Elliot v Secretary, Department of Education, Employment and Workplace Relations

VICTORIA DISTRICT REGISTRY VID 1358 OF 2006

ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: PAUL ELLIOTT

AND: SECRETARY, DEPARTMENT OF EDUCATION, EMPLOYMENT AND WORKPLACE RELATIONS

Introduction 1 Pursuant to subs 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) ("the AAT Act"), Paul and Emilse Elliott ("the Elliotts") appealed against a decision of the Administrative Appeals Tribunal ("the Tribunal"). The Tribunal's decision, which was given on 15 November 2006, set aside a decision of the Social Security Appeals Tribunal ("SSAT") of 7 October 2005. For the following reasons, I would set aside the decision of the Tribunal, which held that the Elliotts were not eligible to receive the benefits they sought because they held beneficial interests in the corpus or income of a trust, which, by virtue of par 1207V(2)(d) of the Social Security Act 1991 (Cth) ("the Social Security Act"), was a "controlled private trust" in relation to them. 2 In conformity with O 53, r 3 of the Federal Court Rules 1979 (Cth), the Elliotts' notice of appeal stated four questions of law for the Court's determination. In written and oral submissions, the parties agreed, however, that, in reality, the outcome of the appeal turned on the answer to only one of these questions. This was whether, for the purposes of Pt 3.18 of the Social Security Act, the life discretionary trust created by clause 5(b) of the will of Gregory Elliott, deceased ("the deceased"), was a "controlled private trust" in relation to the Elliotts within the meaning of s 1207V of that Act. The parties agreed that, if the testamentary trust was such a "controlled private trust", then the Tribunal's decision was correct and the Elliotts' application to this Court would fail. If the trust was not a "controlled private trust" in this sense, then the Tribunal's decision was incorrect and should be set aside. The parties further agreed that the principal question should be determined solely by reference to par 1207V(2)(d) of the Social Security Act. 3 At the time of the Tribunal's decision, the Elliotts were receiving pensions under the Social Security Act. By way of elucidation, the Elliotts' notice of appeal stated that, until 26 May 2006, Mr Elliott was in receipt of a disability support pension and Mrs Elliott, a disability wife pension, at which date Centrelink cancelled their entitlements "as Centrelink attributed to [them] the value of the assets of a controlled private trust", for the purposes of Pt 3.18 of the Social Security Act. The SSAT set aside Centrelink's decision and the Secretary, Department of Employment and Workplace Relations ("the Secretary") appealed to the Tribunal. The Department is now known as the Department of Education, Employment and Workplace Relations.

The Tribunal's decision 4 The facts as found by the Tribunal, together with its reasons, can be briefly stated. 5 The Elliotts are the son and daughter-in-law of the deceased. The Tribunal stated that: Prior to his death, Mr Elliott Snr instructed his solicitor, Mr Walstab, to prepare a will. Mr Walstab explained his client was worried about leaving his estate in the hands of his son and daughter-in-law. They both experience health problems … It was also suggested they were not good managers of their resources. Mr Elliott Snr nonetheless wanted to make provision for them both out of his estate, and for their daughter who is a teenager. Mr Walstab drew up a will which directed how his personal chattels were to be distributed, and which provided for a bequest in the amount of $30,000 to [Mr Paul Elliott]. The residue of the estate was to be held on trust. 6 The Tribunal held that, by his will, the deceased created two trusts, being a life discretionary trust and a contingent fixed trust, the principal beneficiary of the latter being the Elliotts' daughter, Susan. Referring to clause 5(b) of the will of the deceased ("the will"), which was in evidence, the Tribunal concluded that "the trustees are not obliged to pay any amount to the [Elliotts] in any given year" and "are required to have regard to the interests (if not the representations) of the [Elliotts] when exercising the discretion". The Tribunal also observed that "the only individuals who are (or who could be) beneficiaries under the trust are members of the same family". 7 The Tribunal referred to the evidence given by Mr Saunders, who was one of the two trustees of the trust appointed under the will, saying: He was a friend of the testator but said he does not know the [Elliotts] well. He explained the trust funds have been invested. He also explained how the trustees have disbursed money to the beneficiaries. He said a monthly payment was made to the [Elliotts]. These payments were intended to supplement the social security benefits they received. Those amounts were increased after the reviewable decision was made to stop the social security payments. He said in addition the trustees paid for health insurance for the [Elliotts] and their daughter and met some medical bills. The trustees have also paid for the school fees of the [Elliotts'] daughter and made further payments to assist her in her studies. Some other payments have been made on an ad hoc basis: eg, the trustees purchased a family car and funded a family holiday. But Mr Saunders pointed out a number of requests from the [Elliotts] have been declined. 8 The Tribunal found that the trustees were "administering the trust at arms' length, and that they appl[ied] their independent judgment when considering whether or not to exercise their discretion to make payments". The Tribunal also found that the trustees did "not habitually accede to the [Elliotts'] requests although … [they] … regularly received payments". 9 The reasoning of the Tribunal appears in the following two paragraphs: The [Elliotts] say they do not fit within s 1207V(2)(d) because - as beneficiaries under a discretionary trust - they do not have any beneficial interest in the income or corpus of the trust. They referred to a number of authorities for this proposition, including Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 and Gartside v Inland Revenue Commissioners [1968] AC 553; see also R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1992) 10 WAR 59 at 79 per Owen J and Australian Securities Investments Commission; In the matter of Richstar Enterprises Pty Ltd v Carey (No 6) [2006] FCA 814 at para 28 per French J. The [Secretary] say[s] the words of the section change whatever the position might be at general law. Mr Belcher argued use of the word aggregate 'requires consideration of what the combined beneficial interest of the beneficiaries would be as if they were collected or united into one'. The only persons who can benefit under the trust are the [Elliotts], their daughter and other persons who, upon their birth, would be relatives of the [Elliotts]. The beneficiaries at any given time are therefore associates of each other. Between them, they account for the whole of the beneficial interest in the property. I agree with this approach. While the individual respondents do not hold any beneficial interest under the general law, the use of the word aggregate in the statute requires the decision-maker to recognise a kind of group right arising when the beneficiaries between them control the whole of the beneficial interest in the corpus of the trust: cf Gartside at 606 per Lord Reid. The use of the associate concept requires the 'group' interest to be attributed to the [Elliotts] because they are related to the other group members. It follows the [Elliotts] hold in excess of 50% of the beneficial interest in the corpus of the trust assets. They therefore satisfy the control test. Hence, the Tribunal held that the trust was a "controlled private trust" within the meaning of s 1207V of the Social Security Act and set aside the SSAT decision to the contrary.

The terms of the testamentary trust 10 The will was dated 17 July 2000. Pursuant to clause 2, there were two executors and trustees, including Mr Saunders, who were to stand possessed of the testator's residuary estate upon the trusts created by the will. Clauses 3 and 4 made a number of bequests. 11 Since argument in the case depended on the terms of the testamentary trust created by clause 5(b), I set out this clause in full, as well as certain other clauses, to which reference was made. 12 Clause 5 dealt with the testator's residuary estate. Clause 5 relevantly read as follows: 5. I give devise and bequeath all my real property and the balance of my personal property … unto my Executors … upon the following trusts:- Payment of Debts (a) Upon trust to pay there out all my just debts funeral and testamentary expenses … Life Discretionary Trust (b) My executors as trustees shall hold the balance remaining to invest the same in manner hereinafter authorised and to stand possessed of such investments and all other parts of my estate for the time being unsold UPON TRUST during the lifetime of the survivor of my son PAUL GREGORY ELLIOTT and his wife EMILY ELLIOTT to pay apply or set aside the net income therefrom or from any accumulated income in and towards the maintenance education advancement or benefit of my said son PAUL GREGORY ELLIOTT his wife EMILY ELLIOTT or of my grandchildren and their descendants (including future descendants) or any one of them to the exclusion of the other or others and in such proportions as my trustees in their absolutely discretion determine … AND I DIRECT that my trustees in their absolute discretion may have recourse to the capital of my estate and to pay or apply the capital or any part thereof in and towards the maintenance education advancement and benefit of my said son his said wife my grandchildren and their descendants (including future descendants) AND to permit any of the said beneficiaries to reside rent free in any property forming part of my estate AND in exercising their discretion to pay or apply the income or capital my trustees shall always have primary regard to the needs of my said son and shall also have regard to the impact of any payment or application on the social security entitlements of my said son or his said wife. (c) Upon the death of the survivor of my said son Paul Gregory Elliott and his said wife Emily Elliott then UPON TRUST to pay and transfer the balance remaining both capital and income to my granddaughter SUSAN ELLIOTT if she shall survive me and my said son and upon her attaining the age of thirty years. The entitlement of my said granddaughter under this clause shall, unless my Executors exercise their powers under clause 6, be as the Primary Beneficiary of a separate trust, the terms of which are set out in clause 7, provided that upon the death of any said granddaughter being a Primary Beneficiary then the Primary Beneficiary who shall replace the deceased Primary Beneficiary shall be the Primary Beneficiary nominated in writing by the deceased Primary Beneficiary, and if there is no replacement nominated, then the replacement Primary Beneficiary shall be the children of the deceased Primary Beneficiary and if there is more than one Primary Beneficiary then the powers of the Primary Beneficiary must be exercised jointly. (c) If neither said Susan Elliott nor any of her children shall be living at the date of death of the survivor of me my son Paul Gregory Elliott and his said wife or if surviving dies before attaining the age of thirty years leaving a child or children him or her surviving such child or children as and when he she or they shall attain the age of thirty years shall take by substitution and if more than one then as tenants in common in equal shares per stirpes the share of my estate which such granddaughter of mine would have taken had she been living at the date of death of the survivor of me my said son and his said wife and attained the age of thirty years. (d) In the event that neither Susan Elliott nor any of her children shall be living at the death of the survivor of me my said son and his said wife or if surviving none of them attain the age of thirty years then to pay and transfer the balance remaining to my cousin's daughter HANNAH CHERIE PATRICK of 24 Netherpark Drive Gidea Park Essex (near Romford) in the United Kingdom. 13 Clause 6 and part of clause 7 read as follows: 6. Alternative Distribution to or for Primary Beneficiary My Executors shall, if a Primary Beneficiary consents to its exercise, have the discretion to distribute all or any part of the share of my estate for which the Primary Beneficiary would otherwise have been the Primary Beneficiary of a Trust created by this Will to: (a) any other Trust, the beneficiaries of which are confined to all or some of the beneficiaries that would otherwise have been the beneficiaries of the Trust under this Will, or (b) the Primary Beneficiary in his or her personal capacity. 7. Terms of Trusts In respect of each of the Trusts created under this my Will that include a Primary Beneficiary specified in this Will, I declare that the following terms shall apply: Beneficiaries: (a) The beneficiaries of the Trust shall be: (i) the relevant Primary Beneficiary; (ii) the Primary Beneficiary's spouse; (iii) the children, remoter issue and dependants of the persons specified in the preceding subparagraphs; (iv) the spouse of any of the persons specified in the preceding subparagraphs; (v) charitable or religious funds or institutions; Distribution of Income or Capital: (b) (i) The income and capital (or any category of the income or capital) of the Trust may in each year be paid or allocated to or applied for the benefit of such of the beneficiaries that the Trustee might select from time to time or (in the case of the income) may be accumulated as an addition to the capital of the Trust; (ii) At any time when the Trustee has been appointed by virtue of subparagraph (f)(iii), the Trustee shall either accumulate the Trust income or distribute the income to such beneficiaries as the Trustee considers is in the best interests of the Primary Beneficiary or all of the residuary beneficiaries; … 14 In essence, under clause 5(b) of his will, the deceased created what can usefully be termed a "life discretionary trust", for the lifetime of the survivor of the Elliotts, the objects of which are the Elliotts, the deceased's grandchildren (of whom Susan is presently the only one) and the descendants of his grandchildren (including any child of Susan). I refer hereafter to the trust's objects as the "discretionary beneficiaries". By virtue of clause 5(c), upon the death of her parents, Susan Elliott (if surviving her father and reaching 30 years of age) becomes a beneficiary of a separate discretionary trust governed by clause 7 and, subject to the proviso in clause 5(c), a Primary Beneficiary (within the meaning of the will). The other possible beneficiaries of this trust included the primary beneficiary's spouse and children. This proceeding is not concerned with this second trust. By his will, the deceased also made provision for an absolute gift to his cousin's daughter (Ms Patrick) in the event that the second trust failed. The case is not concerned with this possibility either. 15 Pursuant to clause 5(b) of the will, the trustees were empowered to apply the income and, if they saw fit, the capital of the trust for the "maintenance education advancement or benefit" of the Elliotts or any other discretionary beneficiary "to the exclusion of the other or others and in such proportions as [the trustees] in their absolute discretion determine". Thus, the trustees' discretion as to which, if any, of the discretionary beneficiaries were to receive any payment of income or capital and, if so, in what amounts, was "absolute" save that, in exercising their discretion, they were to have primary regard to the needs of the first applicant, Paul Elliott, and also to have regard to the impact of any payment or application on the social security entitlements of the Elliotts.

The parties' submissions 16 In written submissions, the Elliotts contended that "[o]nce it is accepted that there are two separate, differently constituted trusts, the control test in par 1207V(2)(d) of the [Social Security Act] cannot be satisfied". They argued, first, that the Tribunal had incorrectly aggregated the beneficial interests of two separate trusts - that created by clause 5(b) and that created by clause 5(c) - when the only relevant trust was that created by clause 5(b). Secondly, they argued that the Elliotts have no beneficial interest in the trust created by clause 5(b). The Elliotts submitted that they: … have no proprietary interest in the trust fund. They have a 'spes' and a chose in action, being the right to compel due administration of the trust. Any beneficial interest they have only arises once the trustee exercises his or her discretion in favour of the discretionary object, and then such interest only relates to that part of the trust fund to which the exercise of discretion relates … 17 The Elliotts argued that, under the trust created by clause 5(b), until the trustees exercised their discretion to make payment out of the trust fund to them, they have merely a right to invoke the equitable jurisdiction of a court to ensure that the trust is duly administered and that the trustees exercise their discretion properly. It followed, so they said, that they could not affect the outcome of the trustees' decision-making process in order to secure the payment of trust funds to themselves. In this circumstance, so they submitted, neither they nor their daughter (or any other discretionary beneficiary) could hold a beneficial interest in the corpus or income of the trust within the meaning of par 1207V(2)(d). Accordingly, so they contended, they could not satisfy par (d) of subs 1207V(2) since none of the discretionary beneficiaries held a beneficial interest capable of being aggregated. Counsel for the Elliotts supported this argument by reference to such authorities as Gartside v Inland Revenue Commissioners [1968] AC 553 ("Gartside"), R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1993) 10 WAR 59 ("Anchorage") and Australian Securities and Investments Commission v Carey (No 6) (2006) 153 FCR 509 ("Carey"). 18 The Elliotts had no power, so their counsel submitted, to terminate the trust, which would end only with the death of the survivor. This was not, so their counsel said, a case like Sir Moses Montefiore Jewish Home v Howell and Co (No 7) Pty Ltd [1984] 2 NSWLR 406 ("Montefiore"), which extended the rule in Saunders v Vautier (1841) 4 Beav 115; 41 ER 482 ("Saunders v Vautier") to a discretionary trust, because the objects of the trust established under clause 5(b) of the will were not closed and extended to the unborn children of the Elliotts (if any) and the descendants of the Elliotts' children, including Susan Elliott's descendants (if any). 19 Counsel for the Elliotts also referred to the policy that lay behind the enactment of Pt 3.18, as reflected in the responsible Minister's Second Reading Speech to the Social Security and Veterans' Entitlements Legislation Amendment (Private Trusts and Private Companies - Integrity of Means Testing) Bill 2000 ("the Bill"). Counsel argued that the Parliament cannot have intended that a mere right to approach a court of equity to secure the due administration of the trust could amount to a "beneficial interest" within par 1207V(2)(d), because it was part of a provision directed to the matter of control. Parliament cannot have intended, so he argued, that persons, such as the Elliotts, without any means of accessing the funds of a trust, should be held to have control over the trust funds and, for this reason, disentitled from receiving social security benefits. 20 The Secretary also relied on the Second Reading Speech to the Bill. The Secretary argued that the Elliotts' first argument - that the Tribunal aggregated "two separate trusts" was based on a false premise because a fair reading of the Tribunal's reasons was that the Tribunal was only dealing with the discretionary trust in clause 5(b) of the will. 21 Further, the Secretary contended that, regardless of the characterisation of the Elliotts' interests under the general law, the word "aggregate" in par 1207V(2)(d) "requires consideration of what the combined beneficial interest of the beneficiaries would be as if they were collected or united into one". The Secretary argued that this followed from the ordinary meaning of the word "aggregate" and was supported by the Explanatory Memorandum to the Bill ("the EM"). In written submissions, the Secretary said: Given that the only persons who could benefit under the trust were the [Elliotts], their daughter and other persons who, upon their birth, would be relatives of the [Elliotts], the beneficiaries at any given time are therefore associates of each other and account for the whole of the beneficial interest in the trust. Hence the [Tribunal] was correct to conclude that the [Elliotts] held in excess of 50% of the beneficial interest in the corpus of the trust assets and, accordingly, they satisfied the control test under s 1207V(2)(d) of the [Social Security] Act. 22 Counsel for the Secretary submitted that "a beneficial interest" would exist for the purposes of par 1207V(2)(d) where there was "the entitlement ... to enforce the due administration of the trust, and ... the capacity to receive property or interest". On this submission, the position at general law was very largely immaterial. Relying on Secretary, Department of Family and Community Services v Geeves (2004) 136 FCR 134 ("Geeves") and Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 368 and 381, the Secretary argued that a broad construction of par 1207V(2)(d) was consistent with the purpose of Pt 3.18, which was to capture the kind of arrangements made by the testamentary trust in question here. The Secretary maintained that par 1207V(2)(d) was specifically intended to capture discretionary trust entitlements; and that, if I were to accept the Elliotts' submissions, then par 1207V(2)(d) would not operate to capture discretionary trust beneficiaries as intended. The Secretary emphasised the Elliotts' practical capacity to have access to the income and assets of the trust created under clause 5(b) of the will and that they benefited from regular payments out of trust funds. The Secretary noted that all possible discretionary beneficiaries were necessarily "associates" and argued that their interests could be aggregated, with the result that the Elliotts should be considered to pass the control test via par 1207V(2)(d).

Consideration 23 I accept the Secretary's submission that, in its reasons, the Tribunal was only dealing with the discretionary trust in clause 5(b) of the will. I reject the Elliotts' written submission to the contrary. 24 The more important question - whether the aggregate of the beneficial interests in the corpus or income of the trust held by the Elliotts and their daughter amounted to 50% or more - is essentially one of statutory construction, having regard to the rights of the discretionary beneficiaries under the trust created by clause 5(b) of the will. In order to answer it, some meaning must be given to the concept of "beneficial interests" in par 1207V(2)(d) of the Social Security Act. 25 The Social Security Act does not define "beneficial interests". The expression "beneficial interest" has no precise received meaning: compare RP Meagher, JD Heydon, and MJ Leeming, Meagher, Gummow and Lehane's Equity Doctrines and Remedies (Butterworths, LexisNexis, 4th ed, 2002) at [4-040] and R Speed, "Beneficial Ownership" (1997) 26 ATR Rev 34 at 50. Indeed, the word "interest" is itself "capable of a very wide and general meaning": see Gartside at 617 per Lord Wilberforce; Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12 ("Livingston") at 22 per Viscount Radcliffe; and CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98 at 114 per Gleeson CJ, McHugh, Gummow, Callinan and Heydon JJ. The expression "beneficial interests" therefore falls to be interpreted principally by reference to the statutory context in which it is used, and any guidance that the general law can provide. The Court may also have regard to extrinsic materials such as the second reading speech or the explanatory memorandum accompanying the Bill to confirm that the ordinary meaning of the expression is applicable or to assist in resolving any ambiguity: see Acts Interpretation Act 1901 (Cth), s 15AB. 26 The expression "beneficial interests in the corpus or income of the trust" appears in subs 1207V(2), which is an important part of Pt 3.18 of the Social Security Act. Part 3.18 introduced a system for the attribution to individuals of the assets and income of private companies and private trusts: see Anstis v Secretary, Department of Family and Community Services [2002] FCA 1043 at [3]-[4]. It must be borne in mind that, broadly speaking, in order to qualify for a pension under the Social Security Act, a person must satisfy an assets test and an income test. Simply put, a would-be pensioner may receive the lower of the two amounts that result from the application of the assets test and the income test. Pt 3.18 is part of this regime. 27 Subsection 1207X(2) of the Social Security Act, which is in Pt 3.18, concerns private trusts. This subsection relevantly provides that, for the purposes of Pt 3.18, if a trust is a "controlled private trust" in relation to an individual (and par 1207X(2)(b) is satisfied), then the individual is an "attributable stakeholder" of the trust (unless the Secretary determines otherwise). If the individual is an attributable stakeholder, then, pursuant to pars 1207X(2)(d) and (e), the individual's "asset attribution percentage" and "income attribution percentage" in relation to the trust is either 100%, or such lower percentage as the Secretary determines. Pursuant to subs 1207V(1), for the purposes of Pt 3.18, a trust is a "controlled private trust" in relation to an individual if the trust is a "designated private trust" (as defined in subs 1207P(1)) and the individual passes the "control test" in subs 1207V(2) or the "source test" in subs 1207V(3). No issue arises in this case as to the application of subs 1207V(3). 28 Subsection 1207V(1) of the Social Security Act provides: For the purposes of this Part, a trust is a controlled private trust in relation to an individual if the trust is a designated private trust and: (a) the individual passes the control test set out in subsection (2); or (b) the individual passes the source test set out in subsection(3). It is common ground that the trust created under clause 5(b) of the will is a "designated private trust": see subs 1207P(1). 29 Subsection 1207V(2) provides: For the purposes of this section, the individual passes the control test in relation to a trust if: (a) the individual, or an associate of the individual … is the trustee, or any of the trustees, of the trust; or (b) a group in relation to the individual was able to remove or appoint the trustee, or any of the trustees, of the trust; or (c) a group in relation to the individual was able to vary the trust deed or to veto the decisions of the trustee; or (d) the aggregate of: (i) the beneficial interests in the corpus or income of the trust held by the individual (whether directly or indirectly); and (ii) the beneficial interests in the corpus or the income of the trust held by associates of the individual (whether directly or indirectly); is 50% or more; or (e) a group in relation to the individual had the power (by means of the exercise by the group of any power of appointment or revocation or otherwise) to obtain, with or without the consent of any other entity, the beneficial enjoyment of the corpus or income of the trust; (f) a group in relation to the individual was able in any manner whatsoever, whether directly or indirectly, to control the application of the corpus or income of the trust; or (g) a group in relation the individual was capable under a scheme of gaining the enjoyment or the control referred to in paragraph (e) or (f); or (h) a trustee of the trust was accustomed or under an obligation (whether formally or informally) or might reasonably be expected to act in accordance with the directions, instructions or wishes of a group in relation to the individual. (Emphasis added.) 30 It is common ground that the only question in this proceeding is as to the application of par 1207V(2)(d). As noted above, the Elliotts challenged the Tribunal's finding that they passed the control test in relation to the trust established under clause 5(b) of the will on the basis that they satisfied par 1207V(2)(d) of the Social Security Act. The Tribunal confined its attention to this paragraph. It did not consider whether the Elliotts satisfied the control test by reference to any other paragraph in subs 1207V(2), the SSAT having previously determined to the contrary. The Secretary did not contend that there was any error in its approach in this regard. 31 For the purposes of Pt 3.18, in determining whether a trust is a controlled private trust in relation to an individual, an associate of an individual includes a relative of an individual: see ss 1207A and 1207C. For this purpose, a relative, in relation to a person, includes a spouse, child or other lineal descendant: see s 1207B. It was common ground that Susan Elliott was a relative of the Elliotts: see par 1207B(1)(f). The Elliotts were relatives of one another: see par 1207B(1)(a). Moreover, if in being, any other discretionary beneficiary would also be a relative of the Elliotts. If the trust is a "controlled private trust" pursuant to par 1207V(2)(d) of the Social Security Act, the applicants are deemed to be "attributable stakeholders" of the trust under s 1207X of the Social Security Act. 32 Prior to the introduction of Pt 3.18, the valuation of assets was not thought to extend to trusts and private companies. The purpose of the introduction of Pt 3.18 and provisions such as s 1207V is probably clear enough from its terms, but it is confirmed by the extrinsic materials to which I was referred. In his Second Reading Speech on the Bill, which introduced Pt 3.18, the Minister for Community Services (Mr Anthony) said: This measure has been prompted by the increased use of private trusts and private company structures to gain social security and veteran's affairs entitlements. A primary aim of the measure is to forestall the continued growth in the use of this strategy. … It is designed to ensure that income support entitlements are based upon a person's level of resources, not on the way in which he/she holds those resources. In relation to the control test, the Minister said: It is clear that often the controller of a structure can be considered to be the de facto owner of the structure's assets where he or she can use the assets for his or her own purpose or benefit. This test will also make it possible to determine who is the ultimate, or actual, controller of a structure. It is possible for the actual controller of a structure to be different to the apparent controller. This test will make reference to the concept of an 'associate'. An 'associate' is a person who may, because of their relationship with the actual controller, assist this controller with maintaining control of the structure. The relationship between the controller and an associate is broader than just a family relationship. 33 The EM also confirms what is reasonably evident in the provisions themselves. According to the EM, the purpose of Pt 3.18 and associated provisions was "to ensure that customers who hold their assets in private companies or private trusts receive comparable treatment under the means test to those customers who hold their assets directly". The EM further stated (at p 2): A key principle of our social security system is that people with similar levels of private resources should receive similar pension or allowance payments. However, the existing means test treatment of private trusts and private companies is inconsistent with the principles underlying effective targeting of social security payments. Under current social security law, assets and income are only attributed to a person where legal ownership or a fixed right to income is established. This means that private trusts and private companies may be used to hold and control assets and/or income outside the scope of the means test. … This measure employs specially designed tests to 'look through' interposed structures to identify who controls a particular structure and who is the source of the structure's assets. These complementary tests - the 'source' and 'control' tests - will enable ownership of the assets and/or income of a private trust or private company to be attributed to appropriate individuals for the purposes of the means test. A test based on identifying control of a structure is justified on the grounds that the controller of a structure can be considered the de facto 'owner' of the structure's assets when he or she can use the assets for his or her own purposes or benefit. In assessing whether an individual passes the control test, the interests of that individual and of the individual's 'associates' (as defined in the legislation) will be taken into account. This prevents a person in relation to whom a trust or company is a controlled private trust or company from diluting his or her interest in a structure (for example, by issuing non-voting shares in a company). The EM commented that: New paragraph 1207V(2)(d) provides that, if the individual, alone, or the individual and the associates of the individual together hold 50% or more of the beneficial interests of the trust, whether directly or indirectly, then the individual passes the control test in relation to that designated private trust. 34 With these comments in mind, it is open to doubt whether the regime established by Pt 3.18 was intended to extend to persons who (like the Elliotts) have minimal, if any, control over the corpus or income of a trust. As the following discussion shows, neither singly nor together are the Elliotts (or the Elliotts and their daughter) able to control the disposition of the income or capital of the trust. 35 The nature of the rights enjoyed by the beneficiaries of a discretionary trust depends very much on the terms of the discretionary trust in question: see, e.g., the discussion in Carey at 515-6 per French J. Adopting the terminology that his Honour there uses, the trust created under clause 5(b) is a "non-exhaustive" trust because the trustees have a discretion (subject to the directions previously mentioned at [15] above) to distribute part or none of the income and capital of the trust as they see fit: see Carey at 516. The discretionary beneficiaries are an "open" class: see Carey at 516. That is, the trust is capable of benefiting not only living family members (the Elliotts and their daughter) but also persons as yet unborn. As French J commented in Carey at 516, "[t]he naming of these species of discretionary trusts, like the term 'discretionary trust' itself, is a matter of taxonomical convenience rather than expository of principle". At the same time, as French J's discussion in Carey shows, the distinction between "exhaustive" and "non-exhaustive" and "closed" and "open" trusts may have a significant bearing on the nature of the rights or interests held by the discretionary beneficiaries. 36 For example, as French J records, the Court of Appeal in Re Nelson [1928] Ch 920 at 921-2 ("Re Nelson") held that the three beneficiaries of an exhaustive discretionary trust with a closed class were able to mortgage their share and interest under a will since they were "of age and sui juris" and concurred "in assigning by way of mortgage their interest". In that case, Swinfen Eady MR distinguished the earlier case of Re Coleman (1888) LR 39 Ch D 443 ("Re Coleman"), where the trustees had power to apply the income of the trust fund for the benefit of a class or any one of them to the exclusion of the others (as in the present case). In Re Coleman, one of the beneficiaries assigned his share and claimed that an appropriate portion should be paid to his assignee. In Re Nelson at 921, the Master of the Rolls said (in relation to the issue in Re Coleman): The answer to that was that he did not take an equal fourth or any other share and the trustees could have applied the whole of the income to the other members of that class. That is quite a different case from the present, where all the members of the class have assigned their shares to the mortgagees. Having regard to these authorities, French J concluded in Carey (at 517) that "[w]here there is an exhaustive discretionary trust with a closed class of beneficiaries, then all the beneficiaries may collectively require the trustee to transfer the fund to them or deal with the property subject to discretion as if they were the absolute owners of it". This is not, however, the position with respect to a non-exhaustive trust where the class of objects is open, as in the case of the trust created under clause 5(b) of the will. 37 I accept that, as counsel for the Elliotts submitted, it would not be open to the Elliotts to terminate the trust under clause 5(b) of the will. Put simply, this is because the trust is non-exhaustive and its class of discretionary beneficiaries open. I accept that, as clause 5(c) of the will contemplates, this trust will end only with the death of the survivor, when a different trust may come into existence. The class of discretionary beneficiaries is open to more descendants until that event terminates the trust. 38 Thus, this case is different from Montefiore, where Kearney J held, by reference to the rule in Saunders v Vautier, that, where the class of objects of a discretionary trust was closed and the income was required to be paid each year to one or more of the objects, the objects acting together could terminate the discretionary trust: see Montefiore at 410-11. Whilst his Honour considered it "odd" that "all the objects should collectively enjoy a beneficial ownership entitling them to invoke the rule in Saunders v Vautier which is different in character from the aggregate of their individual interests", he held nonetheless that such an entitlement existed: see Montefiore at 411. In contrast to this, the terms of the trust under clause 5(b) do not require the trustees to pay the trust income at any particular interval or at all to one or other of the objects, but, subject to the directions already noted, would permit the trustees to accumulate income as they saw fit and, as already stated, the class of discretionary beneficiaries is not closed: compare JD Heydon and MJ Leeming, Jacobs' Law of Trusts in Australia (LexisNexis Butterworths, Australia, 2006) at [2315]. 39 Under clause 5(b) of the will, each of the Elliotts and their daughter has a right to be considered by the trustees as a possible recipient of a payment out of the income and capital of the trust in accordance with the terms of the trust. They also have a right to have the trustees consider whether they should be permitted to reside rent free in any property forming part of the estate. Each of them has a right to have the trust administered duly and properly: compare Gartside at 617-8 per Lord Wilberforce. They also had a right to receive information about the management of the trust fund and to see trust documents: see [44] below. Furthermore, the discretionary beneficiaries have a right to trace and follow the trust assets if they are misappropriated: Livingston 23-24; also Hardingham IJ and Baxt R, Discretionary Trusts (Butterworths, 2nd ed, 1984) at [517]. It is by no means self-evident, however, that, because of these rights, any of them has "beneficial interests in the corpus or income of the trust" within the meaning of par 1207V(2)(d) of the Social Security Act. 40 The authorities provide little direct assistance on the principal question in the case. The Secretary referred to Geeves, which gave rise to the question whether a court-ordered trust fund was to be taken into account in valuing the "assets" held by the sole beneficiary for the purpose of the assets test in s 198(1B) of the Social Security Act. Geeves is, plainly enough, a different case from the present. It did not concern a discretionary trust where the entitlement of a beneficiary is unascertained. Geeves related to a private trust with an ascertained beneficiary, who therefore held a proprietary interest in the property subject to the trust. The Full Court upheld the primary judge's decision that the trust was an "excluded trust" and therefore its assets could not be attributed for the purposes of the assets test. This finding provides no guidance here. Keifel J, with whom Weinberg J agreed, also held that the beneficiary's interest in the trust assets was not to be regarded as 'property' or 'assets' within the meaning of s 11 of the Social Security Act, because the trust assets could not be utilised by the beneficiary: see Geeves at 141. Keifel J's comments in this regard have some bearing on the present case. Her Honour said (at 141-2): The evident focus of the Act, in my view, is upon assets which are available for a person's use. It does not seem to be consistent with the purpose of the Act to require that assets which are not able to be utilised by a person are to be taken into account in assessing whether they qualify for the benefit in question. … Even on a wider view of property a discretionary trust would not qualify. It could in no sense be said to be the property of a person who is not yet identified as a beneficiary of it. For the purposes of the Act, however, some beneficiaries of discretionary trusts in reality, if not in law, have access to the trust assets because they are in a position to control the trust. The amendments of 2000 recognise and deal with such a situation. They and the Explanatory Memorandum tend to confirm, in my view, that it is assets which are in truth available to a person which are relevant for the purposes of the Act. … I would therefore conclude that [the beneficiary's] interest in the trust assets would not be regarded as property or assets within the meaning of s 11 of the Act. The amendments of 2000 have the effect however that they would nevertheless be attributed to him. Whilst not in control in the same sense as persons who control discretionary trusts, he would pass the control test set up by s 1207V(2) because his beneficial interest in the trust fund would be 50% or more. The presumption here is that he does have a measure of control because of the extent of his interests. The Secretary's declaration exempts a court-ordered trust, such as that in question here, from the attribution rules. It puts beyond doubt that they are not to be included in the value of the care receiver's assets. It seems to me that, to the extent that this passage elucidates the present question, it tends against the Secretary's argument. First, it emphasises that the purpose of subs 1207V(2) is to make assets that are in reality available to a person relevant for the purposes of determining pension entitlements and, secondly, it underscores the fact that regard must be had to the question of control, having regard to the particular trust in question. This indicates that it is incorrect to view every discretionary trust in the same light; instead, attention must be paid to the particular terms of each trust, whether fixed or discretionary, and to the criteria to which subs 1207V(2) direct attention. 41 As noted earlier, counsel for the Elliotts placed a good deal of reliance on the decision of the House of Lords in Gartside in which a question arose as to whether a person who might benefit, in his lifetime, from the exercise of a trustee's power to make payment to him out of a fund under a discretionary trust held an "interest in possession" within the meaning of s 43 of the Finance Act 1940 so as to attract a tax on death. Gartside held that there was no "interest in possession" within the meaning of the relevant statute: see Gartside at 618 per Lord Wilberforce, with whom Lord Hodson agreed; also 607 per Lord Reid, with whom Lord Morris of Borth-y-Gest and Lord Guest agreed. Whilst the answer is immaterial here, their Lordships' consideration of the nature of the right held by an object of a discretionary trust is helpful. The trust in question was similar in relevant terms to the trust created by clause 5(b) of the will, as the following observations of Lord Wilberforce (at 614-5) show: Under the trusts of income which applied during his life, no one of [the] beneficiaries had any right to receive any income. The trustees had an absolute discretion to distribute or to withhold distribution of the income of any year, and, as regards any income they decided to distribute, to give all or none of it to any one beneficiary. Any undistributed income had, during the permissible period, to be accumulated, i.e., added to capital. … It is also necessary to appreciate that the discretionary beneficiaries taken together had no right to receive any or, a fortiori, all of the income. … [T]he trustees had power to accumulate so much as they did not distribute, which might be the whole, for the possible benefit of persons unborn. To describe them as 'the only people who could during the relevant period obtain any benefit from the property or have any beneficial enjoyment of it' may be misleading, unless one bears in mind that, singly or collectively, they had no right in any year to receive a penny. 42 Gartside therefore reinforces what is largely evident from clause 5(b) - that, until the trustees exercise their discretion in his or her favour, none of the discretionary beneficiaries has a right to receive any payment of income or capital. At most, each has a right to require the trustees to consider whether to make such a payment in accordance with the terms of the trust: see [39] above. The question remains whether the Elliotts' entitlements as discretionary beneficiaries gives rise to "beneficial interests in the corpus or income of the trust" within par 1207V(2)(d) of the Social Security Act. 43 The second of the decisions relied on by the Elliotts was that of the Full Court of the Supreme Court of Western Australia in Anchorage, which involved contempt proceedings for alleged breach of a Mareva injunction. The question for determination was whether certain transactions amounted to breach of the injunction. A person bound by the injunction exercised his power as the appointor under a trust deed to make his son guardian of the trust and removed himself as appointor. His son removed the other trustee, Anchorage, and appointed a company with which he was associated in its stead. The new trustee, with his consent and that of his wife, declared that they were excluded as general beneficiaries. The Bank argued that the transactions breached the injunction. On appeal, Owen J, with whom Ipp J agreed, held that a beneficiary of the trust in question did not have any proprietary interest in any particular assets of the trust fund or in the fund as a whole. Owen J said (at 79): The Trust Deed confers on the trustee a mere power. It is a power of very wide import. The trustee can determine whether an individual beneficiary is to benefit at all, and if so, in what way, from the exercise of the power in his or her favour. In this sense, the beneficiary has nothing more than an expectancy. The trustee has a duty to administer the trust bona fide having regard to the purpose for which it was established. This is a duty which the court will enforce at the behest of a beneficiary. In this way, the remedy defines the nature of the interest of an individual beneficiary. It is to require the trustee to consider the matter, to decide whether or not to exercise the power and, if the power is to be exercised, to do so correctly in accordance with the terms of the trust … Such a right is an equitable chose in action. Owen J added (at 80) that, in the case of a beneficiary under a discretionary trust, '[t]he exercise of the rights implicit in the chose in action might not result in any financial benefit to the beneficiary concerned". At the level of principle, Anchorage affirms Gartside but, once again, provides limited guidance on the question at hand. 44 The third of the decisions on which the Elliotts relied was that of French J in Carey, where a receiver was appointed under s 1323 of the Corporations Act 2001 (Cth) in respect of the property of a person under investigation. Holding that the provision applied to the relevant person's equitable estate or interest in property the subject of a non-discretionary or fixed trust, his Honour turned to the "less straightforward question … when the relevant person is a beneficiary of a discretionary trust": see Carey at 515. At 518-9, his Honour stated his opinion that "in the ordinary case the beneficiary of a discretionary trust, other than perhaps the sole beneficiary of an exhaustive trust, does not have an equitable interest in the trust income or property … amenable to control by receivers under s 1323". His Honour accepted that "there are some rights enjoyed, even by the beneficiaries of a non-exhaustive discretionary trust with an open class of beneficiaries" such as the right to inspect trust documents, the right to require the trustee to provide information about the management of the trust fund, and a right to enforce proper management of the trust by the trustee. In Carey at 520, French J rejected the submission that a beneficiary under a discretionary trust held a contingent interest, saying: 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. His Honour noted that different considerations arose where a discretionary trust is controlled by a trustee "who is in truth the alter ego of a beneficiary" (at 520). This observation is pertinent in the context of subs 1207V(2) of the Social Security Act. 45 Carey is helpful at the level of principle, amongst other reasons, because it concentrates attention on the terms of the particular trust in question. It also draws attention to the fact that the degree of control, if any, that a discretionary beneficiary may enjoy under a discretionary trust depends on the terms of the trust, having regard to the circumstances of the case. Subsection 1207V(2) works on a similar assumption. It is therefore a mistake to treat all so-called discretionary trusts in the same way, as the Secretary's argument tends to do. 46 Furthermore, Gartside, Anchorage, Carey and Livingston (see Weinberg J's discussion in Geeves at 143) make it plain that, although the object of a discretionary trust holds a bundle of rights, these rights do not necessarily amount to what can be termed an "interest" or "beneficial interest", when considered from the perspective of a particular statute: compare M Stone and V Lesnie, "Some Thoughts on Beneficial Interests and Beneficial Ownership in Revenue Law" (1996) 19(1) UNSW Law Journal 181 at 183 and David Hayton, Paul Matthews & Charles Mitchell, Underhill and Hayton Law Relating to Trusts and Trustees (LexisNexis Butterworths, 17th ed, 2006) at [1.1]. Of course, this is not to say that, in a particular statute, such rights might not be so regarded and described. The question, then, is whether or not the rights of the discretionary beneficiaries in this case amount to "beneficial interests in the corpus or income" such that they might be "aggregated" within the meaning of par 1207V(2)(d). 47 I accept that, as the Secretary submitted, the word "aggregate" in par 1207V(2)(d) is used in its ordinary sense, signifying "[t]o gather into one whole or mass; to collect together, assemble; to mass": see Oxford English Dictionary. Paragraph (d) of subs 1207V(2) presupposes, however, that there are in fact "beneficial interests in the corpus or income of the trust" that are capable of aggregation. If neither the individual nor his or her associates hold any such beneficial interests, then the paragraph cannot apply. 48 Subsection 1207V(2) is intended to ensure that those assets that an individual can control and therefore utilise are taken into account in assessing whether that individual qualifies for a benefit under the Social Security Act. Subsection 1207V(2) therefore provides for the "control test" to be satisfied by reference to criteria for control set out in paragraphs (a) to (h). As noted above, if a trust satisfies any of these criteria, then it is a "controlled private trust" for the purposes of the Part (subs 1207V(1)) and the income or assets of the trust are attributable to the individual. 49 The criteria in paragraphs (a) to (h) of subs 1207V(2) mean that the control test can be passed in various ways. The criteria all reflect a requirement that the individual, or his or her associate, or a "group" in relation to the individual (being either the individual, or an individual's associates, acting either as a group or alone (subs 1207V(4)), exercise some legal or practical control over the trust, whether because the individual or an associate is the trustee (par 1207V(2)(a)); or can remove or appoint the trustee (par 1207V(2)(b)); or can vary the trust deed or veto the decisions of the trustee (par 1207V(2)(c)); or possesses the power to obtain the beneficial enjoyment of the corpus or income of the trust (par 1207V(2)(e)); or can control the application of the corpus or income of the trust (par 1207V(2)(f)); or has the power to gain that control (par 1207V(2)(g)). The control test may also be passed where the trustee of the trust was accustomed or under an obligation, or might reasonably be expected to act in accordance with the instructions or wishes of a group in relation to the individual (par 1207V(2)(h)). Paragraph (d) of subs 1207V(2) must be construed in this statutory context. This paragraph sets out a standard, which, if satisfied, supports the conclusion that the individual (alone or with his or her associates) has some practical control over the corpus or income of the trust. In summary, the expression "beneficial interests in the corpus or income of the trust" in par 1207V(2)(d) signifies interests that, when taken together, would, practically speaking, permit the individual (acting alone or through his or her associates) to control the disposition of trust capital and income in some way, so that the individual (acting alone or with his or her associates) can enjoy the economic benefit of the trust. 50 In this case, neither of the Elliotts acting alone or together, or with their daughter (or with any lineal descendant as yet unborn) have any legal or practical capacity to take control of the testamentary trust. Consistently with this and in accordance with the trust deed, the trustees (so the Tribunal found) exercised their independent judgment in considering whether or not to make payments to any of the discretionary beneficiaries. In this context, it is inapt to attribute to the Elliotts "beneficial interests in the corpus or income of the trust fund", which are capable of aggregation, as par 1207V(2)(d) contemplates. This is a case in which each discretionary beneficiary possesses certain limited rights. I doubt that these rights might ever be aggregated in any relevant sense, but, even if they could, they would not permit the discretionary beneficiaries to require the trustees to make any distribution of any kind, whether out of income or capital, to them or any of them. 51 As noted above, pursuant to clause 5(b) of the will, in exercising their discretion with respect to the income or capital of the trust, the trustees are required always to have primary regard to the needs of the first applicant, Paul Elliott. This would appear to place Mr Elliott in a more advantageous position than the other discretionary beneficiaries. Neither the Elliotts nor the Secretary sought to rely on this as a factor in support of their respective arguments. Neither party sought to argue that this direction changed the essential nature of the trustees' discretion from an absolute discretion to something relevantly less than this. 52 Indeed, it does not seem to me that the direction alters the essential nature of the rights held by Mr Elliott and the other discretionary beneficiaries. They remain as set out above. Acting in accordance with the terms of the trust, in considering an exercise of discretion, the trustees will always have primary regard to Mr Elliott's needs and, in consequence, his needs will be considered first, but, having considered his needs, it remains for the trustees to determine whether to make a payment out of trust income or capital to him, or to another discretionary beneficiary, and, if so, how much that payment should be. The existence of the direction does not turn the bundle of rights that Mr Elliott enjoys into beneficial interests in the corpus or income of the trust. Nor does it affect the nature of the rights held by the other discretionary beneficiaries. The direction does not enable any aggregation of beneficial interests for the purposes of par 1207V(2)(d) of the Social Security Act. Part 3.18 of the Social Security Act is not, I think, intended to operate through subs 1207V(2) so as to require that assets that the individual cannot turn to his own use as he wishes to be taken into account in determining whether that individual qualifies for a benefit under the Social Security Act. 53 For these reasons, the Tribunal erred in holding that the trust under clause 5(b) of the will was a "controlled private trust". The Tribunal erred in holding that, on the facts as found by it, the Elliotts passed the control test because they satisfied par 1207V(2)(d) of the Social Security Act. 54 As to the form of orders, subs 44(4) of the AAT Act empowers the Court to "hear and determine the appeal and make such orders as it thinks appropriate by reason of its decision". In appropriate circumstances, the court may make a decision in substitution for that under review: see, e.g., Harradine v Secretary, Department of Social Security (1989) 25 FCR 35 and Secretary, Department of Community Services and Health v Theologidis (1991) 33 FCR 186. Pursuant to subs 44(5) the power extends to the making of an order affirming or setting aside the decision of the Tribunal and an order remitting the case. By subs 43(1), the Tribunal itself is empowered to make a decision affirming, varying or setting aside the decision under review and, in the latter event, making a decision in substitution or remitting the case for reconsideration. 55 It was common ground that whether or not the trust created under clause 5(b) of the will is a controlled private trust is to be determined solely by reference to par 1207V(2)(d) of the Social Security Act. This is essentially a matter of statutory construction, having regard to the terms of the trust. If the trust is not a controlled private trust, then the Tribunal was in error in setting aside the decision of the SSAT and ought to have affirmed the decision of the SSAT. There is little point remitting the case to the Tribunal, which would be bound, upon a remission, to affirm the SSAT's decision. In this circumstance, it is appropriate for the Court itself to make this order, thereby relieving the Tribunal and the parties of a further hearing. Thus, I would order that the decision of the Tribunal given on 15 November 2006 be set aside and that the decision of the Social Security Appeals Tribunal made on 7 October 2005 be affirmed. The respondent should pay the Elliotts' costs of the appeal. I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny.

Solicitor for the Applicant: Pearce Webster Dugdale

Solicitor for the Respondent: Australian Government Solicitor