the applicant was to take proceedings against her co-trustees for administration of the trust and for declarations as to the interpretation of the instrument in question and the respective rights of the trustees thereunder. 22 This case is, in many respects, the obverse situation for it lacks controversy. The only person who may challenge the applicant's assertion that its receipt of the funds from the solicitor's trust account will not constitute assessable income or give rise to fringe benefits tax and will be deductible in the hands of Noble, is the Commissioner of Taxation and he is not a party to these proceedings. 23 Mr Raphael, correctly in my view, submitted that it would be inappropriate to join the Commissioner of Taxation in these proceedings, they being in the nature of advice given in private to a trustee. But that does not answer the question whether the applicant should raise the issue in other proceedings to which the Commissioner is a party. 24 In Ainsworth v Criminal Justice Commission (1991-1992) 175 CLR 564 at 581-582 the High Court said that the inherent power of a superior Court to grant declaratory relief was a discretionary power confined by the considerations which mark out the boundaries of judicial power. 25 Hence, declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions (Re Judiciary and Navigation Acts (1921) 29 CLR 257). The person seeking relief must have a real interest (Forster v Jododex Aust Pty Ltd (1972) 127 CLR 421 at 437-438). Relief will not be granted if the question is purely hypothetical, or relief is claimed in relation to circumstances that have not occurred and might never happen (University of New South Wales v Moorhouse (1975) 133 CLR 1 at 10). Relief will not be granted if the Court's declaration will produce no foreseeable consequences for the parties (Gardner v Dairy Industry Authority (NSW) (1977) 52 ALJR 180 at 188). 26 In Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438 at 448 Lord Dunedin said that the question must be a real and not a theoretical one, the person raising it must have a real interest to raise it, he must be able to secure a proper contradictor, that is to say, someone presently existing who has a true interest to oppose the declaration sought. 27 Those principles are not limited to the grant of declaratory relief. They mark out the limits of judicial power. They apply equally, in my view, to the instant circumstances (Victims Compensation Fund Corporation v District Court of New South Wales [2002] NSWCA 355 at par 27). 28 The remaining questions I am asked are hypothetical. The Commissioner of Taxation may agree with the claims of the applicant. The controversy may never arise. The proper contradictor is the Commissioner of Taxation. In his absence, my advice to the applicant can produce no foreseeable consequence for it, for Noble, or for the members of the fund. 29 Any answer I may give to the questions is irrelevant. It is the Commissioner who raises an assessment under the Income Tax Assessment Act 1936 (Cth), s 166. In Noble's case, under our self-assessment system, the Commissioner is deemed to make an assessment in accordance with Noble's income tax return under s 166A(1) but the commissioner may subsequently amend it under s 170(1). The Commissioner is not bound by any answer I may give to the questions. There is no utility in my advice. The summons must be dismissed. 30 Normally, a trustee is entitled to its costs out of the trust property. The applicant has, however, failed. In Harrison, Needham J took the view that the applicant trustee in that case had not acted mala fide in bringing proceedings and should not be burdened with a costs order. He thought she had been ill-advised. He thought it appropriate to make no order as to costs. I adopt a similar approach. There will be no order as to costs.

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