In the matter of the Alan Synman Family Trust [2013] VSC 364 (19 July 2013)

(1) Where property, whether real or personal, is held on trusts arising, whether before or after the commencement of this Act, under any will settlement or other disposition, the Court may if it thinks fit by order approve on behalf of -

(a) any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts who by reason of minority or other incapacity is incapable of assenting; or

(b) any person (whether ascertained or not) who may become entitled, directly or indirectly, to an interest under the trusts as being at a future date or on the happening of a future event a person of any specified description or a member of any specified class of persons, so however that this paragraph shall not include any person who would be of that description, or a member of that class (as the case may be) if the said date had fallen or the said event had happened at the date of the application to the Court; or

(c) any person unborn; or

(d) any person in respect of any discretionary interest of his under protective trusts where the interest of the principal beneficiary has not failed or determined -

any arrangement (by whomsoever proposed and whether or not there is any other person beneficially interested who is capable of assenting thereto) varying or revoking all or any of the trusts, or enlarging the powers of the trustees or managing or administering any of the property subject to the trusts:

Provided that except by virtue of paragraph (d) of this subsection the Court shall not approve an arrangement on behalf of any person unless the carrying out thereof would be for the benefit of that person.

2 The application was made on the basis that three of Mr Synman's grandchildren are under the age of 18 and therefore are incapable of assenting to the arrangement.

3 In 1970, on the advice of his fatherinlaw, Mr Synman created the Alan Synman Family Trust. Since 1986, Masyn Pty Ltd ("Masyn") has been the Trustee. Mr Synman is the director and secretary of Masyn.

4 The principal assets of the Trust are units in a Unit Trust that was established in 1980 as the vehicle for Mr Synman and his two partners in an architects' practice to hold property. Masyn is the registered proprietor of the commercial property of which the architects' practice is a tenant.

5 The Trustee seeks a general power of variation of the Trust Deed in the following terms:

7A(a) THE Trustee for the time being may, at any time and from time to time, by deeds revocable or irrevocable revoke add to or vary all or any of the trusts terms and conditions contained in this Deed or the trusts terms and conditions contained in any variation or alteration made to this Deed and may, in like manner, declare any new or other trusts terms and conditions concerning the Trust Fund or any part or parts of the Trust Fund the trusts whereof shall have been so revoked added to or varied provided that the rule against perpetuities is not infringed and provided that such new or other trusts powers discretions alterations or variations shall not affect the beneficial entitlement to any amount set aside for any beneficiary prior to the date of the variation alteration or addition.

(b) EXCEPT as provided in clause 7A(a) this Deed shall not be capable of being revoked added to or varied.

6 The Trust Deed requires that the Trustee hold the trust property until the vesting date, which is the date of the death of the survivor of Mr Synman and his wife, Mrs Synman. Mrs Synman died in 2010. Mr and Mrs Synman had two daughters. They both have two children - that is, there are four grandchildren, three of whom are under the age of 18 years, being aged 14, 13 and 7 years respectively.

7 Mr Synman has two sisters. Each sister has four children, all of whom are over the age of 18 years.

8 The effect of the Trust Deed is that on the vesting date the Trustee is directed to distribute the trust property in equal parts among the two children of Mr and Mrs Synman, subject to certain provisos.

9 Mr Synman says that the Trust Deed does not express his intentions as the founder of the Trust. He intended that it would benefit his family. He did not recall that either he or Mrs Synman had any involvement in drafting the terms of the Trust Deed, and stated that neither of them knew much about trusts.

In particular, I did not realise that it would not be possible to make any distributions of capital prior to the death of both my wife and me, unless for the "maintenance, education and advancement" of my children only. I would have preferred the Trustee to have a discretion to make advances of capital and income to my wife, my children and my grandchildren, to me and to other trusts of which we or they are beneficiaries and companies of which we or they are shareholders, before the vesting date. Further, I would have preferred that the Trust last for as long as legally possible, with the Trustee having the power to bring the vesting date forward. It will also be convenient if the Trustee had the power to determine whether a receipt is income or is capital and to stream capital gains or dividends.

11 Mr Synman, who is aged 71 years, sets out proposed variations which reflect these statements. They include, first, extending the vesting date to 80 years from the date of establishment of the Trust. Secondly, adding himself and his grandchildren and any trust or company under or in which any of the beneficiaries have an interest to the class of beneficiaries, but retaining his sisters and their personal representatives as the default beneficiaries - namely, in the event that at the vesting date none of his children or their issue are alive. Thirdly, giving the Trustee power to distribute capital, as well as income, to any of the beneficiaries, including his children, his grandchildren and himself. Fourthly, giving the Trustee power to "stream" income possessing special attributes to those beneficiaries who are best able to benefit from that particular class of income. Fifthly, seeking further powers for the administration of the Trust - namely, the power to treat as income or as capital any amount or amounts or property, which the Trustee receives as a beneficiary under such other trust instrument or out of any other trust fund, whether such amounts or property constituted capital or income under such other trust instrument or in such other trust fund or was distributed to the Trustee by the trustee of such other trust instrument or trust fund as capital or income.

12 Clause 3(a) of the Trust Deed deals with the income of the Trust and provides:

3.(a) PROVIDED THAT it shall do so on any day of a financial year during the period referred to in Item 5 in the First Schedule hereto and notwithstanding any other provision hereof the Trustee shall be empowered to determine and decide (in its absolute discretion and without being bound to give any reason therefor) in respect of the income of that financial year whether then received by the Trustee or not that the said income or any part or parts of the same should be:-

(i) paid, applied or set aside to or for the benefit of all or any one or more of them the beneficiaries and the children of any deceased beneficiary (and notwithstanding that such beneficiary or child of a beneficiary shall be a Director or a child of a Director of any Company being the Trustee) and to the exclusion of the other or others of them and in such proportions (and subject to such terms, limitations and conditions) as the Trustee may specify without reference to the proportions specified in the third column of the Second Schedule hereto.

(ii) accumulated, PROVIDED THAT such income shall not be accumulated for a period exceeding twenty-one (21) years from the date hereof.

(b) THE TRUSTEE shall record such determination and decision in writing and shall pay apply set aside or accumulate the income of that financial year or the part or parts of that income to which the determination and decision relates in accordance with such determination and decision.

13 Clause 3(c) deals with the situation where the Trustee does not exercise the discretion in respect of income contained in clause 3(a). It states:

(c) IF THE TRUSTEE does not exercise the power conferred in sub-clause 3(a) hereof then the beneficiaries shall be absolutely entitled to share in the proportions set out in the third column of the Second Schedule hereto the net income derived by the trust in the financial year PROVIDED THAT:-

1. If there shall be more than one beneficiary in Part 1 of the Second Schedule hereto and one or more of them have died before the vesting date, then the share of income that he, she or they would have been entitled to receive in any financial year shall be paid to the other or others of them and if more than one in equal shares.
2. If a sole beneficiary or there being more than one beneficiary all of the beneficiaries in Part I of the Second Schedule hereto or if a beneficiary in Part II of the Second Schedule has or have died before the vesting date, leaving a child or children of a beneficiary then the child or those children, then living, of any deceased beneficiary shall be absolutely entitled (and if more than one in equal shares) to the share of the net income of that financial year to which the deceased beneficiary would have been entitled if he or she had been alive.

1. If a sole beneficiary or there being more than one of them, any of the beneficiaries in Part II of the Second Schedule hereto has or have died before the vesting date without leaving any child or children then the survivor or survivors of the said beneficiaries shall be absolutely entitled to the income to which such deceased beneficiary or beneficiaries would have been entitled if he or she had been alive and if more than one then in the proportion of their respective entitlement as set out in the third column of the Second Schedule and if all the said beneficiaries in Part II of the Second Schedule hereto have died before the vesting date without leaving any child or children then the beneficiary numbered 1 in the Second Schedule hereto shall be absolutely entitled to such income AND FURTHER PROVIDED that if the beneficiary numbered 1 in the Second Schedule hereto shall not then be living, then the next of kin of that beneficiary who would have been entitled to a share of the estate of that beneficiary had he died intestate, shall be absolutely entitled to such income and if more than one in equal shares.

14 The effect of clause 3(c) B of the Trust Deed is that the grandchildren only acquire an interest in the income of the Trust at the end of the period specified in each financial year in the event that their mother is dead and the Trustee has failed to exercise the discretion contained in clause 3(a) to make a distribution of Trust income in that period.

15 There are errors in the wording of the Trust Deed. For instance, clause 2(b)(i) provides that if both Mr and Mrs Synman's daughters die before the vesting date leaving issue, the capital would be transferred to any of the children living at the vesting date. Presumably, the intention was that the capital to which they would have been entitled on the vesting date would be transferred to their issue.

16 The plaintiff advanced the following reasons why the application should be granted:

(1) The intention of the benefactor was to establish a family trust;

(2) The intention of the plaintiff is to administer the trust as a family trust, benefitting the issue of Mr Synman, his daughters and grandchildren;

(3) In family trusts, objects of a discretion have no enforceable rights other than in the due administration of the trust;

(4) The power of variation is a standard clause in family trusts;

(5) A power of variation avoids the need to come to court for further variations to accommodate changed circumstances;

(6) The cases where section 63A has been applied have usually involved successive fixed interests;

(7) Where contingent interests have been displaced, approval has been given on condition that the contingent interests are insured. However, in this case, the plaintiff has indicated its intention to add the grandchildren to the class of objects and, having regard to the nature of the trust and the circumstances generally, they are more likely to benefit from this than under the present terms of the trust.

(8) Thus, on the balance of probabilities, the grandchildren will receive a greater benefit as a consequence of the power of variation being approved and exercised in the manner intended by the trustee than the benefit they presently enjoy, which is no more than a remote possibility.[1]

17 Masyn also submitted that it was Mr Synman's intention that the grandchildren would become objects of a discretion to distribute capital and income and that, having regard to the nature of the Trust and the relationship of the controller of the Trustee, it is more likely than not that the grandchildren would receive a benefit under the changed terms of the Trust. The Court should approve an arrangement which is probably for the benefit of the persons lacking capacity and which, if they had been of full capacity and properly advised, they would probably have approved. The Court will take into account the Trustee's intention and will look at the overall scheme of the arrangement. Any detriment is to be weighed against the benefit of the arrangement.

18 The Court's function in determining an application under s 63A has been considered in many cases. In George v Kollias,[2] Hansen J stated:

1. Under s 63A an arrangement cannot be approved unless the carrying out thereof would be for the benefit of those who cannot consent. If that requirement of benefit is satisfied the Court may, if it thinks fit, approve the arrangement. Pennycuick J described the latter or second stage in these terms, namely that the Court "is further satisfied that the arrangement is in its nature a fair and proper one" In re Remnant's Settlement Trusts [1970] 1 Ch 560 at 565. Thus, in Re Van Gruisen's Will Trusts, Bagger v Dea__n [1964] 1 All ER 843 at 844 Ungoed-Thomas J, after noting that actuarially considered the provisions made in that case for infants and unborn persons were shown to be more beneficial for them under the arrangements than under the present trusts, observed that that "does not conclude the case" as:

"The court is also concerned whether the arrangement as a whole, in all the circumstances, is such that it is proper to approve it. The court's concern involves, inter alia, a practical and business-like consideration of the arrangement, including the total amounts of the advantages which the various parties obtain, and their bargaining strength".

1. That passage was referred to with approval by Mummery LJ in Goulding v Jam__es [1997] 2 All ER 239 at 249 who added that:

"That overall discretion described by Ungoed-Thomas J is to be exercised with regard to all relevant factors properly considered in the statutory context. The context is that the court is empowered to approve an arrangement 'on behalf of' the members of a specified class. As Lord Denning MR said in Re Weston's Settlements [1968] 3 All ER 338 at 342, [1969] 1 Ch 223 at 245, 'in exercising its discretion, the function of the court is to protect those who cannot protect themselves'."

1. An order approving an arrangement enables the sui juris parties to proceed to effect the variation by entering into a Deed as in this case proposed. The court order does not make the variation, it merely provides a consent to the arrangement by and on behalf of those who cannot otherwise give consent Goulding v James [1997] 2 All ER 239 at 246-248.
2. It may be that an arrangement involves a risk from the point of view of infants and unborn persons. That is not necessarily decisive against approval. The arrangement and its benefits and disadvantages must be considered overall. So considering the matter it may be concluded that the risk to infants and unborn persons "is a risk that an adult would be prepared to take" and which the Court is prepared to take on behalf of those persons In re Cohen's Will Trust [1959] 1 WLR 865 at 868 per Danckwerts J.
3. It seems implicit but should be noted that the concept of benefit is not confined to benefit of a financial nature. In Re Weston's Settlements [1969] 1 Ch 223 at 245 Lord Denning MR referred to educational and social benefit. A year later Pennycuick J in Re Remnant's Settlement Trusts said that the court was entitled to consider not merely financial benefit but benefit of any other kind. That case concerned a forfeiture provision that operated in relation to religion and which Pennycuick J described as "a source of possible family dissension", and in respect of which he approved an arrangement which eliminated the forfeiture provision. I would, with respect, suggest that the view of this decision expressed by McPherson J in Re Christmas' Settlement Trusts [1986] 1 Qd 372 at 376-7 has much to commend it. That is, it extended the notion of benefit further than could be justified. McPherson J further expressed the view that "the mere hope of avoiding possible future family friction would ordinarily not suffice, at least in the case of relatives as remote as cousins living apart". Nevertheless the possibility of family dissension may be an appropriate consideration in the circumstances of a particular case, of which Nicholas v Equity Trustees & Executors Agency Co Ltd Unreported, Supreme Court of Victoria, Harper J, 27 March 1996 where there was substantial litigation is an obvious example. And in Dwyer v Stra__han Unreported, Supreme Court of Victoria, Southwell J, 14 September 1984 Southwell J considered a risk of dissension between the families a factor but the variation there proposed was simple and otherwise appropriate.

19 The principles governing the operation of s 63A were also recently discussed by Williams AJA in the Victorian Court of Appeal decision Perpetual Trustees Victoria Limited v Barns.[3]

20 The manner in which the trustee should exercise the power of variation of a trust is described in one text as follows:

In the hands of a trustee, the power of variation is a fiduciary power, and this requires the trustee to act honestly and in good faith, but this is not the same as saying that the power is subject to fiduciary obligations. Thus it does not mean that the power may only be exercised in a manner which favours the existing beneficiaries. If the law were otherwise, then it would be legitimate to add new beneficiaries to a trust fund in a way which diminishes the proportions available to the existing beneficiaries or creates a larger class of people who may benefit from the trustees' discretion to distribute income. Fiduciary obligations define what it is impermissible to do, not what ought to be done. The fiduciary responsibilities of trustees preclude them from acting out of self-interest; they do not require that the trustees should exercise their powers only in the interests of those to whom the duties are owed.

...

Furthermore, a power of variation may legitimately be exercised in a manner which might adversely affect the interests of some beneficiaries but not others.[4]

21 In this application, the proposed clause 7A is subject to the limitation that the rule against perpetuities not be infringed and that any new or other trust powers, discretions, alterations or variations shall not affect the beneficial entitlement to any amount set aside for any beneficiary prior to the date of the variation, alteration or addition.

22 I consider that the Court should not approve the arrangement on behalf of the three grandchildren. I do not consider that it is possible to determine that the carrying out of the arrangement would be for their benefit.

23 I have taken into account that the adults and adult grandchildren with a direct or indirect interest under the Trust have consented to the arrangement. I also have taken into account that the Trust is a family trust and Mr Synman's expressed intentions as to the manner in which Masyn would exercise the power of variation.

24 However, the statute requires that the Court be satisfied that the carrying out of the arrangement would be for the benefit of the persons who are incapable of assenting.

25 I am not so satisfied in this case. The proposed clause 7A would provide a wide power of variation, although the power would be a fiduciary power. Mr Synman, through Masyn, would in all probability exercise that power for the benefit of his family. It appears that, considered separately, at least some of the variations that he foreshadows are likely to benefit the three grandchildren, for instance by including them in the class of objects of the Trustee's discretion. However, as Mr Synman fairly and logically states, the variations that Masyn proposes are not limited to those which he identifies and discusses and which are described above. A purpose of the present application is to avoid the situation of the Trustee having to return to court each time it wishes to amend the Trust Deed, when there are persons with an interest under the Trust, who are unable to assent.

26 In this, and in most applications under s 63A, the appropriate path is for a trustee to seek the Court's approval of an arrangement to vary specific provisions of the Trust Deed, rather than seeking approval of an arrangement giving the trustee a general power of variation. By the former path, the Court can, in most circumstances, best assess whether the carrying out of the arrangement would be for the benefit of persons who have an interest under the trust and who are incapable of giving their assent. It is far more difficult to reach that conclusion when the Court does not have the detail of all the variations that the trustee will make, once given the general power of variation.

27 The plaintiff stated that if the Court did not grant the application, then it would propose an arrangement which implemented the variations it seeks, without including a power to make subsequent variations. That course is open to the plaintiff.

28 If a further application is made, then it is desirable that the three grandchildren should be represented by separate counsel,[5] who can make submissions about the benefits to them of the carrying out of the arrangement. The alternative is that a written opinion by counsel instructed on behalf of the three grandchildren be provided concerning that question.

[1] Taken from the plaintiff's written submissions dated 2 July 2013.

[2] [2007] VSC 46.

[3] [2012] VSCA 77; Buchanan and Bongiorno JJA agreed in Williams AJA's judgment.

[4] Emmett and Armitage (ed), Trusts Law Australia, para [12,025].

[5] See Re Christmas Settlement Trusts [1986] 1 Qd R 372 at 374-375.