Cisera v Cisera

Application for approval

1. The deed of family arrangement dated 14 November, which is the subject of the present application, provides for the variation of the original 1974 Trust Deed.
2. The only amendments which require mention are those to the Terminal Date and the Beneficial Class.
3. The fixed component in the definition of the Terminal Date is changed from 1 January 2024 to 23 August 2054, being 80 years from the date of the original Trust Deed. As I explained in the section 81 application judgment (at [42]), the number of descendants of King George V alive as at the date of settlement in 1974 was large, including some who were then quite young. Even with the extension of the fixed period to 80 years, it remains very likely to be exceeded by the royal lives period, with the result that the Terminal Date will be extended by over 30 years (unless brought forward by the Trustee). Even if all of the remaining descendants of George V who were alive in 1974 were to die tomorrow, the Terminal Date would still be extended by 20 years.
4. The Beneficial Class is expanded to give John's children, grandchildren and remoter issue immediate and direct membership. This replaces the existing contingent membership which is limited to John's children and arises only upon John's death.
5. The gift over to Giselda and Norma or Norma's children has not been altered. Because the gift over does not extend to Norma's grandchildren and remoter issue, the extension of the Terminal Date creates an increased (but still remote) risk that, if the Beneficial Class fails, the gift over may then also fail, with a resulting trust in favour of the settlor company (if it still exists).

Statutory provisions

1. Division 3A of Part 3 of the Act is titled "Power of Court to vary trusts". The Division consists of sections 86A, 86B and 86C, which relevantly provide: 86A Court order to approve arrangement (1) If property is held in trust under any instrument creating the trust, the Court may, if it thinks fit, by order approve any arrangement to - (a) vary or revoke all or any of the trust, or (b) enlarge the powers of the trustees for the purpose of managing or administering any of the property subject to the purpose of the trust. (2) An order under this section may be made by the Court only on behalf of - (a) any person under the trust having an interest directly or indirectly, or vested or contingent, who by reason of being a minor or other incapacity is incapable of assenting, or (b) any person who may become entitled, directly or indirectly, to an interest under the trust, and the entitlement is contingent on a future date or event that has not occurred at the time of application for an order under this section, or (c) any unborn person, or (d) any person in respect of any discretionary interest of the person under protective trusts where the interest of the principal beneficiary has not failed or determined. (3) This section - (a) extends to a trust created before the commencement of this section, and (b) does not apply to trusts affecting property created by another Act, and (c) does not limit the operation of section 81. [(4) defines "discretionary interest", "principal beneficiary" and "protective trusts" by reference to s 45] 86B Court order to benefit person subject to application (1) The Court must not approve an arrangement on behalf of any person under section 86A unless the carrying out of the order would be for the benefit of that person. (2) Subsection (1) does not apply to an approval of an arrangement under 86A(2)(d). 86C Court may direct notice of application to certain persons Notice of an application to the Court for an order under section 86A must be given to any persons as the Court may direct.

Statutory background

1. As White JA noted in the passage referred to at [31] above, legislation providing for the variation of trusts was first enacted in the United Kingdom in 1958: Variation of Trusts Act 1958 (UK). I will refer to this enactment as the "UK Act". The only operative provision, s 1, relevantly provides: 1 Jurisdiction of courts to vary trusts (1) Where property, whether real or personal, is held on trusts arising, whether before or after the passing of this Act, under any will, settlement or other disposition, the court may if it thinks fit by order approve on behalf of - (a) any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts who by reason of infancy or other incapacity is incapable of assenting, or (b) any person (whether ascertained or not) who may become entitled, directly or indirectly, to an interest under the trusts as being at a future date or on the happening of a future event a person of any specified description or a member of any specified class of persons, so however that this paragraph shall not include any person who would be of that description, or a member of that class, as the case may be, if the said date had fallen or the said event had happened at the date of the application to the court, or (c) any person unborn, or (d) any person in respect of any discretionary interest of his under protective trusts where the interest of the principal beneficiary has not failed or determined, any arrangement (by whomsoever proposed, and whether or not there is any other person beneficially interested who is capable of assenting thereto) varying or revoking all or any of the trusts, or enlarging the powers of the trustees of managing or administering any of the property subject to the trusts: Provided that except by virtue of paragraph (d) of this subsection the court shall not approve an arrangement on behalf of any person unless the carrying out thereof would be for the benefit of that person. …
2. The UK Act was introduced in response to the decision of the House of Lords in Chapman v Chapman [1954] AC 429. That case concerned family settlements which had been made in 1944 and 1950. The settlements had since been adversely affected by subsequent changes to revenue laws. Some of the beneficiaries were sui juris, but others were still minors. The sui juris beneficiaries agreed to a variation of the settlements which would have overcome the adverse taxation consequences from the revenue law changes. An application was then made for the Chancery Division to sanction the variation on behalf of the minor beneficiaries. That application was rejected, and its rejection was upheld by the House of Lords.
3. The Court of Chancery had always had power to sanction departures from the terms of the trust in some circumstances, where such departures were in the interests of the beneficiaries. The House of Lords identified four such situations. One was where a proposed transaction was plainly beneficial, but the trustees lacked power to enter into it (this exception was later codified in s 57 of the Trustee Act 1925 (UK), which was the forerunner of section 81 of the NSW Act).
4. It was argued that these exceptions were only illustrations of a wider principle that the Court had power to sanction a variation whenever it was in the interests of the beneficiaries to do so. That proposition was emphatically rejected by the House of Lords. The House held that there was no power to sanction the variation of the terms of a trust merely because that was thought to be in the interests of the beneficiaries. The exceptions which had been recognised were narrow and did not apply in the circumstances of the case.
5. It seems that the decision came as a surprise to some in the profession, and overturned a more liberal practice which had grown up in the Chancery Division. Lord Oaksey, who only reluctantly concurred, stated: The general rule is said to be that the Court must see that the trusts are executed, but it is conceded that the Court has no power to insist upon the execution of the trusts if the cancellation of the settlement is desired by all the parties if they are sui juris and the property can then be resettled upon altered trusts. Yet where infants are concerned the Court cannot, it appears, sanction any alteration of the trusts under the general rule although the interests of the infants appear to demand the alteration.
6. The issue was referred to a Law Reform Committee chaired by Lord Justice Jenkins which produced a report ("Court's Power to Sanction Variation of Trusts", 1957, Cmnd 310) recommending the enactment of what became the UK Act.
7. With the enactment of Division 3A in New South Wales, all Australian states now have variation of trusts legislation. All enactments, with the possible exception of South Australia, appear to have been influenced by the UK Act. But some align more closely with that Act than others.
8. Victoria adopted s 1(1) of the UK Act, in full, in 1962 (Trustee Act 1958 (Vic), s 63A(1)). It now differs in one respect ("minority" substituted for "infancy").
9. Western Australia passed legislation in the same year (Trustees Act 1962 (WA), s 90). Instead of the benefit precondition in s 1(1) of the UK Act, it contains a "no detriment" precondition, which involves a consideration of "all benefits that may accrue" to the person "directly or indirectly in consequence of the arrangement" (s 90(2)). It also empowers the court to approve arrangements on behalf of "any … unknown person" (s 90(1)(c)).
10. Queensland included a provision when it passed its Trusts Act 1973 (QLD) (s 95). The key difference between s 95 and s 1(1) of the UK Act is that it does not require the court to find that the arrangement is for the benefit of "an unascertained person whose entitlement is dependent on a future event which the court is satisfied is unlikely to occur" before approving on their behalf (s 95(1A)(a)).
11. The South Australian provision (Trustee Act 1936 (SA), s 59C) was introduced in 1980. It is not framed in terms of court approval of an arrangement on behalf of specified persons. Despite its title, "Power of Court to authorise variations of trust", the Supreme Court is expressly empowered (s 59C(1)), "on the application of a trustee, or of any person who has a vested, future, or contingent interest in property held on trust", to: (a) vary or revoke all or any of the trusts; or (b) where trusts are revoked - (ii) distribute the trust property in such manner as the Court considers just; or (ii) resettle the trust property upon such trusts as the Court thinks fit; or (c) enlarge or otherwise vary the powers of the trustees to manage or administer the trust property.
12. Subsection (3) sets out matters that the Court must be satisfied of before exercising its powers under the section. These are: (a) that the application to the court is not substantially motivated by a desire to avoid, or reduce the incidence of tax; and (b) that the proposed exercise of powers would be in the interests of beneficiaries of the trust and would not result in one class of beneficiaries being unfairly advantaged to the prejudice of some other class; and (c) that the proposed exercise of powers would not disturb the trusts beyond what is necessary to give effect to the reasons justifying the exercise of the powers; and (d) that the proposed exercise of powers accords as far as reasonably practicable with the spirit of the trust.
13. The Tasmanian legislation (Variation of Trusts Act 1994 (Tas), Pt 3) is cast in quite different terms to the UK Act. It still allows the Court making an order, on behalf of specified persons, to approve an arrangement (see s 13). Like the UK Act, such arrangements include those "varying or revoking all or any of the trusts" (s 13(1)(a)) or "enlarging the powers of the trustees of managing or administering any property subject to the trusts" (s 13(1)(c)). But they also extend to those "resettling an interest under the trusts" (s 13(1)(b)) (cf the discussion of resettlement in the authorities cited below).

Nature and course of application

1. The short title of the UK Act tended to suggest that the Court was itself being given power to make variations to the terms of trusts. Initially, that was the way the Act was understood: see Re Holt's Settlement [1969] 1 Ch 100, where Megarry J, apparently with some reluctance, confirmed the then existing practice (see at 109F-110E, 113F-114A) of making orders which were expressed to vary the terms of the trust.
2. Re Holt's Settlement was decided on 5 December 1967. But only a few days later, the House of Lords delivered its decision in Inland Revenue Commissioners v Holmden [1968] AC 685. Lord Reid stated (at 701): Under the Variation of Trusts Act the court does not itself amend or vary the trusts of the original settlement. The beneficiaries are not bound by variations because the court has made the variation. Each beneficiary is bound because he has consented to the variation. If he was not of full age when the arrangement was made he is bound because the court was authorised by the Act to approve of it on his behalf and did so by making an order. If he was of full age and did not in fact consent he is not affected by the order of the court and he is not bound. So the arrangement must be regarded as an arrangement made by the beneficiaries themselves. The court merely acted on behalf of or as representing those beneficiaries who were not in a position to give their own consent and approval.
3. Lord Reid's statement of the law was quoted by the Victorian Court of Appeal in Perpetual Trustees Victoria Ltd v Barns (2012) 34 VR 387 without apparent disapproval (see at [18], [26]-[27]). There would seem to be no reason why it would not also apply to the NSW Act (in passing, I note that the WA, SA and Tasmanian Acts all make express provision - s 90(4) of the WA Act, s 59C(4) of the SA Act and s 15 of the Tasmanian Act - about the effect of an order of the Court, so the approach under those Acts may be different).
4. The summons, as originally filed, named five plaintiffs. John, Crystal and Mario were the first three plaintiffs. Ryan and Ruby were named, in each case with John as their tutor, as the fourth and fifth plaintiffs. There was no named defendant. The affidavit in support of the application for expedition sought a half-day hearing in October or November, apparently on the basis that the relief would be unopposed.
5. The summons, in its original form, sought an order directly varying the terms of the Trust Deed in the desired fashion. But when, on the first return date, I drew Holmden and Barns to counsel's attention, he accepted that Lord Reid's statement of the law would apply to the NSW Act. It would therefore be necessary to re-cast the application as one to approve, on behalf of the beneficiaries who could not give their consent, an arrangement effecting the relevant variations. Counsel also agreed that that arrangement should be recorded in a written agreement between the sui juris beneficiaries. In due course, the summons was amended so as to seek an order in that form.
6. On the first return date, I was also concerned to know whether the proceedings would, or should, be brought on an inter partes basis. I made the point that, on the face of it, one would expect the proponent or proponents of the arrangement to be the plaintiffs and the persons whose consent was required, to the extent to which they were identifiable, to be the defendants. Most obviously that would include Ryan and Ruby. At the very least, I thought, those persons should be independently represented.
7. The proceedings returned to Court for further directions on 29 September. Counsel for the plaintiffs mentioned the appearance of Ms O'Rourke, indicating that she acted for them as both tutor and solicitor. Although the evidence in support of the application was not complete, counsel indicated that Ms O'Rourke consented to the orders sought. I found it somewhat surprising that Ms O'Rourke should commit herself so early, but she has never varied from that course.
8. Prior to the 29 September directions hearing, the plaintiffs submitted two proposed versions of an amended summons - one with the children as the sole plaintiffs, and the other with them as sole defendants. I remained of the view that the children should be named as defendants, and granted leave to the plaintiffs to amend on that basis. The amended summons also provided for CHPL, the Trustee, to be joined as the fourth plaintiff. I will return to this below.
9. The matter returned to court on 13 October following the filing of further evidence. Counsel for the plaintiff urged me to fix a hearing date as soon as possible, in view of the fact that the 1 January date was impending. Having regard for the need to file further submissions and the availability of counsel, 17 November was identified as a suitable date. I had, however, read the accountant expert report which had been filed in support of the application and was concerned by it. I gathered from the report that what lay behind the application was a wish to avoid Capital Gains Tax (CGT) on vesting (although counsel suggested that this was not the "entire motivation" for it). I told counsel that I was not sure what effect the vesting would have for CGT purposes. I also asked whether, if a consequence of the application would be a substantial saving in tax, the Commissioner of Taxation should be made a contradictor (opposition was plainly not going to be coming from Ms O'Rourke).
10. In response, counsel suggested that the real question on the application would be whether approval was in the best interests of the children. Counsel suggested that all I would need to be satisfied of, so far as taxation was concerned, was that there was nothing illegal or improper about the arrangement (although any tax saving would, counsel added, support his argument).
11. Counsel urged me, especially given the lack of time before 1 January, to give him an opportunity to persuade me that the application should be granted on the existing material. I acceded to this request. But I did indicate to counsel that I might in the end conclude that I needed further assistance on the taxation issue, and that this might require a contradictor.

Power of approval

1. Generally speaking, the variation of trusts legislation is recognised as remedial legislation which should not be given an unduly narrow construction. At least one limitation has however been identified. The authors of the most recent edition of Lewin on Trusts (L Tucker, N Le Poidevin, J Brightwell, 2020, 20th ed, Vol 2, Sweet & Maxwell) at [53-033] state (citation omitted): The principal provision of the 1958 Act is that the trusts may be varied or revoked wholly or partially. There is, however, no power to approve a complete resettlement, and the claim form should not use the word "resettle".
2. The limitation is expressed by the authors of the most recent edition of Jacobs' Law of Trusts in Australia (J D Heydon, M J Leeming, 2016, 8th ed, LexisNexis Butterworths) at [17-07] in the following way: The most substantial limitation on the section stems from the doctrine that it does not confer jurisdiction to create an entirely new trust, as distinct from varying an existing one.
3. In advance of the hearing, I drew counsel's attention to this doctrine. Counsel referred to some of the relevant authorities in his submissions. I will refer to those decisions, and some others, below. There may be some analogy with the distinction recognised in the law of contract between a variation and entry into a fresh contract (cf Tallerman and Company Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93) but in the time available I have not been able to investigate that line of authority.
4. It is not unknown for deeds of trust to confer express powers of variation on the settlor or the Trustee. The authorities on such express powers of variation were, however, not the subject of submission before me, and I have not had time to explore them for myself. But one case, which, as we will see, was later referred to in the variation of trusts legislation authorities, is Re Dyer [1935] VLR 273, a decision of the Victorian Full Court.
5. The case concerned a trust for a charitable purpose, namely, to establish and maintain a permanent orchestra for Victoria. The trust deed conferred a power of variation on the settlor for "all or any part of the trust and powers herein before declared". The trust fund proved inadequate to establish the orchestra and the settlor purported to vary the terms of the trust, giving the income to certain named musical societies. It was held by Macfarlan J, at first instance, that the variations were ineffective, on the ground that they departed from the charitable purposes of the original gift. His Honour's conclusion was upheld by the Full Court.
6. Irvine CJ and Gavan Duffy J stated (at 287): 'Vary' itself, is apt enough to describe the substitution of one trust for another. The deed, however, has to be read as a whole, and on consideration we agree with the views expressed by Macfarlan J.
7. Martin J stated (at 290-291): A power to revoke is common in deeds of this nature, and I cannot believe that the draftsman would not have included such a power had it been intended that the donor was to be entitled to benefit an object other than the one nominated in the deed. What are the limits of the power to vary is a very difficult question, which does not call for determination here, but I consider none of the draft deeds submitted falls within those limits, and that Macfarlan J was right in holding that 'it was impossible to use the moneys in such a way as will depart from the original purpose of the gift'.
8. The cases on the limitation on the power of variation under the UK Act begin with the decision of Wilberforce J in Re T's Settlement Trusts [1964] Ch 158. The case concerned a family settlement made in 1953. The settlement deed provided for a life interest in half of the trust fund in favour of the applicant, with the trust fund otherwise held for the applicant's children on attaining the age of 21.
9. The applicant had two children. The share of the elder child (a daughter) was due to vest in November 1963. In June of that year, the applicant made an application on the grounds that her daughter was "alarmingly immature and irresponsible as regards money". The application sought the transfer of the trust fund to new trustees, to be held on protective trust for the daughter's life, with a gift over to her issue. The trustees were to have extensive powers to advance the capital to the daughter when she attained specified ages.
10. It was argued for the mother that the statutory power was very wide and could be exercised wherever "benefit" was shown. Wilberforce J responded (at 161) (citation omitted, emphasis added): This argument, based on the language of the Act, has much force, but it seems to me necessary to bear in mind the following considerations. The Court of Chancery has never claimed for itself a power to direct a settlement of an infant's property. Indeed, it has more than once been stated authoritatively that it cannot do so. It acquired in 1855 under the Infant Settlements Act a limited jurisdiction to settle an infant's property on marriage, but this has not been extended to other cases. There is no reason to suppose that the absence of the wider jurisdiction was part of the mischief which the Act of 1958 was intended to remedy, and, in view of the well-accepted limits upon the court's jurisdiction laid down by statute and authority, it seems unlikely that it was. I am certainly reluctant to suppose that a whole new jurisdiction has been incidentally conferred by the use of general words.
11. His Lordship then referred to practical considerations (at 161): There are obvious difficulties in attributing so wide a meaning to the Act of 1958. For example, is the court to consult the wishes of the infant? That is, as has been found here, a matter of considerable difficulty, and where, as here, the infant is nearly 21, it would seem preferable, if her wishes can be taken into account, to leave the matter over until she can decide for herself. Or can the court impose a settlement against the infant's wishes? To do this would involve going much further than the court goes under the Act of 1855, and places upon the court a heavy responsibility (which it does not have generally in variation of trusts applications) of considering and estimating the views of other persons (often including parents and medical and psychological experts) as to what is for the infant's benefit. No doubt in one sense or in one view it may be a benefit for a young person not to become possessed of a large sum of money at the age of 21 years, but I think it would be quite wrong for the court simply on such considerations to claim jurisdiction to settle the property.
12. His Lordship continued (at 161-162, emphasis added): It is obviously not possible to define exactly the point at which the jurisdiction of the court under the Variation of Trusts Act stops or should not be exercised. Moreover, I have no desire to cut down the very useful jurisdiction which this Act has conferred upon the court. But I am satisfied that the proposal as originally made to me falls outside it. Though presented as "a variation" it is in truth a complete new resettlement. The former trust funds were to be got in from the former trustees and held upon wholly new trusts such as might be made by an absolute owner of the funds. I do not think that the court can approve this. Alternatively, if it can, I think it should not do so, because to do so represents a departure from well and soundly established principles.
13. His Lordship recorded that after he indicated that this was his view, the parties submitted an alternative proposal for the deferral of the daughter's right to capital. This was to be effected by an amendment to the existing trust deed whereby the vesting of the daughter's interest was to be postponed to a specified date in the future (not revealed in the report) with the existing trustees having power to make advances in the meantime.
14. His Lordship approved this variation. He stated (at 162-163): On the evidence … it appears to me to be a definite benefit for this infant for a period during which it is to be hoped that independence may bring her to maturity and responsibility to be protected against creditors (in fact to a greater extent than she would be protected if she were left to set up a similar trust herself at the age of 21 years) and this is the kind of benefit which seems to be within the spirit of the Act. I desire to make it plain that it is only because a strong case on the facts is made out for protection of this nature that, even to this extent, I am willing, so close to the infant's majority, to interfere with the dispositions of the settlement.
15. Re T's Settlement Trusts was followed by Re Holt's Settlement, (citation is given above). That case concerned a 1959 family settlement. The settlement provided for a trust giving a life interest to a Mrs Wilson and, subject to that life interest, for her children on attaining the age of 21. At the time of the settlement, Mrs Wilson was in her late twenties, with a child about two years old.
16. By 1967, when the application was made, Mrs Wilson was about 35 years of age and had two further children, who had been born in 1960 and 1961. The arrangement for which she sought approval on the children's behalf involved her surrendering her life interest in half of the trust income and, in return, the children's interests being deferred so that their capital would vest at the age of 30, with half of the income to be accumulated until the children reached the age of 25 (or until 21 years from the date of approval of the order). Although the report does not say so, part of the concern was presumably a belief that it would be better for the children to come into their inheritance at a later time.
17. The order which was sought was drafted in the form of a revocation of the existing trusts and the establishment of new ones with the altered terms. The point was taken that the arrangement involved a resettlement, in effect establishing new trusts in place of the old ones. This argument was rejected by Megarry J (at 117): Here the new trusts are in many respects similar to the old. In my judgment, the old trusts may fairly be said to have been varied by the arrangement whether the variation is effected directly, by leaving some of the old words standing and altering others, or indirectly, by revoking all the old words and then setting up new trusts partly, though not wholly, in the likeness of the old. One must not confuse machinery with substance; and it is the substance that matters. Comparing the position before and after the arrangement takes effect, I am satisfied that the result is a variation of the old trusts, even though effected by the machinery of revocation and resettlement.
18. Counsel referred to Re T's Settlement Trusts. Counsel accepted that the question was one of substance and not form, but submitted that the form gave some indication of whether the changes truly represented a variation. His Lordship rejected this argument, reasoning (at 117-118, emphasis added): For myself, I cannot see much force in this; for so much depends on the individual draftsman who prepares the arrangement. One draftsman may choose to effect the arrangement by a series of variations of the existing trusts. Another may prefer to effect precisely the same variations by the formally more radical process of revocation and new declaration. In any event, In re T's Settlement Trusts seems to me to be an entirely different case. There the infant was within 18 days of attaining her majority and obtaining an absolute interest in the trust property. The existing trusts were at their very end, and what in substance was proposed was to make a new settlement of what was on the point of becoming an absolute unfettered interest.
19. The next case is Re Ball's Settlement Trusts [1968] 1 WLR 899. The case concerned a 1958 family settlement. Under the settlement, the settlor had a life interest with a testamentary power to appoint the capital of the trust in favour of his two sons, or the wives or children or grandchildren of those sons (but so that no more than half of the trust fund could be given to one family). In default of appointment, one half share in the trust was to pass to the sons, but if they predeceased the testator, to their issue.
20. At the time of the application in 1968, the testator was still alive, but was 76 years old. The application was for an arrangement removing his life interest and the power of appointment, and replacing this by gifts of half of the trust property to each of his sons for life, with a remainder to their children.
21. Megarry J quoted the passages from Re Dyer set out at [73]-[74] above, and said (at 905, emphasis added): … I borrow with gratitude from the language of Martin J. If an arrangement changes the whole substratum of the trust, then it may well be that it cannot be regarded merely as varying that trust. But if an arrangement, while leaving the substratum, effectuates the purpose of the original trust by other means, it may still be possible to regard that arrangement as merely varying the original trusts, even though the means employed are wholly different and even though the form is completely changed.
22. He then stated (at 905): I have felt some hesitation in the matter, but on the whole I consider that [approving the arrangement] is a proper step to take. The jurisdiction of the Act is beneficial and, in my judgment, the court should construe it widely and not be astute to confine its beneficent operation. I must remember that in essence the court is merely contributing on behalf of infants and unborn and unascertained persons the binding assents to the arrangement which they, unlike an adult beneficiary, cannot give. So far as is proper, the power of the court to give that assent should be assimilated to the wide powers which the ascertained adults have.
23. By way of further explanation, he continued (at 905): In this case, it seems to me that the substratum of the original trusts remains. True, the settlor's life interest disappears; but the remaining trusts are still in essence trusts of half of the fund for each of the two named sons and their families, with defined interests for the sons and their children in place of the former provisions for a power of appointment among the sons and their children and grandchildren and for the sons to take absolutely in default of appointment. In the events which are likely to occur, the differences between the old provisions and the new may, I think, fairly be said to lie in detail rather than in substance.
24. The next case is the judgment of Blackburne J in Wyndham v Egremont [2009] EWHC 2076 (Ch). The case concerned a settlement made within a titled family (the holders of the Baronies of Egremont and Leconfield) in favour of the heir to the titles ("George"). The settlement included the family's ancestral home (Petworth House) which had descended along with the title for generations.
25. The life of the settlement was limited by a vesting date calculated by reference to the lifetimes of the descendants of King George V living in May 1940, plus twenty years. The trust gave George a life interest in the property. If he was still alive on the vesting date, the property vested in him absolutely. Otherwise, he had a power of appointment among his children or remoter issue, or in default of exercise, his male heir. There was an ultimate provision, in the event of all of these trusts failing, for the property to vest in George (or most likely) his legal personal representative.
26. At the time of the application in 2009, George was 26 and unmarried. The vesting date was "relatively imminent" (the likely date was not identified in the judgment, but some descendants of King George V born before May 1940 were still alive in 2009 - most obviously Queen Elizabeth II - and some are still alive).
27. The arrangement which was the subject of the application involved what his Lordship called, with some understatement, "a very considerable" extension to the vesting date. A new vesting date was to be 21 years after the death of the last surviving descendant of King George V (and of an earlier Baron Leconfield) alive at the time of the making of the order (i.e. in 2009) - which would be virtually certain to result the trust continuing into the 22nd century. The gift in favour of George, if he survived to the vesting date (which would have been impossible anyway), was removed. His testamentary power of appointment was retained with some modification of the default provisions, which it is unnecessary to go into for present purposes. If George had no descendants or they died out before the vesting date, there was a gift over to George or his estate.
28. The purposes of the arrangement were said to be twofold (see [9]). First, "in accordance with George's wishes" to enable the continued attachment of "the ancestral estates at Petworth … to the two baronies", so that they "devolve for as long as possible down the senior male line". Second, to defer "very considerable tax charges" upon vesting, under the United Kingdom's capital gains tax legislation, "which could only be met by the sale of a significant part of the ancestral lands as the major constituent of the Fund".
29. His Lordship referred to the "substratum" test stated by Megarry J, but commented (at [22]): That does rather beg what is meant by "the substratum" of the trust and "the purpose of the original trust" and how one is to distinguish these elements.
30. His Lordship went on to refer to House of Lords authority in a revenue case (Roome v Edwards [1982] AC 279). The issue in that case was whether the exercise of a power of appointment under a settlement gave rise to a new settlement, separate from the main settlement, for the purposes of the relevant revenue legislation. Blackburne J quoted from the speech of Lord Wilberforce (with whom, Blackburne J noted, three of the other four Law Lords agreed) as follows: There are a number of obvious indicia which may help to show whether a settlement, or a settlement separate from another settlement, exists. One might expect to find separate and defined property; separate trusts; and separate trustees. One might also expect to find a separate disposition bringing the separate settlement into existence. These indicia may be helpful, but they are not decisive. For example, a single disposition, e.g., a will with a single set of trustees, may create what are clearly separate settlements, relating to different properties, in favour of different beneficiaries, and conversely separate trusts may arise in what is clearly a single settlement, e.g. when the settled property is divided into shares. There are so many possible combinations of fact that even where these indicia or some of them are present, the answer may be doubtful, and may depend upon an appreciation of them as a whole. Since "settlement" and "trusts" are legal terms, which are also used by business men or laymen in a business or practical sense, I think that the question whether a particular set of facts amounts to a settlement should be approached by asking what a person, with knowledge of the legal context of the word under established doctrine and applying this knowledge in a practical and common-sense manner to the facts under examination, would conclude. To take two fairly typical cases. Many settlements contain powers to appoint a part or a proportion of the trust property to beneficiaries: some may also confer power to appoint separate trustees of the property so appointed, or such power may be conferred by law: see Trustee Act 1925, section 37. It is established doctrine that the trusts declared by a document exercising a special power of appointment are to be read into the original settlement: see Muir (or Williams) v Muir [1943] AC 468. If such a power is exercised, whether or not separate trustees are appointed, I do not think that it would be natural for such a person as I have presupposed to say that a separate settlement had been created: still less so if it were found that provisions of the original settlement continued to apply to the appointed fund, or that the appointed fund were liable, in certain events, to fall back into the rest of the settled property. On the other hand, there may be a power to appoint and appropriate a part or portion of the trust property to beneficiaries and to settle it for their benefit. If such a power is exercised, the natural conclusion might be that a separate settlement was created, all the more so if a complete new set of trusts were declared as to the appropriated property, and if it could be said that the trusts of the original settlement ceased to apply to it. There can be many variations on these cases each of which will have to be judged on its facts.
31. Blackburne J continued (at [24]): With that guidance in mind I have no doubt that the alterations to the pre-arrangement trusts contained in the arrangement which I have approved constitute a variation of those trusts and not a resettlement. The trustees remain the same, the subsisting trusts remain largely unaltered and the administrative provisions affecting them are wholly unchanged. The only significant changes are (1) to the trusts in the remainder, although the ultimate trust in favour of George and his personal representatives remains the same, and (2) the introduction of the new and extended perpetuity period.
32. The final case is Wright v Gater [2012] 1 WLR 802, a November 2011 decision of Norris J. The case concerned a statutory trust in favour of a three-year-old child (Rory) arising from the deaths, intestate, of his paternal grandfather and then his father. The statutory trust was for Rory, contingently upon his attaining the age of 18 (or marrying). If the gift to Rory failed, there was a gift over to his father's aunts and uncles (referred to as the "ultimate beneficiaries") in the judgment.
33. The application (initially) by the statutory administrators was for a scheme under which they were to hold the property for Rory until he reached the age of 30. If he failed to attain that age, they would have a power of appointment among his spouse or any of his children; in default, the administrators would have a power of appointment among the ultimate beneficiaries. The reason why this was proposed was that one of the administrators (Ellen, Rory's mother) thought it undesirable that Rory should inherit a substantial sum of money as early as the age of 18.
34. Norris J was not prepared to approve the application in this form for number of reasons. One of the reasons his Lordship gave (at [16]) was: it seemed to me to come dangerously close to (if not to cross) the line between variation and resettlement. Nothing remained of the original statutory trust.
35. His Lordship, however, approved a revised arrangement under which Rory was to receive the income at 18, 10% of the capital on attaining the age of 21, and the balance at the age of 25. Rather than the administrators having the power of appointment, Rory was to have a testamentary power of appointment on turning 18, which would come into play if he did not survive until the age of 25. His Lordship stated that he felt he could approve this revised scheme because it was a "variation and not a resettlement" (at [18]) but did not offer any further explanation for that conclusion.
36. Despite academic questioning (see J W Harris, Variation of Trusts, 1975, Sweet & Maxwell at 63-68) the authorities to which I have referred show that the limitation on the term "variation" is well accepted under the UK Act. There is no reason to read equivalent Australian statutes, which include the NSW Act, any differently. The passage quoted above from Jacobs appears to proceed on that basis. The "substratum" test propounded by Megarry J in Re Ball's Settlement Trusts has been quoted with apparent acceptance at first instance in Queensland (Re Blocksidge [1997] 1 Qd R 234 at 237). Counsel for the plaintiffs in the present case, having had the point drawn to his attention, likewise expressly accepted its existence. I will proceed on that basis.
37. I think that the authorities to which I have referred establish the following propositions. First, the limitation is one that goes to jurisdiction in the sense that if the changes in question amount to more than a "variation" of the subject trust then the Court lacks power to approve the arrangement, no matter what its merits might be. Second, it is a matter of degree. The question is whether the changes are so extensive that the trust in its changed form no longer answers the description of a variation of the existing trust. Third, it is a matter of substance not form.
38. To these propositions I would add a fourth: to say that the changes amount to a resettlement may be a useful aid to analysis, but it is not itself the test. Section 86A does not contain an express exclusion of a variation which amounts to a "resettlement". The question is one of implicit statutory limitation on the term "variation".
39. I agree with Blackburne J that the "substratum" test may be somewhat question-begging. But the test appears to have been accepted in subsequent cases as a convenient shorthand for expressing the distinction between changes which fall within and outside the boundaries of "variation" in the sense used by the enactments in question.
40. I would however point out that the test derives ultimately from a case (Re Dyer) involving changes to a charitable trust. In the law of charitable trusts, the distinction between the charitable purpose of the settlors, which is fundamental and unalterable, on the one hand, and other terms, particularly terms which are administrative in nature, which are not, is well recognised: see Macedonian Orthodox Community Church St Petka Incorporated v Metropolitan Petar [2013] NSWCA 223 at [129]. Private trusts, such as the present, are trusts for persons not purposes. It seems to me, therefore, that when the issue arises in the context of a private trust, the focus must be on changes to the persons benefited and the nature of the benefits provided to them.
41. In my view, there are two factors of particular importance in the present case.
42. The first is the time at which this application is being made. As in Re T's Settlement Trusts, it comes at a point where the trust is at the end of its 50-year design life; the trust property is about to vest as an absolute interest, and the proposal involves a rededication of the trust property for the next thirty years such as an absolute owner would make. Indeed, as appears below, it seems that it is only because of the hope of avoiding the adverse taxation consequences of such a vesting that the application has been made now, rather than letting the trust vest and resettling the property in the desired terms.
43. The second factor is the nature of the changes. As explained in the section 81 application judgment at [79]-[82], the existing terms of the trust were designed to provide benefits in the form of a stream of income which could be shared between family members falling within two generations of family members: Clelia's (the first) and John's (the second). It was designed to cover, in the ordinary course, the whole of the first generation's lifetime, with the expectation that the trust assets would, on vesting, benefit the second generation. True it is that the Trust Deed provided that if John were to die leaving children those children could take his place in the Beneficial Class. But there was no facility for John's generation and his children's generation to benefit alongside each other, as was contemplated for Clelia's generation and John's. In that sense, the benefit from the trust can be seen to have been intended to straddle the first and second generations, but not the third.
44. As events have turned out, it is precisely the inability of the third generation to benefit alongside the second which has led to the proposed changes to the definition of the beneficial class. John wishes, once Ryan and Ruby become adults, to be able to make distributions of income to them as and when they require that income. Even if the Terminal Date were extended, that could not happen, under the terms of the existing trust, as long as John remained alive. This feature of the trust would be even more obvious if, as might have been expected, John had married and had children at an earlier age and those children were now in their twenties or thirties.
45. The terms now proposed will allow Ryan and Ruby, and in due course their children, to benefit alongside John and Crystal. Mario, of course, remains a member of the Beneficial Class. But taking into account what is likely to happen (Megarry J in Re Ball's Settlement Trusts at 95) and looking at the trust income over a 30-year period, it is unlikely that he will benefit in any substantial way. Instead, the income, taken over the 30-year extended life of the trust, will benefit the second generation and the third generation (Ryan and Ruby and any spouses they may have). Probably, as has happened between the first and second generations, the third generation will benefit more as time goes on, and will be in the driver's seat when vesting takes place. Indeed, as the extended Terminal Date approaches, a fourth generation (the children of Ryan and Ruby) may come into the picture. In effect, the trust will be one straddling the second and third generations, with the possibility of the fourth generation coming in at the end.
46. I think a contrast with the facts of Re Ball's Settlements Trusts is instructive. The changes effectively involved a transfer of the life interest from the first generation (the settlor) to his sons (the second generation), with a remainder to their issue (the third generation). But as Megarry J pointed out in the passage quoted at [90] above, the altered specification of the second and third generation's interests lay within the settlor's testamentary power of appointment. No doubt that is what led his Lordship to characterise the changes as ones of detail rather than substance.
47. In his oral submissions, counsel characterised the arrangement in the present case as one "to vary the current trust in a relatively discrete and minor way" which did not "change the substratum nor, indeed, very much else". Counsel relied in particular on the judgment of Blackburne J in Wyndham. But I do not think that that decision has great weight in the present context.
48. There appears to be a recognition in the English authorities that where the trust involves an asset of a special character, such as a historic home, that may affect the characterisation of the nature or "substratum" of the trust: see Lewin on Trusts at [53-059]. Against that background, the decision in Wyndham may have been influenced by a perception that the "substratum" of the trust involved maintaining the family connection with Petworth. But that could hardly be a factor in the present case.
49. If that feature does not explain the decision, then I do not find his Lordship's reasoning persuasive in the present context.
50. In the first place, I do not think the test stated in Roome is particularly apposite. The question here is whether changes made to the terms of a trust cross the boundary between variation and resettlement, not whether the appointment of property under an existing trust deed involves the creation of a new and separate trust; and I find it hard to see why the opinion of a "reasonable businessman" or a "reasonable layman" should be the touchstone.
51. Secondly, the critical change in my view was the elimination of the absolute interest which George was likely to receive upon the vesting of the trust. The practical effect of that change, coupled with the extension of the vesting date into the next century, was to transfer the benefit of the corpus from George to one or more of his descendants in several generations' time. With respect, I find it difficult to characterise those changes as leaving the subsisting trusts "largely unaltered". But if that was a fair characterisation, because George's testamentary power of appointment was preserved, and the decision can therefore be seen as consistent with Re Ball's Settlement Trusts, I have already explained why I consider that the present case, which does not have that feature, is different.
52. In the course of argument, counsel also referred to the decision of the Supreme Court of Victoria in Re Perenna Nominees Pty Ltd (2022) 66 VR 246. That was a case involving the variation of discretionary trusts in a somewhat similar factual context. But the "substratum" issue was not raised, and it is therefore unnecessary to go into the facts for the purpose of precise comparison with the facts of the present case. Nor was the issue considered in Thomas Hare Investments Ltd v Hare (2012) 34 VR 656 or Re Plator Nominees [2012] VSC 284, to which counsel referred in his submissions.
53. For these reasons, on the argument which I have received, I am not satisfied that the changes which would be effected by the deed of family arrangement are properly described as a "variation" of the existing trust, as that term is understood in this area of the law.
54. As a result, I consider that I am unable to approve the application in its current form. But I propose to comment on some further features of the case.

Scope of application

1. In its final form, the relief sought in the summons was: An order under section 86A(1) of the Trustee Act 1925 (NSW) (the Act) approving on behalf of the defendants and further remoter issue (yet unborn) of the first plaintiff the arrangement set out in the Deed of Family Arrangement, agreed by the plaintiffs, annexed and marked "A" (Deed of Family Arrangement).
2. Seeking relief in this form is consistent with the statement of the law by Lord Reid in Holmden. In terms, approval was sought on behalf of all children or potential children of John, as potential replacements for him in the Beneficial Class should he die before the Terminal Date. But counsel's submissions focussed largely on Ryan and Ruby. Counsel contended that they fell within s 86A(1)(a) (as possessors of an "interest" for the purposes of s 86A, but being unable to consent because they are minors) or s 86A(1)(b) (as only contingent possessors of an "interest" for the purposes of s 86A).
3. According to counsel's argument, it was unnecessary to decide whether Ryan and Ruby fell within s 86A(1)(a) or (b), so long as they fell within one or the other, and counsel did not address this issue in any greater detail in his submissions. But I think the issue deserves some further scrutiny.
4. The present trust is one which Brereton JA described as a "modern discretionary trust" (Baba v Sheehan (2021) ACSR 462 at [4]). It involves the establishment, as a shell, of a discretionary trust structure having a lengthy lifespan, with the capital required for trading or investment operations later being provided by way of contribution from those behind the trust, or borrowing underwritten by them. This is quite different from the traditional family settlement upon which the UK Act seems to have been focussed.
5. It might be asked whether the UK Act was intended to encompass such "modern discretionary trusts" at all. I say that because of its statutory history.
6. The report of the Law Reform Committee which preceded the enactment of the UK Act did not recommend making any express general provision for discretionary trusts. But it did recommend provisions for protective trusts having a discretionary element (at [19]): In the case … of a protective trust, whether statutory of otherwise, very comprehensive classes of persons are commonly included as objects of the discretionary trusts on which the property is directed to be held in the event of the failure of the interest of the principal beneficiary. It has been the practice of the Court, in sanctioning modifications under its existing powers, to treat the objects of the discretionary trusts as being interested in the property and therefore entitled to receive some benefit in return for exclusion from any of their potential future rights, even though the event which brings the discretionary trusts into operation has not yet happened (see Re Simmons [1956] Ch 125). Where a discretionary trust has become exercisable it seems reasonable that all its objects should be treated in this way. But we think that where the trust has not yet become exercisable the interests (if such they can be called) of potential objects of the trust may be of a nature too shadowy to deserve consideration; and that in these cases the Court should be free to consider only the benefit to the other persons interested in the trust property and should have a discretion to disregard entirely the interests of those who would be the potential objects of the trust if and when it ever becomes exercisable. …
7. The Committee's view was implemented, as a matter of drafting, by giving express jurisdiction to the Court (in s 1(1)(d)) to grant approval on behalf of discretionary objects in whose favour an appointment of property or income might be made under a protective trust, where the interest of the principal beneficiary had not failed or determined. But there was a proviso (at the end of s 1(1)) that in doing so the Court was not obliged to satisfy itself that the arrangement was for their benefit.
8. At first sight it may seem strange that s 1(1) includes a power to give approval on behalf of contingent discretionary objects of protective trusts, only to provide that such objects' interests do not need to be given any weight. But that is explicable on the basis that approval on behalf of such persons was still required for the purposes of the rule in Saunders v Vautier (cf the discussion in Jacobs' Law of Trusts in Australia at [23-15]).
9. The Committee's recommendations implied that discretionary objects of a protective trust, where the interest of the principal beneficiary had failed or determined (i.e. where the discretion had become exercisable), would have an "interest" for the purposes of subparagraphs (a) or (b). But where the discretion had not become exercisable, they were not to have such an "interest". The position of such "contingent discretionary objects", as I shall call them, was instead to be covered by the special provisions in subparagraph (d).
10. But the Act did not address the position of discretionary objects of ordinary, non-protective, trusts such as the present. Where the discretion had become exercisable, such discretionary objects would have an "interest" for the purposes of subparagraphs (a) and (b), just as discretionary objects of protective trusts would where the discretion had become exercisable. But arguably there was no provision for contingent discretionary objects, because subparagraph (d) was confined to protective trusts. On that view, it might be said that there was a lacuna, in that the Court could not approve arrangements on the behalf of such contingent discretionary objects.
11. Considering the question under the NSW Act creates further complexities. The NSW Act picks up the structure of the UK Act, and there is nothing to indicate that the question of discretionary objects' interests was considered at all when it was enacted. Another possible source of complexity is an unexplained difference between subparagraph (b) of the NSW Act and the corresponding UK subparagraph. The question of how to construe that subparagraph may, therefore, be one on which UK (and other) authorities are of limited assistance. That question may also have a bearing on the construction of subparagraph (a).
12. Seemingly different approaches to the construction of subparagraphs (a) and (b) appear in two of the three cases decided under the NSW Act (compare Campbell v Campbell [2022] NSWSC 554 at [204] with In the Application of Nyasa No 19 Pty Ltd [2023] NSWSC 578 at [27]-[29]). But in none of the cases were the problems to which I have referred raised for consideration.
13. In the present case, Ryan and Ruby are not currently members of the Beneficial Class, but would become members if John were to die before the Terminal Date. They therefore appear to be contingent discretionary objects of a non-protective trust. As such they might fall within the potential lacuna identified above. But this potential issue was not identified in argument. As I do not propose to accede to the application in its current state, I merely note the issue, and other questions as to the application of subparagraphs (a) and (b), for possible later consideration.
14. The possibility of approval being required on behalf of other persons also emerged during the course of the application. In particular, I raised for counsel's consideration the gift over in favour of Norma (and Giselda if she is still alive) which would be triggered if the entire Beneficial Class were to fail before the Terminal Date. Norma is not party to the deed of family arrangement and no application has been made for approval of that arrangement on her behalf. Although her interest in the Trust depends upon a contingency even more remote than that of Ryan and Ruby, it is not different in kind. And her interest does not depend upon the exercise of discretion, as theirs does.
15. Again, it is not necessary to make a final decision. Perpetual Trustees v Barns (cited at [59] above) stands for the proposition that failure to obtain approval from other persons having an interest in the trust is not a reason for refusing relief in relation to the persons for whom approval is sought, if such approval would otherwise be warranted (at [33]-[35]). Norma's interest may create a practical problem for the proponents (or the Trustee), but again that can be left for further consideration by them.

Benefit to Ryan and Ruby

1. If, contrary to the view I have expressed, I was satisfied that the arrangement was one to "vary" the Trust, then, in order to approve the arrangement on behalf of a person, I would need to be satisfied that the carrying out of the order (approving the arrangement on their behalf) would be for their benefit (see s 86B(1)). Even if so satisfied, the Court retains a discretion (as indicated by the words "may, if it thinks fit" in s 86A(1)).
2. Affidavits of John and Crystal were filed along with the original summons. John gave the following reasons for the amendments: 1. A preference that the assets be held on trust until the children are of a mature age. Elsewhere in his affidavit, John expressed concern about the children possibly gaining "control over a large amount of money at a young and immature age". In connection with this, he explained his understanding that on turning 18 years old, "those chosen to get the trust capital at the vesting date could require the Cisera Trust assets to be transferred to them absolutely". 2. A desire for the children to use the assets of the Trust to provide for their children and further family - which John understood, from discussions with his parents, to be the originally intended purpose of the Trust (in addition to providing for the named beneficiaries). 3. A preference that distributions could be made directly from the Trust to the children, as beneficiaries in their own right, during John's lifetime. 4. A desire to support the children's education and living expenses should they (as John understands they intend to) study at university. 5. An understanding that the amendments would allow the Trust "to distribute funds for the benefit of [the] children more tax effectively if it remains a discretionary trust and if [the children] are named beneficiaries". Elsewhere in his affidavit, John set out his understanding of taxation consequences from the "termination" (vesting) of the Trust. This was that it: could constitute a "disposal" for capital gains tax purposes, and that based on current values and under current tax law the tax liability could be in the order of $4.8 million. This would diminish significantly the Cisera Trust assets that could be used to generate the income for my family's education, home and supporting their current way of life, for which Mario and I have worked hard during our lives.
3. Crystal agreed with the reasons given by John. She referred to concerns about financial security (both for her and the children) and supporting aspirations of the children to undertake tertiary study (and it being more beneficial "to have a direct entitlement under the trust while John is alive"). She also emphasised John's concerns about the children possibly obtaining control over a large sum of money, at a young age. Crystal expressed the view that: this could be very problematic for such impressionable young adults and still this could be the case even if some of us elders were alive or had chosen someone outside the family to try to advise them if we were no longer here. Her preference, echoing that of John, was that the money be held on trust until the children reached a more mature age, and are in need of the funds to support and provide for their own families.
4. Elsewhere in her affidavit, Crystal set out her understanding of adverse tax consequences, in almost identical terms to John.
5. Ms O'Rourke, in her affidavit of 14 November, gave evidence that she had formed the opinion that the relief sought was in the defendants' best interests, for reasons including: 1. That the defendants are not currently beneficiaries, but would become such if the relief was granted. 2. That any children of the defendants would not be beneficiaries, absent the relief, but would become such with it. 3. The reasons given by John in his affidavit at specified paragraphs.
6. At the hearing, despite counsel's earlier characterisation of the case, taxation benefits came to occupy centre stage. Counsel read a further affidavit of John, which had been made shortly beforehand. In it, John stated that the estimated CGT upon sale of the Castlereagh Street and Elizabeth Street properties had been revised to around $4.6 million, based on valuation reports (which were in evidence). He annexed to his affidavit what he described as "updated calculations" which had been provided to him by the Trust's accountant.
7. In the calculations, the Trust's interests in the Castlereagh Street and Elizabeth Street properties were valued at $1.71 million and $5.125 million, respectively (an aggregate value of $6.835 million). Taking into account the Trust's cost bases resulted in capital gains for the Trust of $840,000 and (approximately) $4.41 million. Based on those figures, the estimated CGT liability of the Trust was $1.23 million.
8. This figure is well below the $4.6 million figure in the affidavit. The difference, as the calculations make clear, is that the latter figure includes Clemar's capital gain as well as the Trust's. It is not easy to see why Clemar's tax position is relevant, and this issue was not addressed by counsel in his submissions. Nevertheless, the Trust's CGT liability is on any view a significant sum, and I will proceed on that basis.
9. Counsel noted that the income of the Trust was currently being used, through distributions to John, to meet Ryan's and Ruby's school fees. The proposed arrangement would allow distributions to be made directly to Ryan and Ruby once they turned 18. Counsel submitted that the arrangement gave effect to what was already, in substance, occurring, except that it was occurring in a tax inefficient way.
10. Counsel pointed out that an extension of the Trust's vesting date would not eliminate the Trust's CGT liability. That liability would only be "deferred" until 2054, when, if property prices continue to rise, the liability would likely be higher. Strictly speaking, that may be so, but there is no doubt that such a deferral would result in a tax saving in the here-and-now. Counsel himself argued that the extension was for the benefit of Ryan and Ruby because, by not having to pay CGT now, the Trust would have more assets and therefore more income to distribute to them in due course.
11. Counsel squarely contended that a tax benefit of this character should weigh, and weigh heavily, in favour of the application. Counsel submitted that such an approach could be traced back to the report of the Law Reform Commission which preceded the enactment of the UK Act. Counsel relied in particular on the statement by McMillan J in Perenna (at [101]) that it "has been repeatedly affirmed that a Court should not hesitate to approve an arrangement to extend an arrangement for the extension of a trust's vesting date merely because one of the purposes of the arrangement is to avoid, reduce or defer taxation consequences".
12. As McMillan J went on to point out, it of course remained necessary to demonstrate that the extension would actually result in the tax advantage claimed for it. In support of his contention that vesting would give rise to a CGT liability in the present case, counsel referred me to Division 104 of the Income Tax Assessment Act 1997 (Cth). That Division sets out a list of "capital gain tax events" affecting a "CGT asset" (which the Trust's property interests, having been acquired after 1985, would be) and which trigger taxable gains for a specified party to the event. Counsel relied in particular on capital gains tax event E5, defined by s 104-75. This event occurs when a beneficiary becomes absolutely entitled to a CGT asset of a trust.
13. So far so good; but this was only part of the enquiry: it remained necessary to show that the deed of family arrangement would not itself trigger a comparable CGT liability. Counsel asserted that it would not. But when I asked counsel if he had looked at the question, he replied: I have read the various categories [definitions of CGT events]. I can't say that that particular aspect occurred to me while I was doing so, because, in my submission, it could not be conceived that it would be construed in that manner.
14. In the course of the final hearing, I also raised with counsel the question of stamp duty, or "duty" as it is now known (see Duties Act 1997). It seems that under the former English practice, the order made by the Court, which was then understood to effect the variation, was subject to stamp duty: see Re Holt's Settlement at 113-114. I asked whether, by parity of reasoning, the deed of family arrangement, if it went into effect, would constitute a dutiable transaction. Counsel was not able to deal with this issue at the hearing and sought leave to put in a written submission.
15. On 20 November I received that submission, which came from Ms Alyssa Antcliffe, of Antcliffe Scott, the solicitors for the plaintiffs. The memorandum characterised the variation sought in the present case as being "much less extensive" than those in Re Holt's Settlement and as amounting to "minor variations". The memorandum went on to argue that none of the potentially relevant provisions imposing duty were applicable. Ms Antcliffe also argued that, even if duty were levied on the deed of family arrangement, the amount of duty levied would be substantially less than the CGT payable on vesting.
16. The possibility that a beneficiary may inherit the corpus of a trust at too young an age, which has been mentioned by John and Crystal as part of the motivation for the present application, has been recognised as a potentially relevant factor in a case of this kind, but the decision in Re T's Settlement Trusts shows its limitations. In any event, it can hardly be significant in the present case. Ryan and Ruby will only inherit a share of the Trust if John dies before the Terminal Date. If he survives until then, the Trust will vest and John and Crystal will have complete freedom to resettle the assets of the Trust so that Ryan and Ruby will not receive the corpus until they have reached whatever age John and Crystal consider appropriate. If there had been any real concern about John's survival to the Terminal Date, it could readily have been addressed by causing the Trust to vest while John was still alive (counsel suggested that this was not possible within twelve months of the Terminal Date - this does not undermine the point, but in any event, as I read the relevant clause of the Trust Deed, it clearly allowed (and allows) the Trustee to cause the Trust to vest within that period).
17. A similar response may be made to the contention that it would be advantageous for tax-effective distributions to be made directly to Ryan and Ruby once they turn 18. That of course will not happen for a few years yet. But the important point is that it could readily be achieved by John and Crystal if the Trust is allowed to vest.
18. As to the wider claim by John that the general intention behind the Trust was to act as a vehicle for building and sharing the family's wealth over the long term, one might ask why, on Lord Reid's statement of the law in Holmden, it would be relevant. But in Barns, the Victorian Court of Appeal stated (see at [36]) that such considerations should, at least in some cases, be taken into account. There is however no need to go into this any further. Such a claim could be made, at a general level, about any family trust. But as I explained in the section 81 application judgment at [79]-[82], reference to the actual drafting of the Trust Deed suggests that the Terminal Date of 1 January 2024 was deliberately selected. If anything, the intention behind the Deed would appear to be a factor counting against the application.
19. For these reasons, it is quite understandable that counsel's submissions at the hearing focussed almost exclusively on the question of tax benefit. It is plain that the real motivation for the application is to avoid the CGT which would otherwise accrue on vesting.
20. The statement from Perenna upon which counsel relied, and which I have quoted above, refers to tax savings being "one of the purposes" of an arrangement meriting approval. If the issue were decisive, I would wish to consider the relevant authorities a little further, given that, in the present case, tax savings appear to be the central and dominant purpose of the proposed arrangement. But I am prepared to accept for the moment that if a tax advantage, in the form of avoidance of CGT, can be demonstrated, that would be a benefit to Ryan and Ruby which would, prima facie, justify approval on their behalf.
21. It may be accepted that the vesting of the Trust on 1 January 2024 will give rise to a CGT liability of more than $1.3 million. But there will be no utility in approving the deed of arrangement if entry into it generates an equivalent tax liability. That is the real question which is posed by counsel's argument.
22. For my part, I do not think the answer to the question is self-evidently in the negative. As I have said, variation of trusts is not unknown. It seemed to me prima facie unlikely that a set of changes which in substance effected a complete resettlement of the trust property would escape the adverse taxation consequences of such a resettlement merely by being dressed up as a family arrangement between the parties.
23. Of course, it is ultimately a question of interpretation of the relevant revenue statute. But it seems to me that the question required a comprehensive and considered answer. Without meaning to be critical, I do not think I have received that from counsel. There are numerous CGT events listed in Division 104, each one of which no doubt has its own associated body of interpretative authority. And then there may be anti-avoidance provisions. I am particularly concerned because it seems that counsel has been operating on the view that the changes effected by the arrangement are minor, with no effect on the "substratum" of the trust, and I do not, for reasons which I have given, subscribe to that view.
24. So far as the question of duty is concerned, I accept that I have received a comprehensive submission from Mr Antcliffe, which addresses the relevant question. But again, Ms Antcliffe seems to have characterised the changes to the terms of the Trust differently from the way in which I have characterised them. And I have not heard any countervailing argument.
25. As I explain below, I consider that a contradictor should be appointed if the application is to continue. In the absence of such a contradictor, I do not consider that I should reach any final view on the taxation issues which have arisen on the proceedings. At present, I am therefore not satisfied that the family arrangement, if approved, will result in any net tax benefit for Ryan and Ruby (assuming that that is the test).

Presentation of contrary arguments

1. In Wright v Gater, Norris J commented on the procedure to be followed in an application of the present type. His Lordship stated (at [6]-[7]): My approval of this arrangement was sought against the background of a looming deadline ... From the judge's point of view there were some unsatisfactory features in the procedure adopted. First, the matter was put before me as a paper application asking me to approve the variation without a hearing. There may be a truly exceptional case in which this course is appropriate (though I cannot at present think what it might be): but in my judgment the approval of a variation (no matter how apparently straightforward) ought to be considered at a hearing at which proper argument is presented, which the judge can test on behalf of those whose consent he is supplying, and where there is an opportunity to test the evidence upon which the application is founded. Second, the proposed arrangement is promoted by Ellen (as one of [Rory's father's] personal representatives); but she is also Rory's litigation friend. Nobody can doubt the sincerity of the views she has expressed, and it is absolutely plain that she seeks no personal advantage for herself in any of the proposals (notwithstanding she features in the ultimate trust). But I consider it improper to have placed her in this position. She cannot possibly both advocate the arrangement and subject it to independent scrutiny in the sole interest of Rory. The difficulties in her position were mirrored by those of counsel, who found himself both drafting the arrangement and writing an independent opinion in support of it on behalf of Rory, without the advantage of any of the proposals being tested in negotiation or subjected to contrary argument. This is a small (and united) family so that the representation of Rory's individual interest is not easy. But I would have been assisted if Rory's litigation friend had been a family friend or a professional (such as a solicitor) who had instructed separate counsel to undertake entirely independent scrutiny. The instruction of separate counsel is in my view a fundamental requirement.
2. The procedure followed in the present application has given rise to some similar considerations.
3. In the first place, upon reflection, it seems to me that the Trustee should not have been joined as a plaintiff. The real plaintiffs were the three promoters of the scheme, namely John, Crystal and Mario (cf Re T's Settlement Trusts at 160-161). Whether a trustee should ever take an active role in advancing such a scheme does not need to be decided, but I see no reason for CHPL to have done so in the present case. Generally, it seems to me preferable for a trustee to take a neutral position, if only to avoid the possibility of embarrassment or conflict so far as the incurring or assessment of costs is concerned. If, as I have suggested below, it may be necessary for CHPL to act as contradictor in the present case, that only reinforces the desirability of it remaining independent.
4. Secondly, I agree with his Lordship that, in general, independent representation of the persons for whom approval is sought, and the retaining of independent counsel for that purpose, is a fundamental requirement. In the present case, it is not clear that the application, in its final form, was the subject of scrutiny by independent counsel acting for Ryan and Ruby. Ms O'Rourke did, by affidavit, provide reasons for her view that the arrangement, in its final form, was in her clients' best interests. But her affidavit does not indicate that she briefed independent counsel to scrutinise the application, nor to appear at the hearing. Accordingly, there was no opportunity for such counsel to consider the points raised in final submissions which are developed in this judgment.
5. There is a more important point still. In some cases, the appointment and participation of independent counsel may not be enough from the Court's point of view. Even if independent counsel are retained, they may conclude that the application is in the financial interests of the party for whom they appear, in which case they would have no, or very limited, obligations to draw the Court's attention to contrary factors. This is a critical distinction between the role of independent counsel and the role of a contradictor, who is obliged to advance any points which can reasonably be advanced against the application.
6. In my view, the application requires a contradictor if I am to reach a final conclusion on it. The Court needs the benefit of an independent party who can evaluate the taxation arguments upon which the application depends and present submissions. There may also need to be further consideration, or reconsideration, of other points raised in this judgment. It is important that the contradictor should be equipped to test evidence, and to present contrary evidence, as well as to make submissions: cf Application of Walker Corporation Pty Ltd [2022] NSWSC 1609 at [132]-[133]. If the Commonwealth or State revenue authorities are prepared to act, they would be suitable. Otherwise, it should probably be CHPL (with independent solicitors and counsel).

Conclusions and orders

1. I am not satisfied that the Court has power to approve the arrangement which is the subject of the application. Nor am I satisfied, only having heard from the plaintiffs on the question, that that arrangement would necessarily have the tax advantages claimed for it.
2. I am open to further argument on either point, and on the other points which I have raised for possible further consideration. But I consider that any further argument should only take place once a contradictor has been appointed. I will therefore adjourn these proceedings for a short time to allow the plaintiffs to decide whether they wish to proceed with the application, and if so, what arrangements they propose to make for the appointment of a contradictor for the purposes of re-argument on the points which arise.
3. The orders of the Court are: 1. Adjourn the proceedings for further directions to the Expedition List on 8 December 2023, or such other date as may be arranged with my Associate.

Amendments 08 December 2023 - Added Counsel 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: 08 December 2023