Notional estate?
24 I turn then to whether it is arguable that there is notional estate in New South Wales. For this purpose, I set aside any question affecting the discretion to make a notional estate order, and assume that any discretion would be exercised in favour of the plaintiffs. The sole question is whether there has arguably been a "relevant property transaction", within s 75 and s 76, in respect of which the court could make a notional estate order having regard to s 83. The current provision is as follows:
(1) The circumstances set out in subsection (2), subject to full valuable consideration not being given, constitute the basis of a relevant property transaction for the purposes of section 75.
(2) The circumstances are as follows:
(a) if a person is entitled to exercise a power to appoint, or dispose of, property that is not in the person's estate and does not exercise that power before ceasing (because of death or the occurrence of any other event) to be entitled to do so, with the result that the property becomes held by another person (whether or not as trustee) or subject to a trust or another person (immediately or at some later time) becomes, or continues to be, entitled to exercise the power,
…
25 The plaintiffs' case was that it was arguable that the deceased had sufficient de facto control over the registered proprietors of the four properties in question that it could be said that, for the purposes of s 76(2)(a), he had not exercised a power to appoint or dispose of those properties with the result that another person (presumably, the defendant) continued to be entitled to exercise that power. (In the course of argument, reference was also made to s 76(2)(e), but counsel was unable to identify any relevant body, association, scheme, fund or plan of which the deceased was a member, or how because of his membership or participation, his death or the occurrence of any other event, property became held by any and if so what other person.)
26 In Kavalee v Burbidge; Hyland v Burbidge (1998) 43 NSWLR 422, the Court of Appeal considered the predecessor of s 76(2)(a), namely Family Provision Act, s 22(4)(a), which in terms was immaterially different to the present provision, and held (Mason P, Meagher JA concurring, Handley JA contra) that the reference in the section to "a power to … dispose of property" was not a technical term of law, but meant something more than a traditional power of appointment and may exist where a person had "capacity to control". On the facts of the case, Mr Hyland had until his death an entitlement to exercise a power to dispose of property which was not in his estate, being property of the Gartner Foundation, because of a legally enforceable chain of control over the Foundation. Of utmost significance, Mason P found:
o That the founder (the deceased Mr Hyland) retained the right to control the organisation and administration of the Gartner Foundation, and thereby to direct it in its dealings in favour of beneficiaries as determined by the founder from time to time. "Expert evidence revealed that this was a normal incident of founder's rights" [429A];
o Examples given by Handley JA in his dissenting judgment (pertaining to a wife who complied with her husband's requests, an accommodating grandparent, superannuation trustees who responded to an employee's wishes, and trustees of a discretionary trust who choose to meet the settlor's wishes) did not involve situations in which the deceased had the capacity in law to compel the requested disposition, and thus did not involve prescribed transactions [447B];
o But the situation in Kavalee v Burbidge was different, because "if push came to shove" the deceased had the legal capacity to compel a particular disposition to be made by a third party [447C].
27 This illustrates that while the concept of "a power to … dispose of property" in s 76(2)(a) extends to capacity to control, that means legal capacity to control, not merely de facto control without legal control. The significance of legal capacity to compel a disposition in this respect was also adverted to by Ward J in Stern v Sekers; Sekers v Sekers [2010] NSWSC 59, at [188].
28 As to whether company directors have the requisite "control" of a company's property to fall within s 76(2)(a), the existence of fiduciary duties impacts on the ability or capacity to exercise a power to dispose of a company's property. In The Estate of Thiess; Brinkman v Johnston NSWSC, Hodgson J, 4 February 1994, BC9405349), Hodgson J, as his Honour then was, observed (at 18):
It might be possible to infer that the deceased had power, as a governing director or perhaps managing director of Drayton Investments Pty Ltd, to dispose of that company's real estate in New South Wales, and that he omitted to do so prior to his death. But that power would have been subject to the fiduciary duties of a director; so that in respect of the real estate in New South Wales, it would not seem that the requirement of s26, that there be an omission to benefit the deceased or an eligible person, would be satisfied in respect of the New South Wales real estate.
29 Accordingly, for the purposes of s 76(2)(a), a director's power, with other members of the board, to dispose of property of a company is not "a power to appoint, or dispose of, property" within s 76(2)(a), because it is constrained by fiduciary obligations. An omission to exercise such a power in favour of the director or an eligible person could not be disadvantageous to the estate or an eligible person for the purposes of s 80, because the power could not lawfully have been exercised in favour of the estate or eligible person. In my view, a director cannot be said to be "entitled" to exercise a power to dispose of a company's property to himself or to an eligible person other than for valuable consideration.
30 I turn now to the evidence as to the ownership and control of the four relevant properties.
31 The X Apartment was purchased on 24 May 1985 by Gosforth Pty Ltd for $1.7 million and remained held by Gosforth at the date of Mr Pratt's death. The directors of Gosforth were the deceased and the defendant. All the shares in Gosforth were beneficially owned by J Gadsden Pty Ltd. The deceased and the defendant were the directors of Gadsden. All the shares in Gadsden were beneficially owned by Pratt Holdings Pty Ltd. The deceased and the defendant were the directors of Pratt Holdings. All the shares were beneficially owned by Pratt Consolidated Holdings Pty Ltd. The deceased and the defendant were the directors of Pratt Consolidated Holdings, all the shares in which were owned by Pratt Group Holdings Pty Ltd, as trustee of the Pratt Family Holdings Trust. It will be necessary to return to the terms of this trust.
32 The property at X Herbert Place, Smithfield was and is owned by McCredie Road Properties Pty Ltd, the directors of which were at the date of his death the deceased and the defendant, and the shareholding in which was owned beneficially by Visy Packaging Properties Pty Ltd. The properties at XXX Gadara Road, Tumut, and XXX- XXX Gipps Road, Smithfield, were also owned by Visy Packaging Properties. As at the date of his death, the deceased and the defendant were the directors of Visy Packaging Properties, the share capital in which was beneficially owned by Visy Industries Holdings Pty Ltd. The deceased and the defendant were the directors of Visy Industry Holdings, all the shares in which were beneficially owned by Pratt Holdings Pty Ltd - the ownership and control of which is explained in the preceding paragraph.
33 The Pratt Family Holdings Trust was constituted in Victoria and is governed by the law of Victoria. The trustee Pratt Group Holdings Pty Ltd at all relevant times had two directors, Mr Naphtali and Mr Leibler, and the two shares in it were held, one each by ABL Finance Pty Ltd and Applebay Pty Ltd, on trust for Mr Pratt. All the shareholding in Applebay was held by one David Freeman, who was Mr Pratt's solicitor, and who was also the sole director of Applebay. The shares in ABL Finance were held by Mark Leibler and 19 others (not Mr Pratt), who were also the directors of ABL. The appointor of the trust, and the guardian, was Deansworth Pty Ltd, a company incorporated and with its share register in Victoria. Deansworth had seven directors, and Mr Pratt was not one of them. The shares in it were held by ABL & Co Custodians Pty Ltd, of which Mr Pratt was neither a director nor a shareholder. ABL & Co Custodians held its shares in Deansworth on trust for members of the Pratt family under deeds dated 5 December 2005, pursuant to which Mr Pratt held a joint life interest with his wife, including a joint power during their lifetimes to appoint the shares absolutely to Mr Pratt, his wife, or both. It follows that during his lifetime Mr Pratt could have exercised that power to appoint the shares in Deansworth to himself, and thus obtain control of Deansworth. With control of Deansworth, he could remove and replace the trustee of the trust, so as effectively to exercise control of the trust. Through his beneficial ownership of the shares in the trustee, he controlled the existing trustee, and could have removed and replaced its directors.
34 By clause 3 of the trust deed, the trustee is given a discretion to distribute or accumulate all or part of the nett income of the trust fund for any accounting period, to the "general beneficiaries" or to charitable purposes. "General beneficiaries" are defined to mean and include "specified beneficiaries" and various relations of them, and certain other persons (not including Richard Pratt). "Specified beneficiaries" are defined as persons described in the schedule, namely the children of Richard and Jeanne Pratt. Clause 1(2) provides that "every member of the excluded class shall be excluded from the class of general beneficiaries notwithstanding that he may otherwise be or be qualified to be included in the class of general beneficiaries". "The excluded class" is defined in clause 1(3) to include the settlor, the trustees, every corporation and the trustees of every trust or settlement in or under which any other member of the excluded class has an interest, and such other persons named in the schedule as additional members of the excluded class. Richard Pratt and Jeanne Pratt are identified in the schedule as additional members of the excluded class. While clause 31 of the trust deed authorises the trustee to vary the terms of the trust, that is subject to the limitation that any such alteration is not in favour of or result in any benefit to any member of the excluded class. A Deed of Exclusion dated 4 June 2001 added Paula Sarah Hitchcock to the class of excluded persons, together with any person or persons who may be related in any way by blood or marriage to the mother of Paula Hitchcock. Clause 4 provides for the distribution of the trust fund and income from the vesting date to such charitable purposes or for such beneficiaries as the trustee may appoint. Clause 6 gives the trustee a discretion, before the vesting date, to transfer the whole or part of the trust fund to any beneficiary (meaning any of the general beneficiaries). The role of the guardian is not relevant for present purposes. However, by clause 22, the appointor may remove and replace the trustee.
35 Significantly, because he is a member of the excluded class, Mr Pratt could not receive a distribution of income or capital from the trust. For the same reason, any amendment of the trust could not be in his favour or result in any benefit to him.
36 The trust property was the shares in Pratt Consolidated Holdings Pty Ltd. The New South Wales real properties held by various subsidiaries of Pratt Holdings were not themselves assets of the trust: ownership or control of shares in a company does not equate to ownership or control of all property belonging to the company, nor confer on the shareholder an interest in that property [In re Dalglish [1889] NSWR 256, 257, 259].
37 I would accept that it is at least arguable that Mr Pratt had the legal capacity to control Pratt Group Holdings, as trustee of the Pratt Family Holdings Trust. As such, he was, indirectly if not directly [cf Succession Act, s 75(1)], entitled to exercise the discretions to distribute income and capital given by the trust deed to the trustee. However, such entitlement was in respect of the income of the trust, and its capital, which (relevantly) were the shares in Pratt Consolidated Holdings. As already indicated, those shares are personalty, situated in Victoria. He did not have the entitlement, through his ability to control the trustee of the trust, to appoint or dispose of the real estate assets of the trustee's subsidiaries.
38 I also accept that it is at least arguable that, by reason of his not having exercised directly or indirectly the power to appoint income or capital before his death, another person or persons, in particular Pratt Group Holdings, continued to be entitled to exercise that power. However, it must be borne in mind that because Mr Pratt and Paula Hitchcock were excluded, and Sharilea Hitchcock was not a member of any class of beneficiaries, any such distribution could not have been in favour of any of them. It thus cannot be said that the omission to exercise such power was one that could immediately prior to Mr Pratt's death have been exercised by him (or anyone else) so as to result in a benefit to his estate, or to an eligible family provision applicant. Section 83 could not therefore be satisfied.
39 Accordingly, in my view, the deceased had no relevant power to appoint or dispose of any of the four New South Wales real properties in a way which would be amenable to a designating order having regard to s 83. First, assuming he could control the trustee, any indirect power of appointment or disposition related to assets and income of the trust, relevantly the shares in Pratt Consolidated Holdings, and not in the real property held by companies much lower down the pyramid. Secondly, any such power could not be exercised in favour of himself, or of either of the plaintiffs, who were not qualified beneficiaries. Thirdly, to the extent that with his wife he had control as a director of the land holding companies, he was not entitled to dispose of the properties to himself or either plaintiff save for full valuable consideration.
40 It follows that in my opinion there is no apparent arguable basis on which the court could make a notional estate order in respect of the four New South Wales properties. That being so, there is no basis upon which the New South Wales family provision proceedings can succeed. They are doomed to fail, and ought be summarily dismissed.
41 Mr Robinson argued that such a conclusion and course was premature, in that investigations were still under way. When pressed, he eschewed any suggestion that further or other property potentially the subject of a designating order might be identified, but argued that the plaintiffs wished to adduce further evidence of the deceased's de facto control of the company group. However, there are several answers to this. First, the plaintiffs had if they wished ample opportunity and time to adduce evidence on these applications. Secondly, and much more significantly, no amount of evidence of de facto control would overcome the necessity to establish, through the trust documentation and articles of association, a legal entitlement to control. While de facto control coupled with legal entitlement sufficed in Kavalee v Burbidge, that was only because the de facto control was supported if need be by a legal entitlement. Let it be accepted that Mr Pratt had a legal entitlement to control the trustee: he did not have a legal entitlement to procure an appointment in his favour or in favour of either of the plaintiffs, because they were either "excluded" or not qualified; moreover, any such entitlement did not extend, beyond the trust property and income (being the shares in Pratt Consolidated Holdings) to real property held by subsidiaries of Pratt Consolidated Holdings.
42 Accordingly, nothing advanced in the plaintiffs' arguments supports the proposition that the present application or determination is premature.