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[2012] NSWSC 1471
Supreme Court of NSW
2012-11-27
Pembroke J, Powell J
Original judgment source is linked above.
The Facts 1The testator (John St Clair Ballenden) died on 10 February 2010, leaving an estate whose value was only modest but which was erroneously assumed to be considerable. He also left a trail of dependants and disappointed former wives who claim that no adequate provision was made for them. I was told that seven separate family provision claims have been made on his estate pursuant to the Succession Act 2006. After the testator's death the existence of certain trust deeds emerged which falsified the assumption that the value of the estate was considerable. The testator was the trustee pursuant to the trust deeds. His sons, the first and second plaintiffs, were the beneficiaries. 2The effect of the trust deeds is that, other than the bare legal title, the C and D class shares in the testator's former family company (the third plaintiff) never formed part of his estate and were at all material times beneficially owned by the first and second plaintiffs. Although the two trusts vested when each boy turned 25 years, which occurred in 1986 and 1988 respectively, the boys were unaware of their entitlement and the shares were not transferred to them during the testator's lifetime. The value of the C and D class shares is in excess of $8 million. The value of the estate without those shares is approximately $2 million. 3The disputation in relation to the C and D class shares which has led to the commencement of these proceedings was complicated by the testator's secrecy. When the existence of the trusts was ascertained, the plaintiffs' solicitor insisted over a year ago that the C and D class shares were not part of the testator's estate and should be transferred to the first and second plaintiffs. In his letter dated 17 November 2011, he wrote: 13 It follows then that the C and D class shares should not have been declared as assets in the estate of Dr Ballenden. The bare legal title in those shares had a nil value. 14 In your capacity as co-trustee (along with Gordan Bryant) of the trustee for the C and D class shares Dr Ballenden, you should transfer the bare legal title to the C class share to [the first plaintiff] and the bare legal title to the D class share to [the second plaintiff] forthwith without deduction. 15 You as executors of the estate of the late Dr Ballenden have no lawful right to withhold the transmission of the C and D class shares to [the first and second plaintiffs] as these classes of shares do not form part of the estate. (emphasis added) 4The plaintiffs' solicitor was indubitably correct and the executors were unwittingly in error in relation to the way the shares were initially treated. They did not form part of the testator's estate and their value should not have been included in the inventory of assets. To the executors' credit however, following the 17 November letter, they promptly arranged for the first and second plaintiffs to be registered as the holders of the shares. This occurred on 21 November 2011. 5The plaintiffs' contended that the executors had no valid title to the C and D class shares because the shares did not form part of the testator's estate, and therefore the executors could not confer title on the first and second plaintiffs without following one or other of the two legal routes which I have explained in paragraph [7] below. The executors are unwilling to do what the plaintiffs' solicitor insists upon. They consider it to be unnecessary. Thus, nine months after the first and second plaintiffs became the registered holders of the shares, they commenced these proceedings. One of their objects in doing so, but not their sole object, was said to be "to perfect the title" of the first and second plaintiffs to the C and D class shares.
The Trusts 6The trust deeds pursuant to which the testator held the shares on trust for the first and second plaintiffs were executed in 1969. They contained a power to appoint a new trustee. The testator died without exercising that power. There was however a saving provision, of which in the circumstances the executors could not have been expected to have been aware. The saving provision was contained in Clause 9 which provided that: ...in default of such appointment [of new trustee] such power [of appointment] is vested in the Executor of the will of the Trustee and shall be exercised by deed. 7The executors could in theory have appointed themselves by deed pursuant to Clause 9 as trustees of the trusts for the benefit of the first and second plaintiffs and transferred the shares to them. Or they could have applied to the court for an order pursuant to Section 70 of the Trustee Act. Instead, they simply transferred the shares to the first and second plaintiffs who, as I have mentioned, became registered as the holders of the shares on 21 November 2011. They now ask rhetorically "What more could the first and second plaintiffs want?" and "What else could possibly be done?"
Death of a Trustee 8I should re-state some basic principles. The office of trustee is personal. A trustee is appointed because of the personal confidence which is reposed in his discretion and judgment. The trustee's executor on the other hand may be a person unknown, or someone in whom the requisite confidence is missing. It follows that, under the general law in New South Wales, upon the death of a trustee, the office of trustee does not devolve on the trustee's executor. 9In short, "no one can legally execute a trust unless nominated so to do by the settlor or testator or appointed so to do by direction of such settlor or testator, by Act of Parliament or by the court": Jacobs' Law of Trusts in Australia, 7th ed (2006) at [1575]. The result therefore, at least in New South Wales, is that if a deceased trustee was the sole or last surviving trustee, then if the trust is an active trust, and absent the appointment of a replacement trustee, the office of trustee becomes vacant. The trust will not fail however. There will be a bare trust until the appointment of a replacement trustee. 10Importantly, there is an exception to the principle where, as in this case, the trust is no longer active. The position is clearly stated in Jacobs' Law of Trusts in Australia at [1575] where, after referring to the principles that I set out in paragraphs [8] and [9] above, it is said: The legal representative of such a deceased trustee has no power to act in the execution of the trust although, where there are no active duties to perform, the legal representative has power to transmit the property to the persons absolutely entitled. (emphasis added) 11Ford and Lee, Principles of the Law of Trusts, 2nd ed (1990) paragraph [852] is to the same effect: ... persons upon whom the assets devolve upon the death of a sole trustee will in New South Wales and South Australia at least hold them without any powers authorities or discretions, upon a bare trust for new trustees when appointed, although they do have the power, if all the beneficiaries are of full age and capacity, to transfer the assets of the trust to them, so clothing the equitable ownership with the legal estate and thereby terminating the trust. (emphasis added) 12This principle and its exception were stated, and their rationale explained, in Robson v Flight (1865) 4 De GJ & S 608, 46 ER 1054. The Lord Chancellor said the reason is "obvious": Such trusts and powers are supposed to have been committed by the testator to the trustees he appoints by reason of his personal confidence in their discretion, and it would be wrong to permit them to be exercised by the heir at law, who may be a person unknown to the testator, or in whom he has no confidence at all. A trust which gives the trustee no other duty to discharge than simply to clothe the equitable ownership with the legal estate may indeed be performed by the heir... It depends on the question whether in the exercise, anything has to be supplied by the judgment, knowledge and discretion of the person acting in the exercise of such trust or power. 13Robson v Flight was approved and applied in this court in Biddlecombe v Biddlecombe (Supreme Court of New South Wales, Powell J, 1 July 1993, unreported). The principle applies in this case. As I have already mentioned, the trusts vested in 1986 and 1988 respectively. The first and second plaintiffs have been absolutely entitled to the C and D class shares for over 20 years. The trusts therefore have no work to do. They are not active. The executors were entitled and authorised to transfer the C and D class shares to the first and second plaintiffs. 14I should mention that in a number of jurisdictions, the practical difficulty caused by the death of a trustee has been addressed by statute: Conveyancing and Law of Property Act 1884 (Tas), s 34; Trustee Act 1958 (Vic), ss 2 and 23; Trustees Act 1962 (WA), s 45; Trusts Act 1973 (Qld), s 16. In the United Kingdom the issue is covered by the Administration of Estates Act 1925 (UK), ss 1 and 3, and Trustee Act 1925 (UK), s 18(2). In the United States, the position is as unambiguous as it is in New South Wales. The following statement appears in Scott & Ascher on Trusts, 5th ed (2011), Vol 2, pp 644-645: It is unnecessary to appoint a new trustee if the purposes of the trust have already been accomplished, so that there is nothing to do but transfer the property to the beneficiary. In such a case, the heirs or personal representatives can make the conveyance. (emphasis added)
No Utility 15On this narrow issue therefore, the commencement of proceedings served no useful purpose. The executors may not have understood the exception to the legal principle that I have explained in paragraphs [8] - [10] above but over a year ago, when requested so to do by the plaintiffs' solicitor, they transferred the shares to the persons who were absolutely entitled to them. There is now no basis whatsoever for any challenge to the entitlement of the first and second plaintiffs to be registered as the holders of the shares. None was identified in the evidence. None was articulated in submissions. A reading of the standard Australian texts on trusts would have dispelled the plaintiffs' perception that it was necessary to seek any of those declarations and orders in order to 'set the record straight'.
The $400,000 Claim 16The only other issue that I was required to determine concerned the legal status of a sum of $400,000 that the testator gave to the second plaintiff in November 2003. The defendants contend that the payment should be characterised as a loan rather than as a gift. They contend, and the plaintiffs accept, that the determination of the issue depends upon the construction of two handwritten letters dated 25 and 28 November 2003. 17The first letter was an acknowledgement and receipt written by the testator and signed by the second plaintiff. It stated: I have received the sum of $400,000.00 (four hundred thousand dollars) from the estate of my father John St Clair Ballenden as a gift which will be deducted from my portion at the settlement of the estate. (emphasis added) 18The second letter was from the testator to the first defendant. It stated: This is the note you advised me to get from Christopher for the loan of $400,000.00 signed by Christopher and his wife. Thank you for filing and retaining with the will. (emphasis added) 19The defendants' argument really depended on the construction of the first letter. It was conceded, at least implicitly, that the use of the term "loan" in the second letter could not affect the reality of what had occurred on 25 November 2003. A subsequent change of mind by the testator as to the nature of the payment of $400,000 is of no relevance in determining its legal effect. As was said in Ogilvie v Littleboy (1897) 13 TLR 399 at 400: Gifts cannot be revoked, nor can deeds of gift be set aside, simply because the donors wish they had not made them and would like to have back the property given. Where there is no fraud, no undue influence, no fiduciary relationship between donor and donee, no mistake induced by those who derive any benefit by it, a gift, whether by mere delivery or by deed, is binding on the donor. See also Pitt v Holt [2011] EWCA Civ 197 at [203] and Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374 at 382 (Young J, as he then was). 20The defendants' submission amounted to the proposition that the statement in the 25 November letter that the $400,000 was a "gift", coupled with the qualifying words "which will be deducted from my portion at the settlement of the estate" indicated that the payment was to be regarded as a loan. I do not agree. Those words do no more than indicate that the gift of $400,000 is to be taken into account, and credited against, the second plaintiff's share of the testator's estate. His ultimate share of the estate, whatever it might be, was intended to be reduced by an amount that reflected the fact that during his lifetime the testator gave him $400,000. This is a common occurrence. It does not transform the gift into a loan. 21At the date of the gift, the testator may well have overlooked the trust deeds that he executed in 1969 and may have mistakenly assumed that on his death his son would receive far more than $400,000. But this mistake does not transform the gift into a loan. It just means that the donor made a mistake. A gift does not cease to be a gift simply because the donor make a mistake. In certain circumstances, the payment may be recoverable but I should not take the issue further as the defendants did not advance a case based on the recovery of money paid on a mistake.
Orders 22The plaintiffs are substantially entitled to the relief that they seek. But not to all of it. There is no need for orders that the executors execute and deliver to the first and second plaintiffs transfers of the C and D Class shares. Nor is there any need for declarations that the 'transmission' of those shares be set aside. On that part of the claim, the plaintiffs have failed and the costs orders should reflect that fact. The precise declarations and orders that are appropriate in the light of my findings and conclusions are set out in Ballenden v Bryant (No 2) [2013] NSWSC 454.
Amendments 02 May 2013 - Revised reasons DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 May 2013
Ballenden
Bryant