Our decision regarding the assignment
79On the main question arising in this connection - whether Tolicar's claim against the lessees, when viewed as a 'bare right of action' for damages - was effectively assigned by the Deed, our decision is that the appeal fails, broadly for the reasons advanced by Ms Doust. At the time of the assignment, Dr Lewkovitz did, in our opinion, have both a 'genuine commercial interest' and a 'genuine and substantial interest' in the enforcement of this claim. His interest was sufficient to satisfy both of the formulations that are to be found in the House of Lords's judgments in Trendtex and have been applied, with some degree of elaboration, in later Australian cases.
80We attach particular weight to two aspects of Ms Doust's submissions. One is her emphasis on the policy underlying the Trendtex test: namely, that 'trafficking in litigation' should be prevented. The other is her reliance on Dr Lewkovitz's evidence that in the period of more than twelve years between 4 January 1999 (the date of creation of the Trust) and 30 June 2011, he had consistently received, via Solrose, one-half of the dividends declared by Tolicar. Although the latest distribution to take place within this period (on 30 June 2011) occurred after the Deed had been executed, it is still relevant that this distribution occurred and that the amounts distributed were very large. We should add that nothing in the Tribunal's decision or in the submissions in the appeal suggested that Dr Lewkovitz's evidence on these matters was disputed.
81We would add four observations, all of which support this conclusion.
82First, it is important to bear in mind that according to Trendtex and the decisions following it, the pre-existing 'interest' that a would-be assignee of a 'bare right of action' must possess need not be an interest in any property or proprietary interest to which the right of action relates. Lord Roskill regarded it as sufficient that the assignee had 'a genuine commercial interest in taking the assignment and in enforcing it for his own benefit' (our emphasis). Lord Wilberforce's phrase was 'a genuine and substantial interest in the success of [the assignor's] litigation' (again our emphasis). This aspect of their formulations of principle must be borne in mind when interpreting Ipp JA's statement (in Project 28 Pty Ltd v Tim Barr Pty Ltd [2005] NSWCA 240) that the assignee's pre-existing interest must be 'rights-based'.
83Secondly, the consistent pattern of distribution of Tolicar's profits between 1999 and 2011 makes possible only one answer to the question whether, immediately before the assignment, Dr Lewkovitz had a 'genuine commercial interest', or alternatively a 'genuine and substantial interest', in the success of any claim that Tolicar might bring against the lessees. If the past pattern of distribution continued into the future, the half-share of Tolicar's profits that would in due course devolve upon him would be materially greater than if Tolicar's claim failed.
84Dr Lewkovitz's expectation, at that time, of receiving a more substantial sum if Tolicar's claim were upheld was of course subject to contingencies. These included, as Mr Stomo emphasised, the contingency that the Trustee, in its absolute discretion, might decide to distribute all of the income of the Trust to beneficiaries other than Dr Lewkovitz in the year (or years) when the proceeds of Tolicar's claim formed part of the moneys received as income by the Trust. But a 'commercial' interest may be subject to contingencies. Frequently, this is a characteristic of interests that are labelled 'commercial'. What matters is that from a practical point of view Dr Lewkovitz's expectation of receiving a larger sum of money from the Trust in due course if Tolicar's claim succeeded was distinctly greater than a mere 'hope' of a 'nebulous' nature. It was the likely outcome.
85Thirdly, a clause in the Trust which received no attention in the parties' submissions reveals that the extent to which Dr Lewkovitz could influence the distribution of trust income was greater than Ms Doust maintained.
86This clause, to which we drew the parties' attention at the hearing, was clause 8(a). As indicated above at [24], it empowered the person or persons designated as 'the Appointor' to remove an existing trustee from office, provided that if in consequence the office of trustee became vacant a new trustee was to be appointed simultaneously. Three alternative definitions of 'the Appointor' appeared in clause 2, of which the first was Dr Lewkovitz and his sister Ms Lieberman, acting jointly.
87Fourthly, the significance of a clause of this nature, along with a number of the other questions of principle, was discussed in a lengthy review of the law relating to discretionary trusts in a judgment of French J (as he then was) in the Federal Court. The case in question, Australian Securities & Investments Commission, Re Richstar Enterprises Pty Ltd (ACN 099 071 968) v Carey [2006] FCA 814, was not cited at the hearing and only came to our attention during the preparation of these reasons. The questions to be decided by the Court included whether the 'interests' possessed by certain directors and officers of a corporate group by virtue of their status as beneficiaries under a number of discretionary trusts were 'contingent' interests in 'property' and could for that reason fall within the scope of an order under companies legislation appointing a receiver of their property.
88Although this case is not concerned in any way with the assignment of 'bare rights of action', three passages in his Honour's discussion of discretionary trusts (at [19 - 21], [30 - 34] and [36 - 39]) provide useful guidance in the present context. They are as follows:-
19... The term 'discretionary trust' has been said in the High Court to bear a meaning 'disclosed by a consideration of usage rather than doctrine' and to be used in a way that is 'descriptive rather than normative'. It has 'no fixed meaning and is used to describe particular features of certain express trusts' - Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226 at [8]. In Federal Commissioner of Taxation v Vegners (1989) 90 ALR 547 at 552, Gummow J said that the expression 'discretionary trust' is used to identify a species of express trusts in which, unlike a fixed trust, the entitlement of the beneficiaries to income, or to corpus, or both, is not immediately ascertainable (at 552):
'...the beneficiaries are selected from a nominated class by the trustee or some other person and this power may be exercisable once or from time to time.'
His Honour described the power of the trustee as a 'special or hybrid power'. Thus (at 552):
'... a power exercisable in favour of any person including the donee of the power would be a general power and thus would be tantamount to ownership of the property concerned, whilst the objects of a special power would be limited to some class, and the objects of a hybrid power would be such that the donee might appoint to anyone except designated classes or groups.'
At least by analogy it may be observed that a beneficiary who effectively controls the trustee of a discretionary trust may have what approaches a general power and thus a proprietary interest in the income and corpus of the trust.
20 Gummow J described as 'purely discretionary' a trust in which income and capital can be withheld altogether. This kind of trust fits within the classification of non-exhaustive discretionary trusts discussed below. A trust will not be purely discretionary '... where the donee of the power of selection had a discretion only as to the time or method of making payments to the beneficiaries'. This corresponds with the category of exhaustive discretionary trust.
21 As appears from the preceding discussion discretionary trusts take a variety of forms. The trustee may be required by the terms of the trust deed to distribute the entire income at specified intervals. This has been called 'an exhaustive discretionary trust' - Thomas G and Hudson A, The Law of Trusts, (Oxford University Press, 2004) at 184 ff. On the other hand a discretionary trust is called 'non-exhaustive' when the trustee has a discretion to distribute any part or perhaps none of the income of the trust as he thinks fit. Similar classifications would apply according to the basis upon which the corpus of a trust is distributed. The beneficiaries may form a defined and closed class of persons. Alternatively, the class may be open. By way of example of the latter case, a discretionary trust intended primarily to benefit a family may nevertheless name as beneficiaries not only its living members, but also relatives born or yet to be born into the extended family, charities and other classes of entity. The naming of these species of discretionary trusts, like the term 'discretionary trust' itself, is a matter of taxonomical convenience rather than expository of principle.
30 I accept that there are some rights enjoyed, even by the beneficiaries of a non-exhaustive discretionary trust with an open class of beneficiaries. They include the right to inspect the trust documents - Re Londonderry's Settlement [1965] Ch 918 and the right to require the trustee to provide information about management of the trust fund - Spellson v George (1987) 11 NSWLR 300; Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405. There is also a right to enforce the proper management of the trust by the trustee - Commissioner of Stamp Duties (Qld) v Livingston [1964] UKPC 2; [1965] AC 694; Re Atkinson [1971] VR 613.
31 ASIC submitted that the beneficiary under a discretionary trust has a 'contingent interest' within s 9 of the Act. It was submitted that the Court could make the orders sought on the basis that any of the defendants who is a beneficiary of a discretionary trust has a 'contingent interest' in the property of the trust which therefore constitutes property as defined in s 9 of the Act.
32 ASIC submitted that a contingent interest in property equates to a proprietary interest. It cited Craig v Federal Commissioner of Taxation [1945] HCA 1; (1945) 70 CLR 441. That case concerned the application of s 8(4) of the Estate Duty Assessment Act 1914 (Cth). The Act levied estate duty on the value of the estate of deceased persons. Included in the property brought into the estate for the purposes of the assessment of estate duty was property 'comprised in a settlement made by the deceased person under which he had any interest of any kind for his life...'.
33 Latham CJ, discussing the scope of the term 'interest' said (at 446):
'It has frequently been held in relation to various taxing Acts that the word "interest" is not necessarily to be taken as a technical term, and that it is frequently used in such Acts in a popular sense... Also see Attorney-General v Heywood [(1887) 19 QBD 326], approved in Attorney-General v Farrell [(1931) 1 KB 81], where the prospect of an object of a discretionary trust sharing in income the subject matter of the discretionary trust was held to be an interest of a person in the property from which the income was derived.'
Dixon J, at 452, referred to the word 'interest' as '... a word itself of very comprehensive meaning'. McTiernan J, at 454, observed that the word is not a technical term and that the law does not give it the same specific application in all contexts in which it is used. He said:
'In its ordinary or popular sense, the word "interest" as applied to property may include a contingent interest.'
He adopted the definition of a contingent interest as 'merely the prospect or possibility of a future estate'. A contingent interest, however, was contrasted with the category of 'bare possibilities and expectations'. Williams J, at 456, made observations to similar effect.
34 A contingent interest may be described broadly as the possibility that a right of a proprietary character will come into existence at a future time if some event occurs. In Stroud's Judicial Dictionary reference is made to Watkins on Conveyancing (8th ed) in which two classes of possibilities are identified (at 529):
'(a) possibilities coupled with an interest, eg 'contingent remainders, executory devices, springing or shifting uses';.
(b) bare or naked possibilities, eg the hope of inheritance entertained by the heir.'
Of the latter, Watkins as quoted in Stroud, states (at 529):
'The former class may, perhaps, with more propriety be denominated contingent interests, and the latter mere expectancies; for a possibility coupled with an interest is more than a possibility - it is a present interest and may be devised.... On the other hand the expectancy of an heir apparent during the lifetime of his ancestor is less than a possibility, being but a mere hope or anticipation.'
36 The difficulty with applying the notion of contingent interests to beneficiaries of a discretionary trust lies partly in the uncertain scope of the distribution be it income or capital, which may be made in favour of any given beneficiary. I am inclined to think that a beneficiary in such a case, at arms length from the trustee, does not have a 'contingent interest' but rather an expectancy or mere possibility of a distribution. In some discretionary trusts... charities as a class are included in the class of beneficiaries. It could hardly be said that every charity in Australia has thereby acquired a contingent interest in that trust. On the other hand, where a discretionary trust is controlled by a trustee who is in truth the alter ego of a beneficiary, then at the very least a contingent interest may be identified because, to use the words of Nourse J, 'it is as good as certain' that the beneficiary will receive the benefits of distributions either of income or capital or both.
37 As discussed earlier, the beneficiary who effectively controls the trustee's power of selection because he is the trustee or one of them and/or has the power to appoint a new trustee has something approaching a general power and the ownership of the trust property. There are cases in the Family Law jurisdiction which have dealt with like circumstance. In Ascot Investments Pty Ltd v Harper [1981] HCA 1; (1981) 148 CLR 337, Gibbs J said (at 354-355):
'... if a company is completely controlled by one party to a marriage, so that in reality an order against the company is an order against the party, the fact that in form the order appears to affect the rights of the company may not necessarily invalidate it.'
Stephen, Aickin and Wilson JJ agreed.
38 The Full Court of the Family Court of Australia in In the Marriage of Ashton [1986] FamCA 20; (1986) 11 Fam LR 457 considered a case in which the husband was appointor of a family trust. He had the power to remove and appoint the trustee and could appoint himself. The trustee had the power to alter the terms of the trust at will. He was not a beneficiary of the trust but had received income from it. He was found to be 'in full control of the assets of the trust'. There were 'good grounds for saying the trust is no more than the husband's alter ego'. Strauss J said (at [14]):
'In the result, having regard to the powers and discretions which the husband has, and having regard to what had in fact taken place, for the purposes of s 79 [of the Family Law Act 1975 (Cth)], the husband's power of appointment, and all the attributes it carries with it, amounts to de facto ownership of the property of the trust.'
39 A similar trust arrangement existed in In the Marriage of Goodwin (1990) 101 FLR 386. The trial judge had found that the reality in that case was that no person other than the husband had any real interest in the property or income of the trust except at the will of the husband. In upholding the trial judge, the Full Court said (at 392):
'... we have no doubt that his Honour was entitled to find that the trust property was in reality the property of the husband in the present case. The husband had the sole power of appointment of the trustee which was a creature under his control and he was a beneficiary to whom the trustee could make payments exclusive of other beneficiaries as the husband saw fit.'
In the case of In Marriage of Davidson (No 2) (1990) 101 FLR 373 the Full Court observed (at 382):
'Whatever may have been the position 100 years ago Australian courts today have to look at the reality of the situation and the purpose which family trusts serve today.'
89Support for the conclusion that we have reached is to be found, we believe, in His Honour's observations on each of the following topics, and in particular the last of them: (a) the distinction between exhaustive discretionary trusts (in which, like the Trust in this case, the income must be distributed each year) and non-exhaustive discretionary trusts; (b) the flexible and non-technical nature of the term 'interest'; (c) the recognition that 'contingent' interests differ from 'mere' hopes or expectancies; and (d) the proposition that if a beneficiary under a discretionary trust has the power to appoint the trustee, he or she 'has something approaching a general power and the ownership of the trust property'.
90Since Re Richstar was not the subject of submissions by the parties at the hearing, we do not base our decision on it. We treat it instead as providing strong confirmation for this decision, which we would have reached in any event.
91In view of this decision, it is not necessary for us to rule on the Tribunal's determination - which was in fact given obiter - that Tolicar's claim for the losses that it sustained on account of the early termination of the Lease, being a claim for 'liquidated damages' under clause 19, amounted to a debt, not a 'bare right of action'. We will simply say that we are inclined, with respect, to differ from this determination.
92Our reason for taking this view is that we do not agree with the proposition, stated by the Tribunal at [84], that 'the subject claims by the applicant in respect of the re-letting of the shop, are "definite" and ascertained by "positive data" as distinct from "opinion or conjecture"'. An assessment of the damages payable under clause 19 of the Lease calls, amongst other things, for determinations of (a) whether any amount claimed for the Lessor's costs of re-letting is 'reasonable' and (b) the total amount of the 'several rentals outgoings and other monies which the Lessor by taking proper steps to re-let the premises shall obtain or could reasonably be expected to obtain by re-letting the premises for the unexpired residue of the term' (our emphasis). In our opinion, the scope for disputation and value-judgment inherent in these two aspects of the process of calculating the amount payable under the clause is enough of itself to preclude the application of terms such as 'definite' and 'certain' to this amount.