Dawson v Dawson [2019] NSWSC 826 | Case summary

Dawson v Dawson [2019] NSWSC 826 | Case summary | Zoe

Judgment

The Dawson Superannuation Fund (Fund) was established in 2005 by the late Peter Robert Dawson and his wife, Estelle Dawson (the first defendant), who were members and the trustees of the Fund.
Prior to Peter Dawson's death, his son, Tony Allen Dawson (the plaintiff), was appointed a trustee of the Fund in Peter Dawson's place. At that time, the plaintiff was his father's financial manager and guardian and held his power of attorney.
Peter Dawson died on 24 November 2015. Some years later the first defendant and the executor of Peter Dawson's estate, George Holland (the second defendant), signed a Deed of Confirmation in relation to the Fund dated 6 April 2018 which purported to ratify the appointment of the second defendant as a trustee of the Fund to replace the plaintiff with retrospective effect from the date of Peter Dawson's death (Deed of Confirmation).
The plaintiff disputes the appointment of the second defendant and has commenced these proceedings seeking declarations that he and the first defendant remained a trustee after his father's death and that the second defendant is not a trustee of the Fund. He also seeks an injunction restraining the first defendant from taking any further action in relation to the plaintiff's status as trustee of the Fund, and an order for the provision and delivery up of records and accounts of the Fund.
The defendants accept that the plaintiff was validly appointed as a trustee of the Fund on 17 March 2014 but contend that his appointment ended on the death of Peter Dawson, and that the second defendant's appointment was valid and necessary due to the trustee requirements for a self-managed superannuation fund (SMSF) with two members under the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act).
The particular issues in dispute that need to be determined are: 1. whether the plaintiff was appointed a trustee of the Fund in his personal capacity or in his capacity as power of attorney for Peter Dawson; 2. whether the plaintiff's appointment as trustee of the Fund has ceased (either following the death of Peter Dawson or at some later date); and 3. whether the second defendant was validly appointed as trustee of the Fund as a replacement of the plaintiff (either with effect from the death of Peter Dawson or some later date).
For the reasons that follow, I have concluded that the plaintiff remained a trustee of the Fund after the death of Peter Dawson and the second defendant's purported appointment, as referred to in the Deed of Confirmation, was not a valid appointment under the terms of the Fund Deed.
There was debate at the hearing and in written submissions about whether, upon Peter Dawson's death, the Fund became a superannuation fund with one member as contended by the plaintiff, or whether it remained a two-member fund, as contended by the defendants.
The issue in these proceedings is whether the plaintiff or the second defendant is a trustee of the Fund. That issue is determined by a consideration of the provisions in the Fund deed dated 1 July 2005 (Fund Deed) that deal with how trustees cease to hold office and how they are appointed, as applied to the facts in this case. It is not determined by identifying which of the plaintiff and the second defendant should hold the office of trustee to ensure the Fund remains a SMSF, which in turn, depends on whether the Fund is a one or two-member fund for the purposes of the SIS Act. Further, neither party sought declaratory or other relief concerning the number of members of the Fund.
Accordingly, whether the Fund is a superannuation fund with two members or only one member is not an issue that needed to be determined in this case although, given it was the subject of debate, I have provided a summary of my views on the topic in these reasons.

[4]

Facts

The Fund was established by the Fund Deed on 1 July 2005.
When the Fund was created in 2005, Peter Dawson and the first defendant were married. The plaintiff is the son of Peter Dawson and his previous partner, Doreen Cochrane.
In early 2012, Peter Dawson and the first defendant separated and she commenced proceedings in the Family Court seeking a final settlement of all property interests between them, which included their interests in the Fund (Family Court proceedings).
On 18 October 2012, Peter Dawson made his last will in which he appointed the second defendant, who is the son-in-law of the first defendant, as executor.
On 15 June 2013, Peter Dawson granted the plaintiff his enduring power of attorney. On 16 September 2013, the plaintiff was appointed Peter Dawson's case guardian in the Family Court proceedings.
On 19 November 2013, the plaintiff was appointed Peter Dawson's financial manager and guardian pursuant to orders made by the Guardianship Tribunal due to Peter Dawson's loss of capacity from vascular dementia.
On 4 March 2014, final orders were made by consent resolving the Family Court proceedings (Consent Orders).
The Consent Orders required the parties to appoint the plaintiff a trustee of the Fund in place of Peter Dawson and required the first defendant and the plaintiff, in their capacity as trustees of the Fund, to undertake certain acts which, ultimately, would result in the Fund assets being distributed and the first defendant ceasing as a member and trustee of the Fund. Those acts include selling hotel properties and land at Moonan Flat and distributing the net proceeds into the member accounts of Peter Dawson and the first defendant, assessing all liabilities of the Fund and distributing the balance of the Fund's operating account between Peter Dawson and the first defendant's member accounts, and the first defendant rolling her Fund entitlements into another fund of her choosing and resigning as a trustee of the Fund.
In accordance with the Consent Orders, on 17 March 2014 the plaintiff and the first defendant executed a deed implementing a change of trustee for the Fund (March 2014 Deed), whereby the plaintiff and the first defendant became the trustees in place of the first defendant and Peter Dawson.
In early to mid-2014, the plaintiff and the first defendant undertook the sale of the hotel properties and deposited the net sale proceeds into the Fund bank account as contemplated by the Consent Orders. The sale of the Moonan Flat land was delayed due to a dispute about the subdivision of the land and Supreme Court proceedings brought against Peter Dawson's estate and the plaintiff and first defendant as trustees of the Fund. On 23 March 2018, those proceedings were resolved at mediation.
On 24 November 2015, Peter Dawson died. The second defendant was granted probate of his estate on 6 April 2017. The first defendant was the primary beneficiary under the will. The plaintiff has commenced proceedings for a family provision order out of the estate, which are not relevant to the issues in these proceedings.
In April 2016 and May 2017, the plaintiff and the first defendant signed trustee declarations in respect of the Fund.
On 9 May 2017, DFK Crosbie, the accountant and the administrator for the Fund (Fund Accountant), sent the plaintiff a copy of the Fund's 2016 financials which identified the withdrawal benefits for Peter Dawson's estate as $1,387,780 and for the first defendant as $805,412.
Sometime in early 2018, the Fund Accountant became aware that the second defendant, and not the plaintiff, had been appointed as the executor of Peter Dawson's estate and he instructed lawyers to prepare documents to effect a change of trustee from the plaintiff to the second defendant. The Fund Accountant then sent an email to the plaintiff and his solicitor on 14 March 2018 advising of the proposed change in trustee in the following terms (14 March email): "Hi Tony + Rachael Please find attached most recent governing rules of the Dawson Superannuation Fund. We are currently having the trustees of the fund updated to add George Holland (LPR for Peter Dawson) and remove Tony Dawson (POE for Peter Dawson). I have attached DRAFT copies of these documents. Please do not hesitate to contact me if you require any further information. Thank you."
The 14 March 2018 email attached a draft deed of confirmation and undated and unsigned trustee resolutions which stated that the first and second defendants were the current trustees of the Fund and that they wished to confirm and ratify a prior change of trustee. The draft deed of confirmation referred to the change of trustee occurring on 24 November 2015, being the date of Peter Dawson's death, and included the plaintiff as a party to the deed, and an execution block for the plaintiff to sign, as "Former Trustee".
On 16 March 2018, the plaintiff's solicitor wrote the Fund Accountant advising that the plaintiff did not consent to any change of trustee, whether by removal or appointment, and asked that documents relating to the Fund be provided to him. It was shortly after this that the plaintiff attended the mediation of the Moonan Flat land dispute and, with the first defendant, signed the heads of agreement to settle the proceedings. According to the plaintiff's unchallenged evidence, they did so in their capacity as trustees of the Fund. The second defendant also signed in his capacity as executor of the estate of Peter Dawson.
On 6 April 2018, despite the advice from the plaintiff's solicitor that the plaintiff did not consent to a change of trustee, the first and second defendant signed the Deed of Confirmation which identifies the first defendant as the sole member and the first defendant and plaintiff as the "Former Trustee" of the Fund. The Deed of Confirmation also includes a provision purporting to confirm and ratify a prior change of trustee on 24 November 2015 when the "Former Trustee" ceased and the first and second defendants became the trustees of the Fund. The Deed of Confirmation removed the plaintiff as a party and changed the execution block for the Former Trustee to refer to the first defendant, rather than the plaintiff.
Pausing there, the defendants did not adduce evidence of any act or decision taking place on 24 November 2015 to change the trustee of the Fund. Their position appears to be that this change occurred automatically or retrospectively as a result of Peter Dawson's death. For example, in an email dated 6 July 2018, from the Fund Accountant to the plaintiff's solicitor, it was asserted that, on Peter Dawson's death, the plaintiff's power of attorney ceased and as a result, the second defendant (as executor) was appointed to act as Peter Dawson's trustee.
On 16 August 2018, the plaintiff commenced these proceedings after further correspondence between the parties' solicitors.
On 20 September 2018, Hallen J made orders by consent restraining the first defendant from taking any further action with respect to the plaintiff's status as trustee of the Fund and restraining the first and second defendants from dealing with or taking possession of or in any way dispersing the assets of the Fund without the consent of the plaintiff until further order of the Court.

[5]

Fund Deed

Clause 1.1 of the Fund Deed defines "Member" to mean the member who is a party to the Fund Deed, which were Peter Dawson and the first defendant, and any other person who was admitted by the trustee to participate in the Fund. No other members were admitted by the trustee to participate in the Fund in this case.
Clause 1.1 defines "Trustee" to mean the trustee named in the Fund Deed, (which, at the time it was executed, was Peter Dawson and the first defendant) or any other trustee of the Fund for the time being.
Clause 1.2 of the Fund Deed provides that terms used in the Fund Deed which are defined in the SIS Act have the same meaning in the Fund Deed.
The sole or primary purpose of the Fund is stated, in clause 3 of the Fund Deed, to be to provide old age pensions to or in respect of members in the event of their retirement or in the event of the death of member, to a member's dependents (which are defined to include a spouse and a child).
Clause 4 relates to a member's participation in the Fund and provides that the members appoint the trustee as their attorney to do anything permitted by the Fund Deed and for any consent, approval or agreement given by a member to be binding on an executor of a member: clauses 4.1(i) and (j).
Clause 4.2(a) relates to cessation of membership and provides that a member ceases to be a member of the Fund when all of the benefits of the member are paid or otherwise satisfied or dealt with under the Fund Deed. The defendants rely on clause 4.2(a) in support of a submission that Peter Dawson remained a member of the Fund after his death as his benefits have not been paid out or otherwise satisfied or dealt with under the Fund Deed.
Clause 6.1 of the Fund Deed deals with trustees, including their appointment and circumstances in which they will cease to hold office. Clause 6.1(a) reflects the provisions of ss 17A(1) and (2) of the SIS Act and sets out who may be a trustee where the fund has only one member or where it has more than one member.
Clause 6.1(b) allows for the trustees to appoint an additional or substitute trustee of the Fund, which appointment must be in writing and in compliance with superannuation laws.
Clause 6.1(c) sets out four circumstances in which a trustee will cease to hold office. It provides that a trustee holds office until: 1. the trustee becomes a disqualified person under superannuation laws or is otherwise disqualified from that office by operation of law - clause 6.1(c)(1); 2. the trustee is removed from office by the regulator or by notice in writing from the members - clause 6.1(c)(2); 3. the trustee retires from office by giving 30 days' written notice to the members (or such lesser period as the Members may agree) - clause 6.1(c)(3); or 4. if the trustee is a natural person, they die or becomes of unsound mind - clause 6.1(c)(4).
Clause 6.1(d) provides that where the office of trustee becomes vacant because they die or become of unsound mind, the legal personal representative of the trustee may appoint another natural person to act as the trustee and fill the vacancy, and the person will have the same powers and may act as they had originally been appointed as the trustee.
The defendants rely on clauses 6.1(c)(1) and (2) and clause 6.1(d) in support of the submission that the plaintiff ceased to be a trustee and was replaced by the appointment of the second defendant.
Clause 6.1(f) requires the composition, appointment and removal of trustees to comply with superannuation laws and mandates that trustees must not act in a way that would prejudice any existing or potential taxation concessions of the Fund. Clause 6.2 obliges the trustee to perform and exercise duties and powers in the best interests of the members in all respects in compliance with superannuation laws.
Clause 10 deals with the payments of benefits from the Fund in respect of a member. Benefits are defined in clause 1.1 of the Fund Deed to include a member's death benefit, which is the amount standing to the credit of a member's account at the date of the member's death.
A member's death benefit must be paid in accordance with clause 15 of the Fund Deed unless the member is receiving a pension and has nominated a reversionary beneficiary. In this case, there is evidence that Peter Dawson and the first defendant were receiving a pension from the Fund but there was no evidence of Peter Dawson having nominated a reversionary beneficiary.
Both parties accepted that there was no binding death benefit nomination in effect for Peter Dawson. This means that under clause 15 of the Fund Deed, his death benefits had to be paid to the person or persons and in the proportions as determined by the trustee and, where permitted by superannuation laws, in the manner specified in a signed and dated notice given to the trustee by a beneficiary of a member's death benefit: clauses 15(c) and (e). It was accepted that, as at the date of the hearing, the trustees had not yet taken any steps to pay out Peter Dawson's death benefits.
According to the notices clause in the Fund Deed (clause 21.2), any communication in connection with the Fund must be given to a trustee at the address last notified to a member by the trustee and is effective only when received by the trustee at that address.
The provisions of the Fund Deed also make clear that the Fund is required to be conducted in compliance with superannuation laws (which is defined in clause 1.1 to include the SIS Act), in order to obtain the benefit of favourable tax treatment as a complying SMSF. In addition to clauses 6.1(f) and 6.2 (referred to above), clause 2.1 requires the trustee to comply with the requirements of superannuation laws and clause 4.1(c) provides that a trustee must refuse an application for membership if admission would cause the Fund not to be a self-managed fund.

[6]

SIS Act

To obtain the taxation benefits of a SMSF, the Fund must comply with the requirements for a SMSF as set out in s 17A of the SIS Act.
Section 17A(1) sets out the requirements for a superannuation fund which has more than one but fewer than five members and s 17A(2) sets out the requirements for a one-member fund.
Both sections require members to be the individual trustees of the fund. In the case of a one-member fund, there must be another individual trustee who can be a relative of the member or someone who is not the employer of the member: s 17A(2)(b).
If a member is unable to be a trustee, the fund will not fail to comply as a SMSF if, in accordance with s 17A(3), another person is appointed trustee in place of the member. While the member is alive the other person may be a person who holds an enduring power of attorney granted by the member: s 17A(3)(b). When the member dies, the other person may be the executor of the member's estate but can only be a trustee in place of the member until the member's death benefits "commence to be payable": s 17A(3)(a).
The legislation also provides a 6-month period in which a fund will remain a SMSF notwithstanding it no longer satisfies the legislative requirements for a SMSF: s 17A(4). This enables a fund time to restructure to ensure compliance, such as when a member dies or withdraws from the fund.
The relevant provisions of the SIS Act are set out below. 10 Definitions legal personal representative means the executor of the will or administrator of the estate of a deceased person, the trustee of the estate of a person under a legal disability or a person who holds an enduring power of attorney granted by a person. 17A Definition of self managed superannuation fund Basic conditions - funds other than single member funds (1) Subject to this section, a superannuation fund, other than a fund with only one member, is a self managed superannuation fund if and only if it satisfies the following conditions: (a) it has fewer than 5 members; (b) if the trustees of the fund are individuals--each individual trustee of the fund is a member of the fund; (c) if the trustee of the fund is a body corporate--each director of the body corporate is a member of the fund; (d) each member of the fund: (i) is a trustee of the fund; or (ii) if the trustee of the fund is a body corporate--is a director of the body corporate; (e) no member of the fund is an employee of another member of the fund, unless the members concerned are relatives; (f) no trustee of the fund receives any remuneration from the fund or from any person for any duties or services performed by the trustee in relation to the fund; (g) if the trustee of the fund is a body corporate--no director of the body corporate receives any remuneration from the fund or from any person (including the body corporate) for any duties or services performed by the director in relation to the fund. Note: Section 17B contains exceptions to paragraphs (1)(f) and (g). Basic conditions--single member funds (2) Subject to this section, a superannuation fund with only one member is a self managed superannuation fund if and only if: (a) if the trustee of the fund is a body corporate: (i) the member is the sole director of the body corporate; or (ii) the member is one of only 2 directors of the body corporate, and the member and the other director are relatives; or (iii) the member is one of only 2 directors of the body corporate, and the member is not an employee of the other director; and (b) if the trustees of the fund are individuals: (i) the member is one of only 2 trustees, of whom one is the member and the other is a relative of the member; or (ii) the member is one of only 2 trustees, and the member is not an employee of the other trustee; and (c) no trustee of the fund receives any remuneration from the fund or from any person for any duties or services performed by the trustee in relation to the fund; (d) if the trustee of the fund is a body corporate--no director of the body corporate receives any remuneration from the fund or from any person (including the body corporate) for any duties or services performed by the director in relation to the fund. Note: Section 17B contains exceptions to paragraphs (2)(c) and (d). Certain other persons may be trustees (3) A superannuation fund does not fail to satisfy the conditions specified in subsection (1) or (2) by reason only that: (a) a member of the fund has died and the legal personal representative of the member is a trustee of the fund or a director of a body corporate that is the trustee of the fund, in place of the member, during the period: (i) beginning when the member of the fund died; and (ii) ending when death benefits commence to be payable in respect of the member of the fund; or (b) the legal personal representative of a member of the fund is a trustee of the fund or a director of a body corporate that is the trustee of the fund, in place of the member, during any period when: (i) the member of the fund is under a legal disability; or (ii) the legal personal representative has an enduring power of attorney in respect of the member of the fund; or (c) if a member of the fund is under a legal disability because of age and does not have a legal personal representative: (i) the parent or guardian of the member is a trustee of the fund in place of the member; or (ii) if the trustee of the fund is a body corporate--the parent or guardian of the member is a director of the body corporate in place of the member; or (d) an appointment under section 134 of an acting trustee of the fund is in force. Circumstances in which entity that does not satisfy basic conditions remains a self managed superannuation fund (4) Subject to subsection (5), if a superannuation fund that is a self managed superannuation fund would, apart from this subsection, cease to be a self managed superannuation fund, it does not so cease until the earlier of the following times: (a) the time an RSE licensee of the fund is appointed; (b) 6 months after it would so cease to be a self managed superannuation fund.

[10]

Position under the Fund Deed and March 2014 Deed

The terms of the Fund Deed and March 2014 Deed are consistent with the plaintiff having been appointed in his personal capacity. Their terms do not limit the plaintiff's appointment as trustee in any way, nor do they indicate that his appointment ended when Peter Dawson died and the enduring power of attorney terminated.
Under the Fund Deed, the plaintiff could have been appointed as trustee in one of two ways: as a substitute or additional trustee under clause 6.1(b), or because of a vacancy created due to a trustee becoming of unsound mind or had died: clauses 6.1(c) and 6.1(d).
Having regard to the orders made by the Guardian Tribunal on 19 November 2014, I accept the defendant's submission that the plaintiff's appointment arose as a result of Peter Dawson becoming of unsound mind. Pursuant to clauses 6.1(c) and 6.1(d) of the Fund Deed, Peter Dawson's office of trustee became vacant when he became of unsound mind and the plaintiff, as his LPR and holder of an enduring power of attorney, could appoint another person to act as trustee. This he did, together with the first defendant, under the March 2014 Deed, with the plaintiff being appointed as a new trustee in place of Peter Dawson.
A trustee appointment under clause 6.1(d) of the Fund Deed is not expressed to be limited to the new trustee acting as attorney of the trustee who became of unsound mind, nor is it expressed to cease upon the death of that person or some other point in time. It provides for an appointment of a new trustee to fill a vacancy created because the previous trustee no longer is capable of holding that office. It also provides that the new trustee is appointed with the same powers as if they had been originally appointed.
The terms of the March 2014 Deed and related documents, including the New Trustee Resolutions document dated 17 March 2014 and the Notification of Change of Trustee form dated 8 July 2014, are consistent with the position that the plaintiff was appointed as trustee in his personal capacity and that his appointment did not end on the death of Peter Dawson and termination of the enduring power of attorney.
The plaintiff is referred to in the March 2014 Deed in two different ways. In the "Parties" section of the March 2014 Deed, the plaintiff (together with the first defendant) is first defined as the "New Trustee". He is later referred to as attorney of the member, Peter Dawson, and defined as "Attorney".
Clause 1 of the March 2014 Deed is the operative provision which appointed the plaintiff together with the first defendant as the "New Trustee" of the Fund in place of the first defendant and Peter Dawson. Presumably the words "in place of" were used to mirror the language in s 17(3)(b)(ii) of the SIS Act. Those words are, in my view, consistent with the plaintiff's appointment as a new individual trustee being in his personal capacity, rather than as attorney for Peter Dawson. The plaintiff was being appointed a trustee in place of the member who, in this case, no longer held that office as he was of unsound mind and had vacated the position.
As noted by the plaintiff in his submissions, the plaintiff's execution of the March 2014 Deed also reflected his differing roles as a trustee in his personal capacity, and as attorney for the member. The plaintiff signed the execution clause under the "New Trustee" heading in his own name (and not as attorney for Peter Dawson), and signed separately under the heading "Attorney", reflecting his other capacity as attorney for the member, Peter Dawson.
The only other reference to "Attorney" in the March 2014 Deed is in Recital C, which states that the Attorney holds an enduring power of attorney in respect of Peter Dawson and that, accordingly, the Fund is a SMSF pursuant to s 17(3)(b)(ii) of the SIS Act. Pausing there, the Fund was not an SMSF pursuant to s 17(3)(b)(ii) of the SIS Act because the plaintiff held an enduring power of attorney. Rather, the Fund was a compliant SMSF because the plaintiff (being a person who held an enduring power of attorney) had been appointed as trustee in place of Peter Dawson when he vacated that office.
The 2014 March Deed does not provide for the plaintiff's appointment as New Trustee to be limited in time to the period in which he held the enduring power of attorney, nor did it provide for his appointment to cease on the death of Peter Dawson. The appointment was unlimited as to time and did not include any term that would result in cessation of office. Under the 14 March Deed, the plaintiff and the first defendant, as the "New Trustee", agreed to comply with the rules in the Fund Deed. Those rules set out the circumstances in which a trustee would cease to hold office and how appointments of a trustee were to be made.
The New Trustee Resolutions document dated 17 March 2014 and the Notification of Change of Trustee form dated 8 July 2014 also refer to the plaintiff, together with the first defendant, being appointed as the "New Trustee" and do not provide for any limit on that appointment, that it was made in the plaintiff's capacity as attorney for Peter Dawson or that it would cease on the termination of the power of attorney.
The grant of the enduring power of attorney enabled the plaintiff to be appointed a trustee in place of Peter Dawson in accordance with the terms of the Fund Deed and for the Fund to be compliant with the SIS Act. But the plaintiff did not become the trustee merely by virtue of holding that power of attorney. He had to be appointed in place of Peter Dawson as Peter Dawson has ceased to be a trustee, having vacated that office due to his being of unsound mind. Nor did the plaintiff act as the trustee for or on behalf of Peter Dawson pursuant to the power of attorney. If that were possible, there would have been no need for the plaintiff to be appointed a trustee in Peter Dawson's place.
Accordingly, I have concluded that, under the Fund Deed and March 2014 Deed, the plaintiff was appointed as a trustee of the Fund (together with the first defendant) in his personal capacity and not as attorney for Peter Dawson while Mr Dawson was alive. As the terms do not provide for cessation of the plaintiff's appointment on Peter Dawson's death and termination of the power of attorney, I have also concluded that the appointment of the plaintiff under clause 6.1(d) of the Fund Deed continues until he ceases to hold office as provided for under the Fund Deed, or is replaced in some other way such as by the appointment of another trustee.

[11]

Has the plaintiff ceased to hold office as trustee and was the second defendant validly appointed a trustee in place of the plaintiff?

The plaintiff submits that his purported removal as trustee is not valid as he has not ceased office in accordance with the circumstances set out in clause 6.1(c) of the Fund Deed. He also submits that the second defendant was not validly appointed as the plaintiff, as a trustee, was required to consent to the appointment, which he has not done.
The plaintiff also submits that it was not necessary for the second defendant to be appointed a trustee in order for the Fund to remain compliant as a SMSF under the SIS Act. The plaintiff accepts that a LPR may be a trustee of a fund in place of a member who has died during the period from the member's death to the commencement of death benefits being paid: s 17A(3)(a) of the SIS Act. But he says that, as the Fund became a one-member fund on Peter Dawson's death, the second defendant's appointment was not necessary for compliance. This is because, on Peter Dawson's death, the plaintiff continuing as trustee is consistent with s 17A(2) of the SIS Act, which provides that a superannuation fund with only one member is a SMSF if the trustees of the fund are individuals and the member is one of only two trustees and is not an employee of the other trustee.
In any event, he submits that s 17A(3)(a) is permissive in nature and does not mandate the appointment of a LPR on the death of a member, which means the second defendant's appointment could not have arisen on Peter Dawson's death.
The defendants submit that the appointment of the second defendant as trustee was necessary and valid under the terms of the Fund Deed and the SIS Act. They contend it was necessary because clause 2.4(a) of the Fund Deed provides that a member only ceases as a member of the Fund when benefits are paid out or dealt with which, in this case, has not occurred in respect of Peter Dawson. As the Fund remained a two-member fund and the Fund Deed required the identity and appointment of a trustee to comply with the SIS Act, only the second defendant (as executor and LPR) could stand in Peter Dawson's place as a member and also take his place as a trustee for the Fund to remain compliant with the SIS Act: s 17A(3)(a) of the SIS Act.
The defendants also rely on the 14 March email from the Fund Accountant as notice in writing from the first defendant to the plaintiff that he was removed from his office as trustee, pursuant to clause 6.1(c)(2) of the Fund Deed.

[12]

Did the plaintiff cease to be a trustee?

A trustee can be appointed or removed pursuant to an express power in a trust instrument, under a statutory power (such as s 70 of the Trustee Act 1925 (NSW)), or the Court's statutory power or inherent jurisdiction: JD Heydon, MJ Leeming, Jacobs' Law of Trusts in Australia (8th ed, 2016, Lexis Nexis) at [15.04] and [15.85]. There was no suggestion that the plaintiff ceased to be, and the second defendant was appointed, a trustee due to the operation of some statutory power or due to the exercise of the Court's power.
This means that, just as Peter Dawson ceased as trustee and the plaintiff was appointed in accordance with the Fund Deed, so too must the removal of the plaintiff and the appointment of the second defendant as trustees be done in accordance with the powers in that instrument.
Consistent with the plaintiff's submissions, I have concluded that the plaintiff did not cease to be a trustee in accordance with the terms of the Fund Deed with effect from the date of Peter Dawson's death, the date of the 14 March email or the Deed of Confirmation.
The circumstances in which a trustee ceases to hold office are those set out in clause 6.1(c) of the Fund Deed. In my view, none of them apply to the plaintiff in this case.
Clause 6.1(c)(1) does not arise as the plaintiff did not become a disqualified person under superannuation laws as he had not been convicted of a relevant offence, was not insolvent and was not disqualified by the Commissioner of Taxation: s 120 of the SIS Act.
As to whether the plaintiff was disqualified from the office of trustee by operation of law, I do not accept the defendants' submission that he was otherwise disqualified because he was only appointed in his capacity as attorney for Peter Dawson and the power of attorney ceased on death. As I have found, the plaintiff was appointed as a trustee in his personal capacity and his appointment did not cease on the termination of the power of attorney.
Although they did not raise it in relation to the issue of disqualification by operation of law, the defendants pointed to clause 6.1(f) of the Fund Deed which provides that the composition, appointment and removal of a trustee must comply with the SIS Act. While not articulating precisely how, it seems they submit that the operation of clause 6.1(f) means that the plaintiff's appointment as trustee ceased once the power of attorney terminated as his continued appointment would mean the Fund did not comply as a SMSF under the SIS Act.
If the defendants are right and the Fund remained a two-member fund after Peter Dawson's death, I accept that the Fund would not comply with the SIS Act with the plaintiff as a trustee (at least from 6 months after Peter Dawson's death: s 17A(4)) and that his appointment would not be in accordance with clause 6.1(f) of the Fund Deed. But I do not accept that clause 6.1(f) can be read as having the effect that the plaintiff's appointment as trustee ceased on the death of Peter Dawson and the termination of the enduring power of attorney as he was disqualified by operation of law.
The provisions of s 17A of the SIS Act do not specify or provide that certain persons are disqualified from holding the office of trustee, rather they stipulate the circumstances in which a fund will be SMSF-compliant and the characteristics of trustees that are required for compliance. A failure to comply as a SMSF (with the plaintiff as a trustee) does not result in the plaintiff being disqualified as a trustee by operation of law.
In any event, clause 6.1(f) of the Fund Deed is an obligation requiring the appointment and composition of trustees to comply with the SIS Act. A failure to observe the obligation in clause 6.1(f) (or some other clause of the Fund Deed which requires compliance with the SIS Act) may result in a breach of the Fund Deed, but does not operate to bring about the cessation of a trustee's appointment for disqualification by operation of law. There is no provision in the Fund Deed which has the effect of rendering the appointment of a trustee no longer operative because it is not in compliance with clause 6.1(f) of the Fund Deed.
The plaintiff did not cease to hold office as a trustee under clause 6.1(c)(2) or clause 6.1(c)(3) as he has not been removed from the office of trustee by a Regulator (as defined by the Fund Deed) and he has not given 30 days' written notice to the members that he intends to retire.
The plaintiff could have easily been removed from office by notice in writing from the members: clause 6.1(c)(2). The defendants' submit that the 14 March email constituted such notice to the plaintiff. I do not accept that submission. The 14 March email was a notice of a proposed change of trustee from the Fund Accountant, not from the members. It cannot be read as having been sent by the Fund Accountant for or on behalf of the members as it does not state, or even suggest, that it was sent on the instructions of the members and in accordance with clause 6.1(c)(2) of the Fund Deed. The defendants did not adduce any evidence regarding on whose authority the Fund Accountant acted in sending the 14 March email.
I also note that, to be an effective notice under clause 6.1(c)(2), the 14 March email had to comply with clause 21.2(c) of the Fund Deed and given to the plaintiff at the address last notified by him to a member. The defendants did not adduce any evidence or make any submissions on that point.
The defendants did not submit that the Deed of Confirmation itself constituted notice in writing to the plaintiff from the members under clause 6.1(c)(2) and it is difficult to see how it could be, given there is no evidence that it was sent to the plaintiff prior to these proceedings.
As the plaintiff had not died or become of unsound mind, his position as trustee did not become vacant by operation of clause 6.1(c)(4). This also means that the second defendant could not be appointed as a trustee under clause 6.1(d) of the Fund Deed.

[13]

Purported appointment of the second defendant

As to the whether the second defendant was appointed as trustee, the only clauses of the Fund Deed under which a trustee can be appointed are clause 6.1(c), which provides that a trustee may appoint an additional or substitute trustee, and clause 6.1(d), which provides for an appointment of another natural person as trustee where the office of trustee becomes vacant because a trustee dies or becomes of unsound mind.
Other clauses of the Fund Deed, such as clause 6.1(e) and clause 6.1(f), permit or may make necessary the appointment of certain persons to the role of trustee. But to be appointed a trustee, the second defendant had to be appointed under either clause 6.1(c) or clause 6.1(d). As set out above, the second defendant could not be appointed under clause 6.1(d) as the plaintiff had not died or become of unsound mind.
The defendants did not contend that the second defendant was appointed as an additional trustee under clause 6.1(c). They submit that his appointment was as a substitute trustee to replace the plaintiff.
To be a valid appointment as a substitute trustee under clause 6.1(b), the second defendant's appointment had to be made by the "Trustee" of the Fund who, at the time, were the first defendant and the plaintiff.
The Deed of Confirmation which purports to ratify the appointment of the second defendant as a new trustee only included the first defendant as the "Former Trustee" party and only provided for her to execute.
As one of two trustees, the first defendant did not have the power to appoint, or ratify the prior appointment of, the second defendant as a substitute trustee under clause 6.1(b) of the Fund Deed unilaterally and without the consent of the plaintiff. As the "Trustee" under clause 6.1(b), the first defendant and the plaintiff had to act unanimously and not independently or unilaterally without the other: Johnson v Trotter; Re Estate of Trotter [2006] NSWSC 67 at [21]; Exception Holdings Pty Ltd (in liq) v Albarran & Ors [2005] NSWSC 677 at [20]; Douglas v James [2015] NSWSC 1403 at [18].
It seems to have been recognised that unanimity between the first defendant and the plaintiff as the two trustees (and, consequently, the plaintiff's consent) was required when the Fund Accountant sent the plaintiff's solicitor a draft deed of confirmation. That draft included the plaintiff as a party to the deed as one of the "Former Trustees" and an execution block for him to sign in that capacity. As events transpired, the plaintiff did not consent to the appointment of the second defendant and he was removed as an executing party from, and did not sign, the Deed of Confirmation.
The second defendant's purported appointment as trustee, as recorded in the Deed of Confirmation, is also based on the premise that the plaintiff and the first defendant ceased to be trustees of the Fund on the day of Peter Dawson's death. For the reasons referred to earlier, I do not accept that the plaintiff's appointment ceased on that day. As a result, the factual foundation referred to in the Deed of Confirmation on which the defendants rely as validating the appointment of the second defendant is not correct and cannot support his appointment.
As to the defendants' submission that appointment of the second defendant as trustee was compliant with the SIS Act, I accept that s 17A(3)(a) of the SIS Act permits the second defendant, as the LPR of Peter Dawson's estate, to be appointed a trustee and the Fund would have been complaint as a SMSF if he had been. But s 17A(3)(a) is permissive only, to provide for continued compliance after the death of a member. It does not mandate that a LPR (such as the second defendant) be appointed a trustee in place of a deceased member. Nor does it mean that the second defendant, as LPR, became a trustee of the Fund following Peter Dawson's death, irrespective of whether the Fund was a two or one-member fund: Ioppolo v Conti (2015) 293 FLR 412; [2015] WASCA 45 at [71]-[73]; Re Marsella; Marsella v Wareham (No 2) [2019] VSC 65 at [69]; Ainsworth v Davern [2018] VSC 80 at [20].
The appointment and removal of a trustee is determined by a consideration of whether the appointment was made and the person ceased to hold office as trustee in accordance with the relevant provisions of the Fund Deed. In this case, I have concluded that the plaintiff has not ceased to hold office under clause 6.1(c) of the Fund Deed (or on termination of the power of attorney), and the second defendant has not been appointed a trustee in accordance with clause 6.1(b) or clause 6.1(d) of the Fund Deed.
Determining whether the Fund became a one or two-member fund following Peter Dawson's death would determine who should have been a trustee in order for the Fund to comply with the SIS Act. Who actually is a trustee of the Fund, however, is a different matter.
The need to appoint a particular person as trustee to ensure compliance as a SMSF under the SIS Act and the Fund Deed does not make the second defendant's purported retrospective trustee appointment valid if the plaintiff did not cease to hold office and the second defendant's appointment was not made in accordance with the relevant provisions of the Fund Deed in the first place. The consequence of the second defendant needing (but failing) to be a trustee in place of the plaintiff is that the Fund would cease to comply with the SIS Act. In those circumstances, the plaintiff would need to step down as trustee and the second defendant would need to be validly appointed: Cantor Management Services v Booth [2017] SASCFC 122 per Kourakis CJ at [26]-[28].
If the Fund remained a two-member fund, it was necessary to appoint the second defendant as a trustee within 6 months after Peter Dawson's death for it to comply as a SMSF: ss 17A(1), 17A(3)(a) and 17A(4) of the SIS Act. In those circumstances, the second defendant was someone who was able to be and should have been appointed under the terms of the Fund Deed: clauses 6.1(a)(2)(B), 6.1(e) and 6.1(f). The defendants contend that this has happened but, for the reasons outlined above, I do not accept that it has occurred in this case.
I note that the defendants' submissions in this case, to the effect that the Fund remained a two-member fund after Peter Dawson's death, is contrary to the position which was apparently accepted by them when they executed the Deed of Confirmation. Recital B of the Deed of Confirmation refers to the first defendant being the "sole member" of the Fund and the execution block for the member provided for only the first defendant to execute the document.
I also note that none of the correspondence from the Fund Accountant or the defendants' solicitors which was in evidence at the hearing refers to the second defendant's appointment being necessary because the Fund remained a two-member fund. That correspondence refers to the change in trustee from the plaintiff to the second defendant taking place because of the power of attorney ceasing and the plaintiff's position as trustee ceasing to exist: (see email dated 6 July 2018 from Fund Accountant to the plaintiff's solicitor and letter dated 24 July 2018 from McGrath, Dicembre & Company to the plaintiff's solicitor). I have accepted the plaintiff's submission in this case that the defendants' interpretation in that correspondence is not correct by finding that the appointment as trustee did not cease on termination of the power of attorney.
The defendants did not explain why their position regarding the number of members in the Fund has changed.

[14]

Comments on one-member vs two-member fund issue

As noted at the beginning of these reasons, I do not consider that the question about whether the Fund is a one-member fund or remains a two-member fund is determinative of the issue in this proceeding, namely the identity of the current trustees of the Fund. It is also not an issue upon which either party sought relief. However, as the issue was contested before me, and in case I am wrong about its relevance to the outcome, I have set out a summary of my views on that question below.
I am inclined to the view advanced by the defendants that the Fund has not yet transitioned to being a one-member fund and remains a two-member fund for the purposes of assessment as a SMSF under the SIS Act as Peter Dawson's death benefits have not yet commenced to be paid. This is for the following reasons.
First, the terms of a superannuation fund deed governs when a member ceases to be a fund member: Australian Superannuation Law and Practice, [6-822] at page 2. In this case, and as submitted by the defendants, clause 4.2 of the Fund Deed provides that membership of the Fund ceases when benefits are paid out or dealt with, but does not state that membership ceases upon a member's death. This is to be contrasted with clause 6.1(c)(4) of the Fund Deed which states that a trustee ceases to hold office upon their death.
Second, the Fund still holds the financial benefits accrued in respect of both Peter Dawson (the member who has died) and Estelle Dawson, as they have not yet been paid out. It is that superannuation fund, containing benefits in respect of two members, which must be assessed for compliance with the SIS Act.
Third, the SIS Act does not include any meaningful definition of the term "member". While s 10(3) of the SIS Act provides that member includes a person who receives a pension or a person who has a deferred entitlement to receive a benefit, the use of the term in s 17A does not appear to be limited to a member who is a living person. This is particularly in the context where s 17A is focused on the nature of the superannuation fund, by reference to the number of members, for the purposes of compliance as a SMSF.
Fourth, s 17A(3)(a) of the SIS Act deals with the circumstances of a member's death and permits a LPR to be appointed as a trustee in place of the member from the member's death until the member's death benefits commence to be payable. To my mind, that section contemplates the possibility, and is not inconsistent with the characterisation, of membership of a fund continuing after the death of a member until death benefits commence to be paid out. If it were otherwise, there would be no need for appointment of a LPR as trustee in accordance with s 17A(3)(a) in respect of a one-member fund whose sole member has died as there would be no superannuation fund in existence within the meaning of s 17A(2) of the SIS Act after their death.
Fifth, and while I was not taken to all of them in submissions, there are authorities which support the view that membership does not cease after death if the terms of the fund instrument do not provide for it. See for example, Katz v Grossman [2005] NSWSC 934, where, in the context of a dispute about the appointment of a trustee and a deed which provided for membership to cease on satisfaction or forfeiture of a member's rights or benefits, Smart AJ at [18] and [48], expressed the view that on the death of a member, the estate of that member remained a member of the fund.
See also Cantor Management Services v Booth [2017] SASCFC 122 and Ainsworth v Davern [2018] VSC 80, both cases involving funds with only one member, where the Courts concluded that new trustees had to be appointed after the death of the sole member, in order for the fund to continue to comply with s 17A of the SIS Act. Those conclusions suggest that the Courts accepted that the funds would continue to be treated by the SIS Act as a superannuation fund with only one-member under s 17A(2) after the death of the sole member.
I accept that this issue is open to debate and there is a valid competing view as advanced by the plaintiff that on the death of Peter Dawson, the fund became a one-member fund. That view has support in the remarks of Martin CJ in Ioppolo & Anor v Conti [2015] WASC 45, who at [67] expressed the view that it was very doubtful that a deceased member of a SMSF remained a member after their death, given they lack any legal personality. He also stated that it was doubtful that the provisions of a trust deed are relevant to the proper construction or application of s 17A of the SIS Act. Ultimately, he did not need to decide the question as the surviving member had taken steps to convert the fund into a single-member fund by appointing a corporate trustee and terminating the benefits of the deceased member in accordance with the terms of the relevant fund deed.
The plaintiff's view also has some support in the legal texts which note that, while a fund does not immediately migrate to being a single-member SMSF (i.e. from a fund under s17A(1) to a fund under s 17A(2)) on the death of one member of a two-member fund, the SIS Act provides for a period to allow for the transition from a two-member to a one-member fund on the death of the member: Australian Superannuation Handbook, 2014-2015 at [3-200].
Whatever be the correct position as to the number of the Fund's members, the consequence of the plaintiff remaining as trustee is that the Fund either complies with s 17A(2)(b)(iii) as a fund with only one member, or it has been non-compliant for over 3 years, with the s 17A(4) grace period of 6 months after Peter Dawson's death having expired on 24 May 2016. That is an issue the parties will need to confront going forward.

[15]

Relief and costs

Based on my findings, there is little dispute between the parties regarding the relief to be granted.
The defendants accept that the declarations in paragraphs 1, 2 and 3 of the summons should be made if the Court finds that the plaintiff's appointment as trustee did not cease either on Peter Dawson's death or at a later time, and the second defendant had not been appointed under the Fund Deed. The defendants also consented to the order in paragraph 5 for delivery up of the records and accounts of the Fund. Subject to some minor changes to the terms of the declaration in paragraph 2, I am satisfied that they are appropriate declarations and orders to make in this case based on the issues in dispute between the parties, the evidence and my conclusions.
The dispute between the parties relates to paragraph 4 of the summons, in which the plaintiff seeks an injunction restraining the first defendant from giving any notice or doing anything to remove or attempt to remove the plaintiff as a trustee of the Fund. That dispute became apparent after I asked the parties to attend a resumption of the hearing on 12 April 2019 in order for them to deal with the relief sought in the summons.
On 20 September 2018, Hallen J granted an injunction in the terms of paragraph 4 of the summons. The plaintiff made a submission that, as no application had been made or evidence led by the defendants to support its dissolution, that injunction should continue.
I do not accept the plaintiff's submission that the injunction should continue unless the defendants show why it should not. The injunction made by Hallen J was granted on an interlocutory basis with the consent of the defendants upon the plaintiff giving the usual undertaking as to damages and was expressed to be until further order. It is for the plaintiff to satisfy the Court that final relief in the form of a permanent injunction in the terms of paragraph 4 of the summons should be made.
The plaintiff submits that the injunction should continue because to do otherwise may enable the first defendant, as a member, to give notice under the Fund Deed to cause the plaintiff to no longer be a trustee and that may allow her not to comply with the Consent Orders. As the plaintiff's counsel put it, what would happen to the Fund if the first defendant refuses to resign as trustee as per the Consent Orders?
I am not persuaded by the plaintiff's submission that the injunction granted by Hallen J should continue on a permanent basis in the terms of paragraph 4 of the summons, and I decline to make that order.
The injunction being sought by the plaintiff is in the form of a quia timet injunction. While there is no fixed or absolute standard of proof required before the making of such an injunction, relevant factors include whether there is evidence of a substantial risk of imminent breach of rights, a sufficiently high likelihood of injury and evidence of the damage that will be suffered: Apotex v Servier (No 2) (2012) 293 ALR 272; [2012] FCA 748 at [51] and [52] citing Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261.
The plaintiff did not point to any risk of a breach of his rights under the Fund Deed or any other legal or equitable rights that may be infringed in order to justify the injunction. He only relied on the risk of the first defendant's non-compliance with the Consent Orders.
I accept that the defendants' past conduct in seeking to appoint the second defendant as trustee might suggest that the first defendant may take such steps in the future. But there is no evidence before the Court that the first defendant does not intend to comply with the Consent Orders, and a mere suggestion does not equate, in my mind, to evidence of a substantive risk of imminent breach of rights (assuming that the Consent Orders provide the plaintiff with some legal rights). In any event, to the extent the plaintiff is concerned about future or threatened non-compliance with the Consent Orders, he should have remedies available to him to deal with that non-compliance, including in the Family Court where the orders were made.
The plaintiff did not make any submission about the nature of the particular injury or the likely damage (in terms of quantum or otherwise) he would suffer if the injunction was not granted other than non-compliance with the Consent Orders, and I am not satisfied that the plaintiff has shown that, should any damage arise from a breach of any rights he might have, it could not be adequately remedied by monetary compensation.
Further, and as the defendants submit, granting the injunction would have the effect of interfering with the terms of the Fund Deed which governs the circumstances in which trustees are appointed and cease to hold office. Consistent with my reasons above, the Fund Deed is the instrument which governs the rights and obligation of members and trustees.
In circumstances where the plaintiff has not identified any threatened breach of the Fund Deed, it is not for the Court to interfere with the proper exercise of the trustee's rights and obligations under that instrument, particularly as the proposed injunction is unlimited in time and would have the effect of preventing the plaintiff from being removed as a trustee for any reason, including if he acted in breach of his duties as trustee or some other legitimate reason unrelated to the Consent Orders.
In addition, if the defendants are right and the Fund is a two-member fund, it would be inappropriate for the Court to make orders permanently restraining the first defendant as a member and trustee from seeking to exercise legitimate rights under the Fund Deed where such exercise may be undertaken to avoid a breach of trust. This is particularly so given (as I observed earlier) a trustee may incur personal liability for a breach of their duties.
The plaintiff's written submissions also sought to justify the injunction until orders 7 and 8 in the summons had been complied with. At the hearing on 12 April 2019, the plaintiff did not press the relief sought in paragraphs 6, 7 and 8 of the summons, so they cannot constitute a basis for continuing the injunction.
As to costs, the general rule is that costs follow the event unless it appears to the Court that some other order should be made: r 42.1 Uniform Civil Procedure Rules 2005 (NSW).
The plaintiff has, for the most part, succeeded in obtaining the relief he sought in the summons.
Some of the hearing was spent debating whether the Fund was a two-member or one-member fund. Ultimately, that issue did not need to be determined in order to deal with the relief sought in the plaintiff's summons. The defendants did not seek any orders by way of a cross-summons nor make any submissions to the effect that the Court should not grant the plaintiff's relief as a discretionary matter if the Court found that the plaintiff holding office as trustee to date meant that the Fund was non-compliant with the SIS Act.
In those circumstances, there is no apparent reason why the general rule should not apply with the result that the defendants should pay the plaintiff's costs of the summons.

Dawson v Dawson

At a glance

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Before

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Catchwords

Judgment (18 paragraphs)

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Legislation Cited (4)

Cases Cited (13)