Colin Douglas Cameron v Eileen Miriam Jeffress Gabrielle Davidson v Colin Douglas Cameron

Supreme Court of NSW|2014-05-19|Before: Hammerschlag J

ndant C.M. Harris SC - Second, Sixth and Seventh Defendants D.K.L. Raphael - Third Fifth and Eighth Defendants M.K. Meek SC - Fourth Defendant Solicitors: Schurgott Noolan Pty Limited - Plaintiffs Wight & Strickland - First Defendant Diamond Conway - Second, Sixth and Seventh Defendants Penhall & Company - Third Fifth and Eighth Defendants Makinson and d'Apice Lawyers - Fourth Defendant File Number(s): 2013/167453; 2014/146730

INTRODUCTION 1HIS HONOUR: Before the Court are two sets of proceedings being heard together. 2The late Neville Jeffress ("the deceased") died on 13 September 2007 leaving an estate valued at more than $88 M. He made a will on 12 July 2007 probate of which was granted on 22 November 2007 to Colin Douglas Cameron, Godfrey James Martin and John Francis O'Connor the executors and trustees of trusts established under the will. I shall refer to them collectively as the trustees. 3The trustees seek judicial advice and other relief in connection with the management, administration and operation of the trust ("the trustee proceedings"). 4Separately, Emma Siobhan Gabrielle Davidson ("Gabrielle"), born 17 December 1985, the granddaughter of the deceased, seeks orders under the Family Provision Act 1982 (NSW) ("the FPA proceedings").

GENERAL FACTUAL BACKGROUND 5The deceased is survived by his wife, Eileen Miriam Jeffress ("Eileen"), who is presently 77 years of age and in good health, and by two children and five grandchildren. 6His children are Lesley Ann Davidson ("Lesley") and Robert Ian Jeffress ("Robert"). 7His grandchildren are Lesley's children: Gabrielle, Michael James Cormack Davidson born 11 November 1983 and Clare Hazel Rose Davidson born 6 March 1989, and Robert's children: Dylan Robert Langton Collins born 30 January 1979 and Jack Jeffress born 5 September 1992. 8Eileen and all of the deceased's surviving descendants have been joined in the trustee proceedings. 9By cls 3 and 4 of his will the deceased bequeathed to Eileen all real and personal property owned jointly with her and all his personal effects and household chattels. By clause 5, six named legatees received pecuniary legacies, certain shares were bequeathed to Eileen and a sum was settled on the trustees to be distributed to charities. 10By cl 7 the deceased devised and bequeathed all his remaining real and personal estate to the trustees upon trust to pay thereout his "just debts funeral and testamentary expenses and all death estate and succession duties State or federal upon the whole of [his] dutiable estate AND TO HOLD the residue then remaining (hereinafter called [his] "Trust Estate") until the date of distribution" upon trusts: (a)to pay an indexed amount of $300,000 per annum to Mrs Jeffress for her life time (cl 7(a)); (b)to pay an indexed amount of $135,920 per annum to Lesley until the date of distribution (cl 7(b)); (c)in their sole discretion to make payments for the maintenance, education and advancement of his grandchildren until the date of distribution (cl 7(d)); 11Clause 7(e) provides that on the fifth anniversary of the deceased's death ("the date of distribution") the trustees must, after excluding the amount set aside for the payment of the indexed amount to Eileen, divide the remainder into four equal parts: one part for Lesley, one part for Robert and two parts for his grandchildren who were living at the date of distribution and attain or shall have attained the age of 30 years. 12Clause 7 (which, as is apparent, contains some drafting infelicities) goes on to provide: "Each such child with the exception of GABRIELLE DAVIDSON shall be held by such child for their own use and benefit. In the case of GABRIELLE DAVIDSON I direct that this share shall be held by my said son ROBERT IAN JEFFRESS UPON TRUST to invest same and to pay out such income to or for the benefit of the said GABRIELLE DAVIDSON during her lifetime such amounts and at such intervals as the said ROBERT IAN JEFFRESS shall from time to time in his absolute and unfettered discretion think necessary for her to lead a lifestyle to which she is accustomed and upon her death to pay the capital and all income accrued thereon to the said ROBERT IAN JEFFRESS for his own use and benefit absolutely. PROVIDED THAT if the trusts of a share or shares referred to in this paragraph fail because no person attains a vested interest in that share or those shares (with the exception of GABRIELLE DAVIDSON) then from the time of that failure that share or those shares is or are added equally to the other share or shares the trusts of which have not then so failed, and this provision applies to both the original shares and to shares which have increased as a result of the application of this provision." 13In cl 8 of the will the deceased directed the trustees at all times to retain adequate and sufficient funds in the trust estate to ensure payment of the income amounts provided for in cls 7(a) and (b). 14Clause 16 of the will provides, relevantly, that the trustees may appropriate such part of the trust estate as they consider sufficient as a fund to meet from its yearly income the annuities given by the will and the cost of administering the fund. 15The date of distribution was 13 September 2012. 16As at 15 January 2013, the trustees had made capital distributions to Robert, Lesley and Dylan totalling $44.5 M. 17Amongst the property left by the deceased were shares in his private company NJRL Holdings Pty Ltd ("NJRL"). 18In accordance with the trustees' program to turn the assets of the estate into cash NJRL was placed into liquidation and it is expected that the liquidator will make a distribution exceeding $42 M to the trust estate. 19The trust income for the year ended 30 June 2014 will be approximately $800,000. 20The net income of the trust estate for the same period will be $48,533,295. 21The trustees were represented by Mr M S Wilmott SC and B L Jones of counsel. Eileen was represented by a solicitor, Mr R.E. Heyblok. Lesley, Michael and Clare were represented by Mr C.M. Harris SC; Robert, Dylan and Jack were represented by Mr D K L Raphael of counsel and Gabrielle was represented by Mr M.K. Meek SC.

Judicial advice 22Section 63(1) of the Trustee Act 1925 (NSW) provides: A trustee may apply to the Court for an opinion advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument. 23The trustees wish, pursuant to cls 8 and 16 (or both), to set aside the sum of $12 M (which includes $1 M for anticipated administration costs) to ensure payment of the annuity to Mrs Jeffress. 24By prayer 1 of their Second Further Amended Summons filed 8 May 2014 the trustees seek judicial advice that they would be justified in acting as so contemplated. 25They have taken actuarial advice, by way of reports of Thomson Actuarial Pty Ltd dated 9 December 2012 and 21 August 2013 respectively, that this amount is adequate and sufficient. 26No party challenges the entitlement or propriety of the proposed course of action of the trustees. No party puts that it is inappropriate for the advice sought to be given. 27Section 63(1) of the Trustee Act is an appropriate vehicle for the seeking of this advice: Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 at 89. 28I am satisfied that the advice is appropriately sought and that it is appropriate to give it. The trustees are justified in setting aside the sum of $12 M to meet the amounts to which Eileen is entitled in accordance with cl 7 of the will. Upon her death, the balance remaining in their hands will properly be distributable in accordance with cl 7(e) of the will.

ADVANTAGEOUS DEALINGS 29Section 81 of the Trustee Act 1925 (NSW) provides: Advantageous dealings (1)Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure, or transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust, or by law, the Court: (a) may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, including adjustment of the respective rights of the beneficiaries, as the Court may think fit, and (b) may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne as between capital and income. (2)The provisions of subsection (1) shall be deemed to empower the Court, where it is satisfied that an alteration whether by extension or otherwise of the trusts or powers conferred on the trustees by the trust instrument, if any, creating the trust, or by law is expedient, to authorise the trustees to do or abstain from doing any act or thing which if done or omitted by them without the authorisation of the Court or the consent of the beneficiaries would be a breach of trust, and in particular the Court may authorise the trustees: (a) to sell trust property, notwithstanding that the terms or consideration for the sale may not be within any statutory powers of the trustees, or within the terms of the instrument, if any, creating the trust, or may be forbidden by that instrument, (b) to postpone the sale of trust property, (c) to carry on any business forming part of the trust property during any period for which a sale may be postponed, (d) to employ capital money subject to the trust in any business which the trustees are authorised by the instrument, if any, creating the trust or by law to carry on. (3)The Court may from time to time rescind or vary any order made under this section, or may make any new or further order. (4)The powers of the Court under this section shall be in addition to the powers of the Court under its general administrative jurisdiction and under this or any other Act. (5)This section applies to trusts created either before or after the commencement of this Act. 30Perhaps surprisingly (or perhaps not given other infelicities displayed by the will), the will does not give power to the trustees to accumulate the whole or any part of the income of the trust estate. 31There has been identified in a number of authorities, in particular in the decision of Hill J in Davis v FCT (1989) 86 ALR 195, an anomaly in the income tax position of trust beneficiaries. Hill J suggested legislative reform but this has not happened. 32Division 6 of Pt III of the Income Tax Assessment Act 1936 (Cth) ("the Act"), comprising ss 95AAA to 102, concerns the taxation of trust income. 33Section 95 defines net income, in relation to a trust estate, relevantly to mean "the total assessable income of the trust calculated under this Act as if the trustee were a taxpayer in respect of that income", less allowable deductions (not presently relevant). 34Section 97(1)(a) of the Act provides, relevantly: ...where a beneficiary of a trust estate who is not under any legal disability is presently entitled to a share of the income of the trust estate: (a) the assessable income of the beneficiary shall include: (i) so much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was a resident; and (ii) so much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was not a resident and is also attributable to sources in Australia" 35A beneficiary is presently entitled to, and has an interest in possession in, trust income, if the beneficiary can demand payment of it from the trustee, which is the case where the income is legally ready for distribution and the beneficiary would have a right to payment if the beneficiary were not under a disability. Whether a beneficiary is so entitled is a matter of trust law. The terms of the trust instrument will usually govern the position. See: FCT v Whiting (1943) 68 CLR 199 at 216; Taylor v FCT (1970) 119 CLR 444 at 452; Bamford v FCT (2010) 240 CLR 481; Cajkusic v FCT (2006) 155 FCR 430. 36It is settled that section 97 operates to make a beneficiary presently entitled to a share of trust income assessable on an equivalent proportion of the net income of the trust: Zeta Force Pty Ltd v FCT (1998) 84 FCR 70. 37Self-evidently, the income of a trust according to trust law may be quite different to, and significantly less than, the net income of the trust estate. 38Anomalously, in such a case, the beneficiary will be assessed on a proportion of the net income of the trust estate even though the beneficiary is only actually entitled to payment of the income of the trust according to trust law. 39This is the position in casu. 40The trust income for the financial year ending 30 June 2014 is about $800,000. 41The distribution received in respect of the winding up of NJRL is expected to produce net income to the trust of $48,533,295, upon which the beneficiaries presently entitled (which include Eileen) will be assessed on a proportional basis. 42Using round figures, Eileen is presently entitled to $350,000 out of a total of $800,000 of trust income, that is, 43.75%. She will however be subject to pay tax on the same percentage of $48,533,295, namely $21,233,316. This means on current tax rates she will be liable to pay tax of $3,608,497 but will only have been entitled to actual payment of $350,000. There are similar consequences with respect for Gabriel, Clare and Jack. 43This outcome, it seems to me, is inimical to the intention of the deceased. 44If the terms of the trust were varied so as to permit the trustees to accumulate all the income of the trust and then to pay it, otherwise in accordance with the trusts to the beneficiaries, it seems, and all of the parties having taken advice appear to be satisfied, that the anomaly will be removed. This is because in that event there will be no income of the trust to which any of the beneficiaries will be presently entitled and the trustees will be assessable on the entire income of the trust. If it be relevant, the total amount of tax payable will be the same, but the identity of those who will be assessed on the income on which it is to be paid will differ. 45Of course, whilst I have no reason to doubt the accuracy of what is conveyed as the tax position, these reasons do not determine it. 46The trustees move the Court, and all of the beneficiaries have provided written consents, for an order that the trustees be empowered and authorised to amend the terms of the trust by inserting provisions giving the trustees power to accumulate the whole or any part of the income of the trust estate and to pay such amounts of accumulated income to the beneficiaries in accordance with the trusts established under it and also allowing them to pay the amounts due under clause 7(a) out of capital. 47As I have earlier said, there is no power in the trustees under the instrument of trust to accumulate income. There is no power in them to amend the terms of the instrument of trust. 48Under s 81(1) of the Trustee Act the Court may, absent any power in a trust instrument, confer power on the trustees to effect any sale, lease, mortgage, surrender, release, disposition, purchase, investment, acquisition, expenditure or transaction which in its opinion is expedient. 49In James N Kirby Foundation v Attorney-General (NSW) (2004) 62 NSWLR 276, White J concluded that an amendment to a trust deed falls within the definition of "transaction" in s 81(1) of the Trustee Act. Campbell J (as his Honour then was) reached the same conclusion in Stein v Sybmore Holdings Pty Ltd [2006] NSWSC 1004. See also Robert Thomas Grant as trustee of the Grant Family Testamentary Trust [2013] NSWSC 1603 at [39] per Slattery J. The Court's attention was however drawn to Re Dion Investments [2013] NSWSC 1941 in which Young AJ reached a different conclusion, disagreeing that "transaction" in s 81(1) extends to amendment of the trust deed. It is not necessary in the present case to delve into the controversy. 50Here, the transaction (or transactions) which would, but for an order, be beyond the power of the trustees is (or are) the accumulation of income of the trust and payment out of it to beneficiaries. These proposed actions also fall within the descriptions "acquisition" or "expenditure" in s 81(1), as the case may be. 51Section 81(2) expressly provides for an alteration, whether by extension or otherwise of the trusts or powers conferred on the trustees by the trust instrument, so as to permit the otherwise unauthorised transaction. The present orders are within power even if Young AJ's conclusion is correct. 52I am satisfied that it is expedient and in the interests of at least some of the beneficiaries, in particular Eileen, for the orders sought to be made.

THE FPA PROCEEDINGS 53The Family Provision Act 1982 (NSW) ("the FPA Act") commenced operation on 1 September 1983 and applies in relation to a deceased person who died after that date but before 1 March 2009 from which date the provisions of the Succession Act 2006 (NSW) applied. 54The deceased having died on 13 September 2007, the FPA Act applies. 55Section 7 of the FPA Act provides that: Subject to section 9, on an application in relation to a deceased person in respect of whom administration has been granted, being an application made by or on behalf of a person in whose favour an order for provision out of the estate or notional estate of the deceased person has not previously been made, if the Court is satisfied that the person is an eligible person, it may order that such provision be made out of the estate or notional estate, or both, of the deceased person as, in the opinion of the Court, ought, having regard to the circumstances at the time the order is made, to be made for the maintenance, education or advancement in life of the eligible person. 56Section 9(1) provides that: (1) Where an application is made for an order under section 7 by an eligible person who is such a person by reason only of paragraph (c) or (d) of the definition of eligible person in section 6 (1), the Court shall first determine whether, in its opinion, having regard to all the circumstances of the case (whether past or present), there are factors which warrant the making of the application and shall refuse to proceed with the determination of the application and to make the order unless it is satisfied that there are those factors. 57Section 6 defines "eligible person" relevantly to mean, in relation to a deceased person: (d) a person: (i) who was, at any particular time, wholly or partly dependent upon the deceased person, and (ii) who is a grandchild of the deceased person or was, at that particular time or at any other time, a member of a household of which the deceased person was a member. 58Under s 16(1)(b) an application for relief under the FPA Act in relation to a deceased person must be made within 18 months after the death of the deceased person or within such further period as the Court may, having regard to all of the circumstances, by order, allow. The Court may not make an extension order unless the parties to the proceedings have consented or sufficient cause is shown for the application not having been made within the period. 59Practice Note SC Eq 7 applies to all applications under the FPA Act and imposes procedural requirements in relation to such applications including notices of the application being given to eligible persons and the provision by the executors of prescribed information including as to the assets and liabilities of the deceased at the date of death. 60Section 20(1) and (2) of the FPA Act provides that: (1) On an application in relation to a deceased person, the Court may disregard the interests of any eligible persons who have not made an application in relation to the deceased person. (2) The Court shall not disregard the interests of an eligible person unless: (a) notice of the application before it and of the Court's power to disregard those interests has been served upon the eligible person in the manner and form prescribed by rules of court, or (b) the Court has determined that service of such a notice on that person is unnecessary, unreasonable or impracticable. 61With one possible, and in my view immaterial exception, to which reference is made below, all eligible persons are parties to these proceedings. 62The will makes provision for Gabrielle by way of a discretionary trust of which Robert, her uncle, is trustee. The trust is as to income only, with the capital and any accumulated income reverting to Robert upon her death. 63Gabrielle moves the Court for orders, pursuant to s 7 of the FPA Act, in the following terms: Deleting from clause 7(e)(iii) on page 7 of the will the words: Each such child with the exception of GABRIELLE DAVIDSON shall be held by such child for their own use and benefit. In the case of GABRIELLE DAVIDSON I direct that this share shall be held by my said son ROBERT IAN JEFFRESS UPON TRUST to invest same and to pay out of such income to or for the benefit of the said GABRIELLE DAVIDSON during her lifetime such amounts and at such intervals as the said ROBERT IAN JEFFRESS shall from time in his absolute and unfettered discretion think necessary for her to lead a lifestyle to which she is accustomed and upon her death to pay the capital and all income accrued thereon to the said ROBERT IAN JEFFRESS for his own use and benefit absolutely and replacing those words with: "Each such share shall be held by such child for their own use and benefit absolutely." and Deleting from clause 7(e)(iii) on page 7 of the will the symbols and words: "(with the exception of GABRIELLE DAVIDSON)". 64I am satisfied that the Court has jurisdiction to make the orders sought, that this is an appropriate case in which the application should be allowed out of time, that Gabrielle is an "eligible person", that there are factors warranting the making of the application, that the provision out of the estate of the deceased is inadequate and that the provision sought to be made is appropriately to be made in the present case. 65All parties consent to the application being brought out of time. In any event, there is adequate explanation for the delay. Robert is the beneficiary affected by the proposed provision and he consents thereto. Gabrielle has not engaged in any unconscionable conduct and she has a good case for provision. The trustees and other parties do not oppose the substantive relief sought. 66The orders will place Gabrielle in the same position as the other grandchildren. 67The deceased displayed concern and assumed a significant degree of responsibility for Gabrielle's health, education, lifestyle and general wellbeing. Clearly, she would be regarded as a natural object of testamentary disposition. She is, of course, named as a beneficiary in the will of the testator. 68Over an extended period the deceased made financial provision for Gabrielle, including paying for primary school and high school fees and extra-curricular activities. After moving out of high school at the beginning of Year 12, due to a medical condition, the deceased paid for Gabrielle to have private tutoring and in at least 2001, 2002, 2004 and 2006 the deceased paid for significant medical and hospital fees relating to her treatment. On one occasion, the deceased provided $120,000 for this purpose. He also paid for treatment she received at various times between 2002 and 2005 in private hospitals. He also paid for Gabrielle to travel throughout Europe on a study break for eight months and gave her a sum of $20,000 on her twenty-first birthday (the same gift he gave to all his grandchildren). She has substantially recovered from the medical condition which necessitated this treatment, but she fell behind her peers in aspects of her studies, work, finance and personal relationships, a circumstance warranting this application. She has accumulated very little wealth or resources. 69There is comprehensive information before the Court as to the assets and liabilities of the trust estate including distributions which have been made. It is a substantial estate and in the scheme of the relative wealth of her family, the provision for her is manifestly inadequate. 70At the end of the hearing, counsel for Lesley informed the Court of the existence of one Elisa Francis Elwin ("Elisa"), who might be an "eligible person". Elisa is the daughter of Eileen's brother and his first wife. In about 1966 Elisa, who had been living with her parents in America, came to live with the Jeffress family in their house at Balgowlah. Elisa was then four years old. Lesley says that Elisa was treated as if she were a member of the family. She moved out about three years later to another street in Balgowlah where she lived with her father and his second wife. She apparently lives in Sydney and owns and manages a children's magazine. She had not been given notice of the FPA proceedings. In the circumstances described, I consider that any interest Elisa may have is so tenuous that it may safely be disregarded. I determine that service on her of notice is unnecessary.

COSTS 71All parties agree that in the trustee proceedings the trustees' costs are to be paid out of the estate on the indemnity basis and the costs of all other parties are to be met by the estate on the ordinary basis. 72On behalf of Gabrielle it was put that the appropriate order in the FPA proceedings is that she pay the costs of the trustees referable to her claim on the indemnity basis and the costs of the other parties to the trustee proceedings referable to her claim on the ordinary basis.

Trustee proceedings (1) In the Court's opinion, the plaintiffs are justified in setting aside the sum of $12 M to meet the amounts to which the first defendant, Eileen Miriam Jeffress, is entitled in accordance with cl 7 of the will of Neville Jeffress made on 12 July 2007. (2) The Court orders that the plaintiffs are empowered and authorised, to amend the terms of the trusts established under the will as follows: Inserting a new clause 9(h) that provides: notwithstanding anything in clauses 7 and 11, the trustees shall have the power to accumulate the whole or any part of the income of my Trust Estate and to pay such amounts of accumulated income to the beneficiaries in accordance with the trusts established under clauses 7 and 11 Inserting a new clause 9(i) that provides: notwithstanding anything in clauses 8 and 16, to pay the amounts due under clause 7(a) out of the capital of my Trust Estate (3) Without affecting any orders previously made in favour of Gabrielle with respect to costs, the costs of the plaintiffs are to be paid out of the estate on an indemnity basis and the costs of all other parties are to be met by the estate on the ordinary basis.

FPA proceedings 73The Court orders that: (1) Pursuant to s 16(2) of the Family Provision Act 1982 (NSW) the time for the making of the plaintiff's claim for provision or further provision under the Family Provision Act 1982 (NSW) be extended until 15 May 2014; (2) Pursuant to s 20(2) of the Family Provision Act 1982 (NSW) dispense with the requirement for the executors to serve notices of the plaintiff's claim on any person who, in the opinion of the executors, may be an eligible person; (3) The plaintiff pay the costs of the trustee/executor defendants and the costs of the other parties to the trustee proceedings referable to her claim in the FPA proceedings on the ordinary basis. (4) Pursuant to s 7 of the Family Provision Act 1982 (NSW) provision or further provision be made in favour of the plaintiff Emma Siobhan Gabrielle Davidson (Gabrielle Davidson) as follows: (a) By deleting from clause 7(e)(iii) on page 7 of the will the words: Each such child with the exception of GABRIELLE DAVIDSON shall be held by such child for their own use and benefit. In the case of GABRIELLE DAVIDSON I direct that this share shall be held by my said son ROBERT IAN JEFFRESS UPON TRUST to invest same and to pay out of such income to or for the benefit of the said GABRIELLE DAVIDSON during her lifetime such amounts and at such intervals as the said ROBERT IAN JEFFRESS shall from time in his absolute and unfettered discretion think necessary for her to lead a lifestyle to which she is accustomed and upon her death to pay the capital and all income accrued thereon to the said ROBERT IAN JEFFRESS for his own use and benefit absolutely and replacing those words with: Each such share shall be held by such child for their own use and benefit absolutely; and (b) By deleting from clause 7(e)(iii) on page 7 of the will the symbols and words: (with the exception of GABRIELLE DAVIDSON).

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 June 2014

Family Provision Act 1982(NSW)

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