Mandie v Memart Nominees Pty Ltd [2020] VSCA 281

Mr A J Myers QC with Mr A P Young QC and Mr R W Short

Broad overview of issues and findings of the judge

Ground 1: Are the grandchildren takers in default of the Trust property?

Applicants' submissions on Ground 1/Notice of Contention

Respondent's submissions on Ground 1/Notice of Contention

(2) Do the applicants have an interest under cl 5(2)?

Ground 3: The September Declaration - should leave to amend have been granted to allege absence of power?

The judge's rulings on the amendments on power - proposed [26D]

Parties' submissions on the appeal, [26D], Ground 3(a) and (b)

Was the September Declaration beyond power? Ground 3(c)

Grounds 4, 5 and 6: Was the September Declaration made for an improper purpose?

Ground 5 - Should the applicants have been entitled to rely on [164] to support the allegation of improper purpose?

Parties' submissions on the appeal in relation to [164]

Ground 6 - Should the judge have drawn a Jones v Dunkel inference?

Ground 4 - Should the judge have inferred improper purpose?

Ground 7: Had David Mandie's sentiment changed from his Statement of Wishes?

Ground 8: Did Memart know that the grandchildren were well provided for?

1 David Mandie was a successful businessman. He and his wife, Minnie, amassed considerable wealth. Some of that substantial wealth is now found in the David Mandie Family Trust ('the Trust') constituted by a deed of settlement ('the 'Deed').[1] Under the Deed, their three children, Evelyn, Ian and Stephen, are named as 'Specified Beneficiaries' and their grandchildren are included, although not by name, within the class of 'General Beneficiaries'.

2 In the mid-1990s, there was a major fracture in the family with David, Minnie and Evelyn on one side, and Ian and Stephen on the other. The dispute resulted in Ian and Stephen disclaiming their interests under the Trust and leaving the family business in return for substantial payments. It is accepted that, notwithstanding their terms, the disclaimers did not bind the children of Ian and Stephen.

3 The applicants, the plaintiffs below, are the spouses and children of Ian and Stephen. Edward and Isabella are the children of Ian and Jane Mandie. Nicholas and Daniella are the children of Stephen and Amanda Mandie.[2] The respondent is the corporate trustee of the Trust ('the Trustee').[3] In September 2014, after David's death, the Trustee resolved to remove the applicants as General Beneficiaries pursuant to an express power in the Deed.[4] Earlier, in May 2014, the Trustee had removed Ian and Stephen as General Beneficiaries. For Ian and Stephen the removal was largely symbolic as they had already disclaimed any interest in the Trust in a settlement agreement executed on 19 December 1995 ('the 1995 Settlement Agreement'). Each of the exclusions was reflected in formal declarations made by the Trustee ('the May Declaration' and 'the September Declaration', respectively).

4 In a proceeding brought in the Trial Division, the applicants alleged that the May Declaration was made without power and for an improper purpose and that the September Declaration was made in bad faith and for an improper purpose. They sought declarations that both the May Declaration and the September Declaration were invalid. Based on that alleged wrongdoing, they sought an order removing or replacing the Trustee.

5 The applicants also sought, belatedly, leave to amend their pleading to broaden their challenge to the September Declaration by adding an allegation of want of power and by adding to the particulars of improper purpose. Leave to amend was refused by the trial judge.

6 The applicants failed at trial and the proceeding was dismissed.[5] It is from that order that the applicants seek leave to appeal. They assert that the judge should have found that the May Declaration and the September Declaration were invalid. As part of their application for leave to appeal in this Court, they submit that the judge misunderstood the nature of the grandchildren's interests in the Trust, and should have given leave to amend the pleading. The proposed grounds of appeal traverse the nature of the grandchildren's interests in the Trust,[6] the validity of the May Declaration[7] and the September Declaration,[8] and the decision to refuse leave to amend the pleading[9]. Separately, the applicants seek leave to appeal a special costs order made in favour of the Trustee.

7 For the reasons that follow, we would grant leave to appeal.[10] We uphold Grounds 1, 3 and 5 and we would therefore allow the appeal. We reject Grounds 2, 4, 6, 7 and 8.

8 In the result, we would not make any order in relation to the May Declaration. We would make orders granting leave to appeal, allowing the appeal, setting aside the order of the primary judge dismissing the proceeding, and in its place make the following orders that reflect our conclusions:

(a) Edward, Isabella, Nicholas and Daniella Mandie are not bound by the 1995 Settlement Agreement;

(b) insofar as cl 9.2 of the 1995 Settlement Agreement purports to affect the rights or entitlements of Edward, Isabella, Nicholas and Daniella Mandie, it is:

(ii) not enforceable as against Edward, Isabella, Nicholas and Daniella Mandie.

(2) a declaration that each of Edward, Isabella, Nicholas and Daniella Mandie is a child of a Specified Beneficiary within the meaning of cl 5(2) of the Deed.

(3) a declaration that, to the extent that the September Declaration purported to have effect beyond removing the grandchildren as General Beneficiaries, it is invalid.[11]

9 We decline to make the declarations sought in the Amended Application for Leave to Appeal and, on the basis of the evidence to which we were taken, make no findings, draw no inferences and reach no conclusions supporting the removal of the Trustee. However, given that the appeal has exposed a controversy about the status of the grandchildren under the Deed, which was the subject of full argument in this Court, it is desirable that the issue be resolved by the grant of limited declaratory relief. The Amended Application for Leave to Appeal invited this Court to make '[s]uch further or other order as to the Court seems fit.' We have set out in the immediately preceding paragraph the orders we deem fit to make.

10 These reasons are structured as follows. First, we set out the facts. The facts are largely drawn from documents. The respondent did not adduce oral evidence and the evidence of the applicants was, for present purposes, largely peripheral. The applicants seek to make out their case from inferences drawn from the documents.

11 Next, we will identify the issues in the proceedings arising from the pleadings and, in broad terms, the conclusions of the judge on the major issues. Following that broad overview, we will deal with each of the grounds separately and address the applicable findings of the judge and the arguments in this Court before stating our conclusions on each ground.

12 On 24 April 1978, the Trust was established by the Deed with Memart (then known as Ricoh Time Corporation Pty Ltd) as trustee. The Settlor was Barry David Bloom and the amount settled was $20. Bloom had no relation by blood or marriage to the Mandie family.

13 The directors of Memart have changed in ways that reflect the shifting dynamic within the family.

(a) David and Minnie were directors from 19 August 1976 until their deaths, on 17 August 2011 and 26 April 1999, respectively.

(b) Ian and Stephen were directors from 13 June 1980 until 18 August 1994 (around the time the dispute with their father arose).

(c) Evelyn Danos (née Mandie) was a director between 13 June 1980 and 18 August 1994, re-joined on 4 May 1999 (shortly after her mother's death), and remains a director.

14 In addition, there are currently two independent directors:

(a) Milton Bernard Lasnitzki ('Lasnitzki') (since 18 August 2011); and

(b) Garry Stock (since 23 May 2014).[12]

15 The Deed is in conventional form for a family trust of its time. David Mandie is named as both 'Guardian' and 'Appointor'.

16 There are two types of beneficiary: a 'Specified Beneficiary' and a 'General Beneficiary'.

17 Under cl 1(1) of the Deed, 'Specified Beneficiaries' are defined to mean 'the person or persons (if any) named or described as such in the Schedule'. In the Schedule to the Deed the Specified Beneficiaries are described as: 'The children of David Mandie and Minnie Mandie'. Ian, Stephen and Evelyn are the children of David and Minnie Mandie and are thus the Specified Beneficiaries under the Trust.

18 'General Beneficiaries' is defined in cl 1(2) to mean and include the Specified Beneficiaries and various persons identified by reference to their relationships or connections with the Specified Beneficiaries. They include:

(a) the Specified Beneficiaries (the children of David and Minnie Mandie, ie Ian, Stephen and Evelyn);

(b) the brothers, sisters, spouses, widows, widowers, children and grandchildren of the Specified Beneficiaries and the spouses, widows, widowers, children and grandchildren of such brothers and sisters, spouses, children and grandchildren;

(c) any corporation in which any General Beneficiary beneficially owns more than 10% of the issued shares or in which any combination of General Beneficiaries owns more than 10% of the issued shares;

(d) the trustee or trustees of any trust or settlement which the Trustee may nominate in writing as a General Beneficiary; and

(e) such additional beneficiaries if any as are described or defined in the schedule to the Deed as a member of the class of General Beneficiaries. This includes David and Minnie Mandie, who are defined in the Schedule to the Deed expressly as additional members of the class of General Beneficiaries.

19 Clause 1(2) contains a proviso which excludes certain persons or entities from the class of General Beneficiaries, including the Settlor. In addition to those persons or entities that are excluded, the further proviso to cl 1(2) (following cl 1(2)(iv))[13] provides a power to exclude General Beneficiaries in the following terms:

... PROVIDED FURTHER that the Trustee at any time and from time to time may (subject to Clause 10 hereof) declare in writing that any person shall thereafter be excluded from the class of General Beneficiaries notwithstanding that but for such exclusion he would by reason of one or more of the matters or circumstances hereinbefore referred to have been a General Beneficiary and the class of General Beneficiary shall as from the date of the making of any such declaration be modified accordingly ...[14]

20 This power was exercised to exclude the applicants (the spouses and grandchildren) as General Beneficiaries in the September Declaration. There is no express power in the Deed to remove a Specified Beneficiary. Whether the amendment power within the Deed could produce such a result need not be considered.

21 The 'Trust Fund' is defined as the settled sum ($20) and all moneys, investments and property paid or transferred to and accepted by the Trustee. The Deed treats differently the annual net income of the Trust, calculated at the end of each accounting period, and the corpus of the Trust.

22 The Trustee has a non-compellable discretion to pay or apply to or set aside the net income of the Trust for charitable purposes;[15] and to make annual distributions of income to General Beneficiaries 'in such proportions and manner and subject to such limitations and provisions as the Trustee in its absolute discretion shall think fit.'[16] The Trustee may also accumulate the net income[17] and pay taxes and duty.[18]

23 In the exercise of the power in cl 4(1)(b), the Trustee has, from time to time, appointed income in favour of one or more General Beneficiaries. Prior to 1995, no distributions were made to the grandchildren or to Ian, Stephen or Evelyn.[19] The only distributions that were made were minimal - to James Richardson Group to pay mortgage debts, to David for charitable donations and payments to David to cover personal drawings.[20]

24 In more recent times, substantial distributions have been made. For example, on 29 June 2012, 27 June 2013 and 27 June 2014, Trust income of, respectively, $1,250,045.00, $3,207,142.86 and $640,000.00 was appointed to Evelyn, with the balance in each year paid to other trusts of which she and members of her family (other than Ian and Stephen and their families) are beneficiaries. The judge noted that the distributions were made to honour charitable pledges made by David, and to satisfy other obligations incurred before David's death.[21] No appointments of income have been made in favour of any of the applicants.[22]

25 The discretion to pay, apply or set aside some or all of the net income in favour of the General Beneficiaries does not give rise to a corresponding right in a General Beneficiary to receive any payment or entitlement to income. For that reason, it has been described as a mere or bare power or a power collateral rather than a trust power.[23] The General Beneficiaries have no vested interest in income or corpus of the Trust but they do enjoy rights to due administration of the Trust which a court of equity would protect.[24] The due administration of the Trust includes considering whether or not to make a payment to the General Beneficiaries.[25]

26 However, pursuant to cl 4(4), in the event that the Trustee does not determine to appoint the whole of the net income of the Trust in one or more of the ways provided for in cl 4(1), the income not disposed of 'shall be paid and applied to and set aside for each of the Specified Beneficiaries then living for the benefit of each of such Beneficiaries in equal shares each for his or her own use and benefit absolutely.'

27 Two things may be said immediately. First, each of the Specified Beneficiaries is a taker in default of appointment of the net income of the Trust that is not applied by the Trustee in one of the permitted ways, including by accumulating it to the Fund.

28 Second, the clause establishing takers in default in respect of the net income of the Trust, cl 4(4), only operates in favour of a Specified Beneficiary 'then living'. It follows that, in the event that one of the Specified Beneficiaries dies, the interests of the remaining Specified Beneficiaries (as takers in default of appointment) are correspondingly enlarged. Clause 4(5) provides that '[a]ny amount paid, applied, or set aside to or for any Beneficiary shall not form part of the Trust Fund but shall be held upon separate trusts for such Beneficiary with power to the Trustee ... to invest or apply or deal with the same and any income thereof as the Trustee in its absolute discretion thinks fit'.

29 Clause 5 deals with what is to happen to the Trust Fund on and from the 'Vesting Day'. The 'Vesting Day' is defined to mean one year less than 80 years from the date of the making of the Deed or such earlier date as the Trustee may appoint. It follows that the Vesting Day is 79 years from the making of the Deed, which is 24 April 2057, unless an earlier date is appointed.

30 As from that day, the Fund vests in possession in favour of the Trustee and the Deed provides four cascading alternatives for the disposition of the Fund.

31 Pursuant to cl 5(1) of the Deed, the first alternative is that the Fund is to be held on trust for such of the beneficiaries and for such charitable purposes as may be appointed by the Trustee with the consent of the Guardian. It would be open to the Trustee to appoint all of the Fund to a single beneficiary or a single charity or to distribute the Fund across the nominated class in any proportion it chooses.

32 In the event that the whole of the Fund is not appointed under the first alternative, cl 5(2) (a clause that assumed much importance on the appeal) provides that:

the Trustee shall stand possessed of such part and the income thereof in the trust for the Specified Beneficiary absolutely (and if more than one as tenants in common in equal shares) provided always that the children of any Specified Beneficiary who shall have died before the Vesting Day shall take (and if more than one as tenants in common in equal shares) the share which such deceased Specified Beneficiary would have taken had he survived to the Vesting Day and attained a vested interest and provided also that if any children of a deceased Specified Beneficiary shall die before the Vesting Day then the issue of any such deceased General Beneficiary remoter than his children and living at the Vesting Day shall take per stirpes and equally between them the share which such children would have taken if they had survived to the Vesting Day and attained a vested interest;

33 It is cl 5(2) that provides the foundation of the grandchildren's submission (examined below) that they are takers in default of the Trust property. Clause 5(2) does not apply to the spouses of Ian and Stephen, Jane and Amanda respectively, as it is directed to Specified Beneficiaries and their issue.

34 In the event that the whole of the Fund has not been disposed of under cll 5(1) and (2), cl 5(3) provides that the Trustee shall hold the Fund on trust for the brothers and sisters of each Specified Beneficiary and then down through that line of descent.

35 Finally, if there remains any part of the Fund after cll 5(1), (2) and (3) have been exhausted, cl 5(4) provides that the Trustee shall hold the balance of the Fund on trust for the next of kin (but excluding the Settlor or any person claiming under or in right of the Settlor) of the Specified Beneficiary or of the survivor of the Specified Beneficiaries living at the Vesting Day (and if more than one, as tenants in common in equal shares) absolutely and if there shall be no such next of kin then in trust for charitable objects or purposes, 'any resulting trust to the Settlor or any person claiming under or in right of the Settlor being hereby expressly negatived'.

36 The Deed, by these mechanisms, endeavours to ensure that any assets of the Trust remaining on the Vesting Day are distributed within the Mandie family and do not fall into a resulting trust in favour of the Settlor.

The Trustee may exercise or concur in exercising all powers and discretions hereby or by law given notwithstanding that it or any person being ... a Director or Shareholder of the Trustee has or may have a direct or personal interest in the mode or result of exercising such power or discretion or may benefit either directly or indirectly as a result of the exercise of any such power or discretion ...

38 Clause 19 provides that, subject to any express provision to the contrary, 'every discretion vested in the Trustee shall be absolute and uncontrolled and every power vested in it (including the making of any determination hereunder) shall be exercisable in its absolute and uncontrolled discretion'. This was subject to a proviso concerning the position of the Guardian.

39 David established very successful businesses operating duty free stores and in property through various corporate entities within the James Richardson Group. His three children worked in the business.

40 In the mid-1990s, Ian and Stephen made claims in respect of the assets of companies, trusts and other entities owned or controlled by David and Minnie, including companies within the James Richardson Group. On 14 September 1995, those claims were resolved by an immediately binding 'Initial Agreement' signed on that day.

41 On 28 September 1995, David and Minnie signed a Statement of Wishes ('the Statement of Wishes'), indicating to their executors and the directors of corporations acting as trustees of the various family trusts and of companies owned or controlled by them 'how we wish our affairs and those of the various trusts and companies managed after our deaths'. The Statement of Wishes included the following:

We wish to record our utter disappointment with the manner and behaviour of Ian and Stephen Mandie during the last few years. They have demonstrated to us that they are prepared to use whatever means that are at their disposal to achieve their own short term financial interests. In particular, they have harassed valued employees of the James Richardson Group and conducted themselves in a most improper way. Furthermore, they have threatened us and our daughter with litigation in circumstances which we regard as most improper if not criminal. We have reached an agreement with Ian and Stephen which satisfies what we consider to be our moral obligations to them and their families.

Accordingly, it is our wish that our sons and their families be excluded from any interest in our estates or in the companies and other entities controlled by us except to the extent that it is necessary to satisfy our obligations under the agreement which we have reached with them.

We have appointed Mark Cerché and Trevor Brown our legal and accounting advisers respectively to be executors and trustees along with our daughter.

...

It is our wish that our trustees take steps to see that any amounts due to our sons under our agreement with them are paid in accordance with the terms of that agreement. Subject to those obligations, our wish is that our trustees exercise their powers to ensure that the benefit of the wealth controlled by us passes to our daughter Evelyn and her children.

Our Trustees are to take such steps as they consider necessary to protect our estates and companies and entities controlled by us from any claim which may be made by Ian or Stephen or their respective families.[26]

42 On or about 19 December 1995, David, Minnie, Ian, Stephen and Memart, and various members of the James Richardson Group, among others, but none of the applicants, entered into a more detailed settlement agreement, the 1995 Settlement Agreement, which replaced the Initial Agreement, pursuant to which, among other things:

(a) Memart agreed to pay Ian and Stephen jointly the sum of $10 million, plus a further $2.5 million each (cll 3.1, 3.3); and

(b) David and Minnie transferred to Ian and Stephen control of various assets (cl 4), their homes (which were owned by Memart) and their cars (which were owned by the James Richardson Group) (cl 5).

43 Memart estimates that in total, Ian and Stephen each received well over $20 million (in 1995) out of the settlement.

44 Pursuant to cl 9.2 of the 1995 Settlement Agreement, Ian and Stephen disclaimed any interest in the Trust ('the disclaimers'). That clause provided:

neither Ian nor Stephen have any further rights against David or Minnie or their respective estates or any company in the James Richardson Group or any other company trusts or entity owned or controlled by them or any of them and save as set out in this Agreement, Ian and Stephen, for themselves, their legal personal representatives and issue agree to release:

(a) each and every company, trust or other entity owned or controlled by David and Minnie, or either of them, from any Claim that they or any of them might have against any such company, trust or other entity;

(b) the Trustee of the David Mandie Family Trust ... from any Claim that they or any of them may have against such trustee or the assets of any such trust and agree irrevocably to disclaim any entitlement in relation to any such trust and not to assert any rights as beneficiaries of any such trust;

...

and Ian and Stephen agree to indemnify each of the parties referred to in this clause 9.2 against any loss ... which may be sustained or incurred by them or any of them as a result (directly or indirectly) of any such Claim.

45 Clause 11 imposed obligations of confidentiality on the parties save for disclosure for the purpose of enforcement or, for example, under a binding order of a government agency, or for the purpose of discovery in a proceeding, or with the prior written consent of David, Minnie, Ian and Stephen.

46 It is not in dispute that as at the date of the 1995 Settlement Agreement, David controlled the Trust. He was the Guardian under the Deed and a director of Memart; he and Minnie held the issued shares in the Trustee.

47 David died on 17 August 2011. His will, made on 14 October 2004, provided for a legacy in the sum of $500,000 to each of his grandchildren who attained the age of 25 years (cl 5) and otherwise left the residue of his estate to Evelyn or, in the event of her death, to her children who attained the age of 25 years (cl 6).

48 The executors of David's estate were Mr Mark Cerché of Allens, who was Memart's solicitor, Mr Garry Stock, an employee within the James Richardson Group, and Evelyn. Mr Cerché played an important role in the events which followed, including drafting the May Declaration and it would appear that he was familiar with the Statement of Wishes.

49 The grandchildren gave evidence, accepted by the judge, of their close relationship with David and Minnie over many years.[27] The judge observed that 'David and Minnie appeared to have a great affection for all the grandchildren, spent time with them, gave them money on their birthdays and were proud of them.'[28]

50 The judge found that the grandchildren lived a life of 'great abundance' and had been well provided for by their parents. In this respect, he said:

They appeared to often travel overseas to Europe and to resorts in Australia and participate in expensive recreations such as skiing and polo. They lived in their parents' substantial homes in Toorak. They had access to a house in Portsea and a farm at Corowa. Their parents provided them with motor vehicles and also were paying for the costs of this litigation.[29]

51 Since her father's death, Evelyn has been the executive chairman of the James Richardson Group. Lasnitzki is the chief executive officer and reports to Evelyn.

52 Although the grandchildren were General Beneficiaries, they did not know of the existence of the Trust until around April 2012. In mid-July 2012, two of the grandchildren, Edward and Nicholas, began to seek information to which they believed they were entitled from the Trustee about the Trust, but the information was not forthcoming. On 14 August 2013, they commenced a proceeding in the Trial Division of this Court against the Trustee, seeking information about the Trust ('the information proceeding'). This followed a proceeding that Ian and Stephen had commenced on 12 October 2012 against the executors of David's estate seeking further provision under pt IV of the Administration and Probate Act 1958 ('the pt IV proceeding'). The pt IV claim was ultimately abandoned.

53 On 12 September 2013, the Trustee's solicitors briefed counsel, Mr Merralls QC and Dr Michael Rush, to advise as to the Trustee's obligations to consider the circumstances of the General Beneficiaries when making income distributions and whether it could exclude Ian and Stephen and their spouses and descendants from the class of General Beneficiaries of the Trust.

54 On 25 September 2013, the solicitors for the Trustee received, and emailed to the directors of the Trustee, written advice from counsel ('the 25 September advice').

55 In their advice, counsel set out the questions on which they were asked to advise as follows:

[W]e are instructed to provide advice about the obligations of the Trustee in respect of ... the power to exclude beneficiaries. Specifically, we have been asked to address the following three questions: ... (3) Can the Trustee exercise properly (ie lawfully) the power to exclude Ian, Stephen, their spouses and descendants from the class of general beneficiaries under the Trust, particularly in light of the dispute and settlement with Ian and Stephen (in 1994-1995), and the two proceedings that have now been commenced?

56 In an email sent to the three directors,[30] attaching the 25 September advice, the Trust's solicitor, Ms Jenkins, offered the following summary:

As you will see, [counsel] have opined that the trustee's discretion must be exercised 'in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred'. In practical terms, they have suggested that the trustee invites the beneficiaries to provide a statement setting out their needs and their ability to meet those needs towards the end of each financial year. Finally, they have noted that while the trustee could lawfully exercise the discretion to exclude Stephen, Ian, their spouses and children from the Trust, great care need be taken to ensure that if this occurred, it did not involve any improper purpose, even in part. Therefore, they recommend caution on the part of the trustee in exercising the power to exclude, particularly where there is likely to be consequential litigation.

57 In the body of the 25 September advice, counsel referred to the duties of a trustee and the need to act in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred. Relying upon Karger v Paul,[31] they advised that the Trustee must give real and genuine consideration to the exercise of their discretionary powers and the position of beneficiaries.

58 Counsel advised that the Trustee need not consider the circumstances of Stephen and Ian as they had disclaimed any entitlement and agreed not to assert any rights as beneficiaries under the Trust by the 1995 Settlement Agreement. In relation to the grandchildren, counsel advised that it would be sensible, although not obligatory, to seek information from them to inform the decision as to whether to appoint income in their favour.

59 As to the exercise of the power of exclusion against the grandchildren, counsel advised that the power to exclude a beneficiary was, by reason of cl 19, absolute and uncontrolled, even though a trustee beneficiary may derive some benefit. They noted that there 'appear to be relatively few authorities concerning the exercise of a discretionary power to exclude beneficiaries from a family trust [but] ... such authorities as there are support the view that the general principles concerning the exercise of a trustee's discretion (as described in Karger v Paul in the context of a distribution) also apply to exclusion cases'. Counsel advised that the Trustee could lawfully exercise the discretion to exclude Ian and Stephen, their spouses and children from the Trust, although they observed that it would seem to be unnecessary to do so in respect of Ian and Stephen. They noted that if one of the motives for exclusion (even if not a dominant one) involved an improper purpose, such as to prevent access to trust accounts or other information relating to a trust, the exercise of the power would likely be invalidated. Counsel went on to advise caution on the part of the Trustee in exercising the power to exclude, particularly when there was a reasonable prospect that any such decision would be tested in court.

60 The 25 September advice referred to the power to exclude in cl 1(2)(iv) which, in its terms, refers to the exclusion of any person from the class of General Beneficiaries. The advice did not distinguish between General Beneficiaries and Specified Beneficiaries although, somewhat curiously, it noted that:

an amendment of the Trust deed may have stamp duty consequences if it constitutes a resettlement of the Trust. Although we do not consider it likely that a resettlement would occur if the Trust deed were amended to exclude certain General Beneficiaries and Specified Beneficiaries, this remains a possibility.

61 To that point, the 25 September advice had not been concerned with amendments to the Deed, and it appears that the power of amendment was not further considered or exercised.

62 The judge recorded that in an email to Allens on 3 October 2013, counsel stated:

As you know, there is a reasonable likelihood that any decision to exclude Stephen and Ian's spouses and children will [be] sought to be impugned on the basis that the discretion was not exercised in conformity with the requirements set out in Karger v Paul. In particular, it might be expected that the excluded beneficiaries would contend that the trustee decided to exclude them only after the two proceedings were commenced. Even if the directors of the trustee company were to deny this, the coincidence in timing is difficult to escape, and the Court will likely be asked to infer that there were improper considerations motivating the trustee.[32]

63 On 9 October 2013, the directors of the Trustee attended a conference with Mr Merralls QC and Dr Rush, in which counsel were asked whether it would be proper for the Trustee to exclude Ian and Stephen and their families. Senior Counsel replied that the most that could be said was that if the court was asked for advice by the Trustee, the court would say that the exclusion was not improper. The risks would be reduced if there was an independent director.

64 As the judge recorded, emails between Allens and counsel made it clear that the solicitors understood that David and Minnie did not make changes to the Deed because they were 'simply too upset to deal with [the varying of the Deed]', and, after that, David 'never got around to making the changes and just did not want to know about dealing with this aspect'.[33] A file note of the conference records that Mark Cerché explained to counsel the history of David taking steps to protect the family wealth from his sons' 'weaknesses' and said that David's attitude had 'hardened' after the settlement.

65 Following the conference, counsel set out certain assumptions in an email to their instructing solicitors on 13 October 2013. Those assumptions included that David had been advised to take steps to exclude Ian and Stephen and their families from the Trust but had not done so because he and Minnie were too upset to deal with this matter at around the time of the 1995 Settlement Agreement; he preferred to keep his options open; and he hoped there may be a reconciliation with his sons.

66 In a further brief to counsel dated 17 October 2013, it was recorded that the Trustee's object remained 'to exclude Ian and Stephen Mandie, and their spouses and children, as beneficiaries under the Trust.'

67 On 30 October 2013, the Trustee's solicitors received, and emailed to its directors, a written advice from counsel ('30 October advice'). The principal question considered by counsel in that advice was whether the Trustee would succeed in obtaining a direction from the Supreme Court that it was a proper exercise of the Trustee's power to exclude Ian, Stephen, and their spouses and children, as beneficiaries under the Trust. Counsel reiterated the governing principles attaching to the exercise of discretionary powers, to which they had referred in their 25 September advice.[34]

68 After noting the obligation to give real and genuine consideration to the exercise of the power, counsel emphasised some matters of particular significance:

Some of them might reasonably be considered by the Trustee to support a decision to exclude Stephen, Ian, their spouses and children as Beneficiaries under the Trust. Examples include the terms of the statement of wishes; the fact that the statement of wishes was not rewritten nor renounced; Evelyn but not Stephen and Ian was re-appointed a director of Memart Nominees; no provision was made for Ian and Stephen and their spouses out of the estate of David Mandie; and, at least in relation to Stephen and Ian, cl 9.2(b) of the December 1995 settlement agreement provided that Stephen and Ian irrevocably disclaimed any entitlement in relation to the Trust and would not assert any rights as beneficiaries of any such trust. But there are also countervailing matters to which the Trustee should give real and genuine consideration in deciding whether to exercise its power of exclusion. These include, for example, that David could have formally excluded Stephen and Ian and their families from the Trust but did not do so; that after the 1995 settlement there appears to have been some rapprochement between David, Stephen and Ian (albeit their relationship was not of the kind or extent previously experienced); and that $500,000 was bequeathed by David to each of his grandchildren (including Stephen and Ian's children).

69 Counsel advised that the Statement of Wishes was an appropriate matter for the Trustee to take into account.[35] Counsel noted their understanding that the death of David and the commencement of the pt IV proceeding by Ian and Stephen and the information proceeding 'provided the occasion but not a reason for the Trustee to consider exercising the power of exclusion under the Trust'.

Subject to what we have said about the Trustee ... giving real and genuine consideration to relevant matters, and on the assumption that any decision of the Trustee is made in good faith, we expect that a court would advise the Trustee that it could properly exercise its power to exclude Stephen, Ian, their spouses and children as Beneficiaries under the Trust.

71 On 21 January 2014, James Richardson Pty Ltd or associated entities sought approval from the Western Australian Government (Department of Racing, Gaming and Liquor) ('the WA regulator') for the transfer of a licence to permit James Richardson Pty Ltd, a subsidiary of Memart, to sell liquor at Perth International Airport. (On 31 October 2012, James Richardson Pty Ltd had been selected as the successful tenderer for the new Perth Airport Duty Free Concession.)

72 On 10 March 2014, the WA regulator requested 'the full name, date of birth and current residential address of each specified beneficiary' of the Trust and foreshadowed the need for a police report for each.

73 In answer to its request, the WA regulator was advised that David and Minnie had three children and that only one, Evelyn, had been involved in the Trust since 1995. That answer did not satisfy the WA regulator, which required documentary evidence that Stephen and Ian had been removed or their details to allow a police check. On 23 April 2014, the Western Australian solicitor for James Richardson Pty Ltd, who had carriage of the licence application, recommended providing details for the police check. He also indicated that there was some time pressure.

74 On 28 April 2014, counsel were advised about the developments in Western Australia and further advice was sought from them. A file note of a conference with counsel contained the following summary:

Merralls opined that there was a risk involved in simply letting the police conduct their investigations and we agreed that it was highly likely this would come back to Ian and Stephen Mandie. Merralls noted that he and Rush could not add to what they had said last year about the nature of the risks. He simply added another adverse side to the balance and there was a risk that the discretion was being used wrongly because of this nuisance of the WA liquor licensing issue. Against that, it was simply another occasion about the fact that they had not been formally excluded has come to the mind of the trustees and presents issues.[36]

In all, they consider that a simple exclusion is the least risky course open to all the parties. Merralls noted that we need to consider how this is done because they are referred to in sub-paragraphs. Rush noted that the declaration must be in writing and it was agreed there should be no recording of reasons.

In view of the settlement, it was agreed there was no obligation to tell Ian and Stephen of this decision. It was also agreed that the third [director of the] trustee should be appointed as soon as possible.

75 On 23 May 2014, Garry Stock was appointed as a director of the Trustee.

76 On 27 May 2014, Mr Cerché emailed Ms Jenkins a draft declaration in the form of the declaration that was ultimately made. In the email, Mr Cerché said:

Attached is a revised draft of the Memart Declaration. I have referred specifically to Specified Beneficiary at Evie's request as the WA liquor people have noted the [brothers] as Specified Beneficiaries.

Under the Deed Specified Beneficiaries are a subset of General Beneficiaries and the addition does no harm

Comments before I send to directors for adoption. There is no power to exclude them as Specified Beneficiaries

Expressly.

77 On the same day, the directors of the Trustee resolved to make a declaration in the form tabled and to authorise the directors to sign it. The May Declaration, signed by Lasnitzki and Stock on 27 May 2014, is in these terms:

In pursuance of the power vested in the Trustee by the proviso in sub-clause (iv) to Clause 1(2) of the Deed of Settlement dated 24 April 1978 relating to the David Mandie Family Trust and of all other powers enabling it so to do, the Trustee declares that Ian Mandie and Stephen Mandie, being two of the children of David and Minnie Mandie, are excluded for all purposes from the class of General Beneficiaries from the date of this Declaration and neither Ian Mandie nor Stephen Mandie shall have any interest whether as a General Beneficiary, Specified Beneficiary or otherwise under the Deed of Settlement.

78 On 30 May 2014, the Trustee sent a copy of the minutes of the 27 May meeting, and a copy of the May Declaration, to the WA regulator.

79 On 26 June 2014, the Trustee invited the grandchildren to submit information regarding their circumstances for it to take into account in considering whether to make distributions from the Trust for the financial year 2013/2014. On 27 June 2014, shortly before 5:00 pm, the applicants' solicitors provided short statements on behalf of the applicants and said that the applicants were willing to make themselves available to meet the Trustee. That evening, the directors of the Trustee resolved to appoint trust income to Evelyn and trusts associated with her family. No income was appointed to the applicants.

80 Only a few days earlier, on 20 June 2014, Macaulay J had dismissed the information proceeding. He held that, in circumstances where the Trustee had not waived the immunity of a trustee from giving reasons for exercising an absolute discretion and had not volunteered the reasons, there was no duty to provide the information to General Beneficiaries outside of an action for breach of trust or mala fides.[37] An application for an extension of time for leave to appeal was refused on 22 August 2014.

81 On 1 September 2014, the Trustee's solicitors received a written memorandum from Dr Hardingham QC (who had appeared for the Trustee in the information proceeding). He advised that it was now open to the Trustee to exclude the applicants were it minded to do so, and that it was not necessary to wait until after the expiry of the period for seeking special leave to appeal to the High Court before doing so.

82 That evening, on 1 September 2014, Lasnitski and Stock resolved to exclude the applicants as General Beneficiaries:

pursuant to subclause (iv) to clause 1(2) of the Deed of Settlement relating to the David Mandie Family Trust to declare that:

(a) the spouses, the children and the grandchildren of Ian Mandie and Stephen Mandie, being two of the children of David and Minnie Mandie, and the spouses, widows or widowers of such children and grandchildren; and

(b) any corporation in which any of Ian Mandie, Stephen Mandie or any of the persons specified in paragraph (a) hold more than ten per centum of the issued shares,

are excluded as General Beneficiaries from the date hereof and that Mr Lasnitzki be authorised to sign a declaration to that effect on behalf of the Company as Trustee of the David Mandie Family Trust.

83 On 18 September 2014, in writing signed by Lasnitzki, the Trustee made the September Declaration in these terms:

In pursuance of the power vested in the Trustee by the proviso in sub-clause (iv) to clause 1(2) of the Deed of Settlement dated 24 April 1978 relating to the David Mandie Family Trust and of all other powers enabling it to do so, the Trustee declares that:

(a) the spouses, the children and grandchildren of Ian Mandie and Stephen Mandie, being two of the children of David and Minnie Mandie, and the spouses, widows or widowers of such children and grandchildren; and

(b) any corporation in which any of Ian Mandie, Stephen Mandie or any of the persons specified in paragraph (a) hold more than ten per centum of the issued shares,

are excluded for all purposes from the class of General Beneficiaries and from the date of this Declaration none of them shall have any interest as a General Beneficiary, or otherwise, under the Deed of Settlement.

84 The evidence does not disclose how the words 'or otherwise' came to be included in the last line of the September Declaration. As the inferences that might be drawn from the inclusion of those words are controversial and important to the present appeal, it will be necessary to return to them.

Broad overview of issues and findings of the judge

85 As foreshadowed above, the applicants sought to impugn both the May Declaration and the September Declaration. In their pleading, the applicants set out the background and alleged that Memart breached its duties as Trustee as follows:

(a) the Trustee made distributions of income without considering whether the applicants ought to receive any distributions[38] (this allegation was not persisted with in this Court);

(b) by the May Declaration the Trustee purported to exclude Ian and Stephen as Specified Beneficiaries when there was no power for it to do so;[39]

(c) the exclusion of Ian and Stephen as Specified Beneficiaries was for the purpose of ensuring that the applicants 'would not be children of a Specified Beneficiary within the meaning of sub-cl 5(2) of the trust deed;'[40] and

(d) the September Declaration was made in bad faith and for an improper purpose.[41]

86 In [27] of the FASOC, the applicants alleged that Memart, by its directors Lasnitzki and Stock, made the September Declaration:

(a) in bad faith, arbitrarily, capriciously;

(b) without any real or genuine consideration; and

(c) otherwise than for the purpose for which the power in sub-cl 1(2)(iv) of the trust deed was conferred.

Memart's purpose in making the [September] Declaration was to ensure that the assets of the Trust enure for the exclusive benefit of Evelyn and the close members of her family, to the exclusion of the plaintiffs.

The [September] Declaration was made in circumstances where:

(i) Edward and Nicholas had, since July 2012, been requesting information from Memart; and

(ii) in the context of such requests, Edward and Nicholas had, by letter from their solicitors to Memart's solicitors dated 12 September 2014, put Memart on notice of matters which caused them to believe that they had or may have had grounds on which to obtain relief against Memart on the basis that it had acted, or was acting, in breach of its duties and was therefore liable to be removed from office.

88 In its defence to the FASOC, the Trustee admitted that the Deed does not empower it, either under cl 1(2)(iv) or otherwise, to exclude any person as a Specified Beneficiary,[42] and it denied that the purpose of the May Declaration was to exclude Ian and Stephen so as to exclude the grandchildren.[43] Further, the Trustee pleaded that the purpose of the May Declaration was to provide a formal record that Ian and Stephen no longer had any interest in the Trust as requested by the WA regulator.[44]

89 The Trustee in its defence pleaded that Ian and Stephen could no longer take an interest under cl 5(2) of the Deed, not because of the operation of the May Declaration, but because of the release in cl 9.2 of the 1995 Settlement Agreement.[45]

90 At the trial, the grandchildren submitted that the disclaimers had the effect of removing any entitlement of Ian and Stephen[46] but did not bind the grandchildren, who then became the holders of a vested, but defeasible, interest in the Trust as takers in default of appointment of the Trust property. They argued that the doctrine of acceleration applied so that the disclaimers of Ian and Stephen accelerated the grandchildren's interests under cl 5(2). They submitted, in this context, that the May Declaration knowingly went beyond the exclusion power in the Deed by purporting to exclude Ian and Stephen as Specified Beneficiaries.

91 In their written submissions at trial, the applicants alleged that the purpose of the May Declaration was to misrepresent the true position to the WA regulator. That allegation was not pressed and was replaced with the allegation that the purpose was as pleaded in [26C] of the FASOC, namely, to ensure that the applicants 'would not be children of a Specified Beneficiary within the meaning of sub-clause 5(2) of the trust deed.'

92 As to the September Declaration, the applicants submitted that it was beyond power for three reasons, which we will set out in full below. The judge found that only the third reason was pleaded. Consequently, the applicants were prevented from arguing the first two bases, and an application to amend the pleadings to introduce them was refused. The third basis, considered by the judge as an aspect of improper purpose, was that the power of exclusion could only be exercised in respect of named individuals, not classes or categories of individuals, and required some disentitling conduct justifying exclusion.

93 The applicants alleged that the September Declaration involved a fraud on the power in that the power was exercised for a purpose or with an intention beyond the scope of or not justified by the Deed.[47] They contended that the purpose of the September Declaration was to stop the Trust being for the benefit of all of the objects of the Trust and for it to become, instead, a trust for the sole benefit of Evelyn and her family.

94 The applicants submitted that a purported exercise of a power that occurs even partly for an improper purpose is a fraud on the power for 'there is not the absence of an ulterior object necessary to support it'.[48] They acknowledged that the question is the subjective intention or purpose of the party exercising the power.

95 The applicants also submitted that the power was not executed in good faith. In their written submissions, they alleged that the September Declaration was not made honestly and in good faith, was made capriciously and was 'actuated by spite'. They relied on a list of facts, contained in [164] of their written closing submissions, to establish an absence of good faith. In circumstances which we shall explain, the judge did not permit the applicants to rely on the matters alleged in that paragraph or on the allegation that Evelyn was motivated by spite.

96 In seeking to make their case, the applicants invited the judge to draw an adverse inference as to purpose because of the failure of the Trustee's directors to give evidence to explain the decisions that were made. They submitted that the judge should not take into account the Statement of Wishes because it was inconsistent with the Deed, and the evidence established that David had good relationships with his grandchildren - he left them substantial bequests in his will and had deliberately not taken the step of altering the Deed or removing them during his lifetime.

97 In very brief summary, the judge concluded as follows:

(a) the grandchildren's position as takers in default had not been accelerated by their fathers' disclaimers because '[t]here was nothing to accelerate until 2057'.[49]

(b) the May Declaration did not purport to remove Stephen and Ian as Specified Beneficiaries and was not made for that purpose. It removed them as General Beneficiaries and simply recited the consequences that had earlier arisen from the 1995 Settlement Agreement and disclaimers.[50] The judge further noted that the May Declaration had no effect on the applicants.[51]

(c) the attack on the power to make the September Declaration was outside the pleadings and leave to amend the FASOC to include it was refused.

(d) the applicants had failed to establish that the September Declaration was made for an improper purpose notwithstanding that the Trust was likely to continue only for the benefit of Evelyn and her family.[52] There was no evidence that the Trustee did not give genuine consideration to the circumstances of the applicants;[53] it had an unfettered discretion and was entitled to take into account the effect of the 1995 Settlement Agreement and the benefits that Ian and Stephen received, and the Statement of Wishes.[54] The judge found the evidence that David and Minnie had changed their wishes since the Statement of Wishes to be equivocal.[55]

98 At the conclusion of his reasons, the judge indicated that he would hear further argument on the application to remove the Trustee in light of his reasons. Subsequently, and without any further hearing, an order was made dismissing the proceeding.

Ground 1: Are the grandchildren takers in default of the Trust property?

99 Ground 1 is, in substance, that the judge erred in failing to hold that the grandchildren were takers in default of appointment with vested interests in the Trust property from the time of the disclaimers in 1995.[56] Memart filed a Notice of Contention in which it seeks to support the judge's conclusion that the doctrine of acceleration was inapplicable to cl 5(2) of the Deed on the ground that the interests of the grandchildren under that clause were not equivalent to the gift of a vested remainder. It also asserts that the judge erred in failing to conclude that the consequence of the disclaimers was that the children could not take under cl 5(2) of the Deed. The parties addressed Ground 1 of the grounds of appeal and the Notice of Contention at the same time.

100 This issue involves identifying the nature of the interests of the grandchildren, if any, under cl 5(2) of the Deed, and the effect of the disclaimers in circumstances where cl 5(2) refers only to the 'death' of a Specified Beneficiary. As will become apparent, although this issue assumed great prominence on the appeal, it was much less significant at trial. The focus of the trial was the decision to remove the applicants as General Beneficiaries and not the nature of the residual interests of the grandchildren as takers in default.

101 The parties disagree as to the nature of the interests held by the grandchildren under the Deed. However, whether the exercise of power to remove the applicants as General Beneficiaries was made for an improper purpose is central to the appeal, and because both the May Declaration and the September Declaration arguably travel beyond simply removing the applicants from the class of General Beneficiaries, it is convenient to address the nature of the grandchildren's interests under the Deed.

102 The judge set out the competing submissions and concluded that:

the potential interest of the plaintiff grandchildren arises under clause 5(2) if their fathers 'shall have died'. The content of that potential interest is the share that their fathers would have taken had they survived to the vesting day in 2057 and attained a vested interest.[57]

103 Although the judge had earlier concluded that the Specified Beneficiaries were takers in default,[58] he considered that cl 5(2) could not be applied until the Vesting Day because the Trust property may have been appointed before then, leaving nothing on which cl 5(2) could operate. On that basis, the judge rejected the submission that nothing could flow to the grandchildren as a result of the disclaimers, going on to say that this could not be answered until 2057. He identified as one possible scenario that the disclaimers could be varied before the Vesting Day.[59]

104 The judge then addressed the application of the doctrine of acceleration, holding that it did not apply to advance the applicants' interests. He said:

In my opinion, the doctrine of acceleration did not operate following Ian and Stephen's disclaimers in 1995 so as to advance to their children their interests as takers in default of appointment. While the acceleration doctrine applies upon a disclaimer, in the same way as it does upon the prior interest holder's death, its operation is subject to any contrary intention apparent in the will or settlement deed. In this case, the plaintiffs grandchildren had to survive until 2057 to the vesting day to learn whether there remained any Trust property for them to take. There was nothing to accelerate until 2057 and then only if there was some Trust property remaining and not otherwise appointed. The present circumstances differ from the disclaimer of a life interest in property where the person holding the remainder can accelerate to possession of the property.[60]

105 In summary, therefore, the judge held that the grandchildren were takers in default of appointment, that it was not known whether or not they would take under the Trust and this could only be known in 2057. The doctrine of acceleration did not apply to advance their interests.

106 Before coming to the arguments and our conclusions on this ground, it is necessary to refer to the applicable principles. It is convenient to do so, as the parties did, by reference to a number of authorities. They are important because they show that, commonly, a clause of a will or trust deed that provides for an interest to terminate on the death of the holder with the residuary to pass to another, will be construed as operating on any termination of the prior interest including, for example, by disclaimer.

107 In Tompkins v Simmons,[61] the testator's will directed that the proceeds of his residuary personal and real estate should form a trust fund, the income of which he bequeathed to his wife for life and after her death 'to and among all my children of whom there are six' and after the death of any one or more of such children a one sixth part of the trust fund was to be held 'upon trust to pay and divide the same equally among the children of any such one or more of my deceased sons or daughters who shall live to attain the age of twenty-one years or being daughters marry before that age.' By a codicil to that will, the testator revoked the interest of one of his daughters.

108 The removal of one of the daughters from the gift gave rise to a number of issues. On one view, the gift to the children was a gift to a class ('my children') and, in accordance with established principles, that meant the members of the class alive at the time of the mother's death. On that view, once the daughter's interest was revoked, the estate would be divided equally amongst the remaining five. The High Court rejected that construction. Rather, it was held that the will intended to create six undivided shares in the trust fund, and to limit each of them to one of the named children of the testator for life and, after his or her death, to his or her children who should attain the age of twenty-one or (in the case of daughters) marry, with an accruer in default of such children.

109 Thus the removal of one daughter from the gift did not enlarge the interest of the remaining children. The issue then became what was to happen to the interest of the daughter who had been removed from the gift, given that the children would only vest in possession on the death of her mother and, read literally, the interest of the daughter could only pass to her children on her death. Two possibilities were identified: either the removal of the daughter created an intestacy in respect of her interest or the interests of the daughter's children were accelerated.

110 Dixon J explained why the second of those possibilities was correct. He said:

But the destruction of such an interest for life does not cause an intestacy in respect of the interest, unless it is clear that the interest limited in succession to the life interest was to take effect only upon the specified event of the death of the life tenant and was not to fall into possession on the sooner determination of the life interest. In a limitation to a donee for life and after his death upon trust for his children, or some other donee, the reference to his death whether expressed by the words 'upon,' or 'after his death,' or 'from and after his decease,' or otherwise, may have one of two imports. It may mean that the second donee shall take nothing until the death of the first, or it may merely show the order of the limitations through which the estate or interest is to pass. It is well established that, prima facie, these words are to be understood as denoting the order of succession of limitations. (See per Turner LJ, Lainson v Lainson.)

In this case the limitation of the corpus of the trust fund is introduced by the words 'and immediately after the decease of any one or more of my sons or daughters.' There is nothing to rebut the prima facie rule that these words simply mark out the order of succession, and create an interest expectant upon the determination of the prior interest by whatever means that determination may be brought about. In such a case if the prior interest fail from the incapacity of the donee to take, as, for instance, if he attests the will, or if it be revoked, or for some other reason be abolished or abridged, the succeeding interest in the same property is accelerated and takes immediate effect in possession. ... In my opinion there is no intestacy as to the income of her revoked share, but the gift of corpus to her children is accelerated and subject to such children attaining twenty-one or being daughters marrying took effect immediately upon the death of the testator's widow.[62]

111 The prima facie position identified by Dixon J in Tompkins was also described as 'well settled' by Jenkins LJ in Re Flower's Settlement Trusts; Flower v Inland Revenue Commissioners.[63] Jenkins LJ described the principle as follows:

where there is a gift to some person for life, and a vested gift in remainder expressed to take effect on the death of the first taker, the gift in remainder is construed as a gift taking effect on the death of the first taker or on any earlier failure or determination of his interest, with the result that if the gift to the first taker fails - as, for example, because he witnessed the will - or if the gift to the first taker does not take effect because it is disclaimed, then the person entitled in remainder will take immediately upon the failure or determination of the prior interest, and will not be kept waiting until the death of the first taker.[64]

112 In Flower's Settlement, the Court acknowledged that the principle applies to personalty as well as real property and may be applied to settlements of trust. However, Jenkins LJ cautioned that 'it may well be more difficult, in the case of a settlement, to collect the intention necessary to bring the doctrine of acceleration into play.'[65]

113 In that context, the principle applies to give effect to the order of succession marked out by the settlement and so as to avoid a failure of the trust and the creation of a resulting trust in favour of the settlor. Jenkins LJ considered that to activate the doctrine of acceleration there must be something 'equivalent to the gift of a vested remainder to a person expressed to take effect on the death of the first taker.'[66]

114 In Re Syme,[67] the will left the residue of an estate to four named nieces and nephews of the testator and 'upon the death of the last survivor' to the children of the nieces and nephews 'in equal shares'. The question arose as to whether the children could only take on the death of the last survivor or whether the words ought be construed as merely showing the order of the limitations through which the estate was to pass,[68] so that the interests of the children could be accelerated by reason of simultaneous disclaimers made by each of the nieces and nephews.

115 In considering the doctrine of acceleration, Lush J observed that it was 'not excluded by words defining the time of distribution by reference to the natural ending of the particular state, for instance, a direction for distribution upon the death of the life tenant,[69] or by a direction that distribution is to be made among persons then living'.[70] Lush J held that, in the circumstances, acceleration applied and the interests would pass to the children 'as if all four nieces and nephews were dead.'[71]

116 The doctrine of acceleration arose in a different context in Re Wells; Wells v Begley.[72] As discussed below, the Trustee relies on this case for the proposition that where there is a substitutionary gift, the second donee takes the same interest that the prior interest holder would have taken had he or she survived the donor. If the prior interest holder would have taken nothing, so too the second donee will take nothing.

117 In Wells, the testator left the farm and some, but not all, of the stock and plant to a daughter (Lily) subject to a legacy of £500 to his other eight children to be paid by Lily in five equal annual instalments after the death of the testator; and the proceeds of the sale of any residue property were to be distributed amongst his children.

118 The will addressed the circumstance in which one of the children predeceased the testator in the following way:

And I further direct that in case any child of mine shall predecease me but leaving him or her a child or children him or her surviving then such child or if more than one then such children shall take in equal shares the share which his her or their parent as the case may be would have taken under this my will in case such child so predeceasing me had survived me.[73]

119 One of his daughters (Alice) died before the testator, leaving behind her three children.

120 Before he died, the testator made gifts to two of his daughters of £300 (Mary) and £250 (Annie) respectively. It was accepted that these payments were to be treated as ademptions or in satisfaction of their entitlement under the will. The principle is based on a presumed intention that the testator had a definite plan for the distribution of the estate among his children, so that if he subsequently makes a provision inter vivos for one child in the nature of a portion, the presumption arises that it was intended to be a satisfaction or ademption of all or part of the testamentary provision and the subsequent advancement must be brought into 'hotchpot', so that the scheme for the distribution of his estate among his children may not be altered.[74] The presumption arises from the parental relationship between donor and donee.[75]

121 The issue that arose in Wells was whether the doctrine applied in favour of the children of Alice who took under the will on their mother's death. In other words, for the purpose of determining the value of the share of the estate to be gifted to the grandchildren, were the two amounts in ademption to be added to the estate? The argument against that proposition was that ademption does not apply in favour of a stranger to the parental relationship.

122 Long Innes J held that it did apply. In a passage relied upon by the Trustee, he said:

The present is not the case of an original, but of a substitutional gift, and I think it must now be regarded as settled that in the case of a substitutional gift, where the substituted donee is directed to take the share which the original donee would have taken had he survived the testator, the doctrine is applied against the substituted donee to the same extent as it would be applied against the original donee.[76]

123 That means that where the original donee is subject to the benefit or liability of an ademption, it carries through to the substituted donee. That is, the substituted donee should take the share which that primary donee would have taken had he or she survived the testator, 'no more and no less, but the same in all respects, as the original donee would have taken had he or she survived the testator.'[77]

124 A similar issue arose in Re Dougharty; National Trustees Executors & Agency Co of Australasia Ltd v Brentnall.[78] In that case, the will provided for a life tenancy in favour of the testator's daughter and, in the event that she died without issue, the estate would pass to the other children of the testator who survived the daughter in equal shares. The will further declared that in the event that any of the testator's other children predeceased the daughter, the issue of any such children 'shall be entitled by way of substitution as tenants in common in equal shares per stirpes if more than one to the share to which the parent of such issue would have been entitled under the preceding trust had such parent survived' the life tenant.[79]

125 As things transpired, the life tenant died without issue. Before her death, one of her siblings, John Dougharty, who would have been entitled to take as remainder, also died and his child was substituted into the gift. Before his death, John had been the executor of the estate and was guilty of breaches of trust and became liable to account to the estate in an amount that remained outstanding. Had he survived, any amount owing under the will would have been entirely offset by his debt to the estate. What then of the position of his child who was substituted into the gift? Was he burdened by his father's debt to the estate?

126 The argument against the child turned on the words of the declaration which provided that the child would take that to which the parent would have been entitled under the trust. Mann J rejected that argument on the basis that the child took under the will as an original donee and his entitlement could not be destroyed or affected by anything done by his father after the death of the testator.[80] His Honour continued:

It was not in the power of John Dougharty in his lifetime by assigning or otherwise to affect in any way, or to deal with, the contingent interest of his children - an interest which became definable the moment John Dougharty died. I do not think the word 'substitution' in the codicil is very material. I agree with Mr Spicer's argument that in the strict technical sense this was not really a gift by way of substitution at all, but was an original gift. The word 'substitution' is nevertheless quite properly used here to express a condition of things in which one donee shall take in the event of a gift to another donee failing. But I do not think it depends upon whether it is a true substitutionary gift or not, but upon the whole language of the will and the intention to be gathered from it.[81]

127 The final case to which mention ought be made is Re Dawson's Settlement; Lloyds Bank Ltd v Dawson.[82] It involved a deed of settlement under which Lloyds Bank, as trustee, held a settled fund on trust for the settlor and his wife. Under the deed, the bank was to pay the income of the fund to the settlor and his wife and, after the death of one of them, to the survivor. If the wife survived her husband, the income would be paid to her 'so long as she shall remain the widow of the settlor' until her death or remarriage. The corpus fund was further held on trust for the children as appointed or in default of appointment for all of their children. Under the deed, the interest of the children, who were takers in default of appointment, vested on the death or remarriage of the survivor.

128 The marriage dissolved, the settlor remarried and then died. The settlor's wife did not remarry. The Court held that, on the death of the settlor, the first wife of the settlor had no entitlement to income during her life because she never became the widow of the settlor. That meant that the income was not disposed of under the trust and, in accordance with the deed, the corpus did not vest in the children until the death or remarriage of the first wife, neither of which contingencies had occurred. That gave rise to the issue of whether the trust for the distribution of income failed, with the consequence of a resulting trust in favour of the estate of the settlor (and therefore his second wife); or whether the interest of the children, who were takers in default, accelerated, so that the fund vested in their favour absolutely.

129 In holding that the interest of the children was accelerated, Goff J identified a series of limitations, each geared to take effect upon the failure or determination of the former. He explained that it was necessary to find such a context to enable the interest for life to be construed as being equivalent to 'subject as aforesaid' or 'subject to the trusts aforesaid', indicating that the second in line takes their interest subject to the prior interest.[83] On that construction, once the prior interest falls away (for any reason) the second in line takes the interest. Context is important because 'in order to apply this rule of construction one must find a context to enable one to depart from the natural and ordinary meaning of the words of futurity.'[84]

130 Applying that approach, Goff J held that the reference to the prior interest was more important than the point of time identified within the clause and the doctrine of acceleration should be applied.[85]

131 Two points of present significance arose in Dawson's Settlement. First, it did not matter that the entitlement of the first wife to income from the trust after the death of the settlor may never have arisen. She had a potential interest of a kind that could be enjoyed during her lifetime, and there was an implied intention that if that interest was prematurely cut off or failed, then the ultimate trusts should immediately take effect.[86]

132 Second, Goff J held that the children's interest could be accelerated even though they were merely takers in default of appointment and the power to appoint was still operative.[87]

Applicants' submissions on Ground 1/Notice of Contention

133 Based on Tompkins, Flower's Settlement, Re Syme, Dougharty, and Dawson's Settlement, the applicants submit that the Deed evinces an order of succession as to the interest of takers in default of appointment under cl 5(2); that is, cl 5(2) 'merely show[s] the order of the limitations through which the estate or interest is to pass.'[88] They submit that this construction reflects the evident intention of a family trust that is designed to stand for many years and across generations. Further, the construction avoids a failure of the gift in circumstances where a Specified Beneficiary is not entitled to take because of a disclaimer but has not died. It would not have been intended that the interest would fail, leading to a resulting trust in favour of the Settlor, who settled a very modest sum and had no familial or other connection to the Guardian and his family, especially where any resulting trust is expressly negatived by cl 5(4) of the Deed.

Respondent's submissions on Ground 1/Notice of Contention

134 The respondent submits that the doctrine of acceleration only applies to interests that are postponed and deferred to allow the prior interest holder to enjoy the interests in the interim. It submits that the principle can have no application here because the interests of the grandchildren are not deferred or postponed and are not equivalent to vested remainders that could be accelerated. It submits that the interest of the children of a Specified Beneficiary as takers in default or in possession will not inevitably come to pass and they are not simply awaiting the benefit of the prior interest being exhausted.

135 The respondent further submits that rather than a pending or postponed interest, the right of a taker in default is a substitutionary gift. It submits that cl 5(2) is not concerned with the passing of an interest along generational or other lines but that it simply identifies the persons who will take in default on the Vesting Day.

136 On that basis, two things are said to follow. First, the doctrine of acceleration does not apply and the applicants can only rely upon the language of cl 5(2), which makes them takers in default only on the death of a Specified Beneficiary, which is yet to occur. Secondly, even if the grandchildren's interests under cl 5(2) were enlivened by the disclaimers (rather than only being enlivened upon the death of the relevant Specified Beneficiary), its terms mean no more than that each grandchild would be substituted into the position previously held by his or her father and would be entitled to receive no more and no less than what their father would have received on the Vesting Day. The respondent relies on the words of cl 5(2), which provide that a grandchild will take the share which his or her father would have taken had he survived to the Vesting Day and attained a vested interest. Because of the disclaimers, that share is zero.

137 It is convenient to record one aspect of the submissions that is not in dispute. The effect of a disclaimer was described by McGarvie J in JW Broomhead (Vic) Pty Ltd (in liq) v JW Broomhead Pty Ltd[89] as follows:

The consequence of the disclaimer ... is that in law she is treated as retrospectively disentitled to the interest declared for her benefit in the trust deed. However, in the working out of legal rights the law does not disregard the fact that until she disclaimed she had a right to the beneficial interest. It has been described as a right 'defeasible by the beneficiary's own act of disclaimer'.[90]

138 It is not disputed that Ian and Stephen disclaimed all of their interests under the Deed. This retrospectively terminated their interests under the Deed. However, the disclaimers did not remove them as a point of reference to establish the rights and interests of their children. The respondent expressly acknowledged that the disclaimers were ineffective to disclaim the interests of the grandchildren, who were not bound by the 1995 Settlement Agreement.

(2) Do the applicants have an interest under cl 5(2)?

139 Before expressing our conclusions on the construction of cl 5(2), it is apparent from Ground 1 and the Notice of Contention that neither of the parties sought to uphold the judge's reasoning on the nature of the grandchildren's interests.

140 Although the judge appears to have accepted that the doctrine of acceleration could apply to an interest held by a taker in default, and 'applies upon a disclaimer, in the same way as it does upon the prior interest holder's death',[91] he held that it did not apply here because of a contrary intention in the Deed. The contrary intention was said to be that, under the Deed, '[t]here was nothing to accelerate until 2057 and then only if there was some Trust property remaining and not otherwise appointed'.[92] He considered that the 'grandchildren had to survive until 2057 to the vesting day to learn whether there remained any Trust property for them to take'.[93] This reasoning ignores the fact that the Specified Beneficiaries had a vested interest as takers in default from the time the Trust was constituted in 1978[94] and thus, as we explain below, the grandchildren had contingent interests as takers in default from the date of their respective births[95] and vested, although defeasible, interests as takers in default from the date of the disclaimers in December 1995.[96]

141 To the extent that the judge considered that the nature of the grandchildren's interests could only be ascertained in 2057, in our respectful opinion, the judge was mistaken. Although it is clear that the interest in the Fund provided for in cl 5(2) could not vest in possession until the Vesting Day,[97] the Specified Beneficiaries and, if accelerated, the grandchildren, had a vested interest in the Fund as takers in default of appointment before the Vesting Day. Further, the judge's observation that the nature of the grandchildren's interests might change because the disclaimers might be varied, was also erroneous.[98] The effect of the disclaimers was to irrevocably remove any entitlement that Ian or Stephen had under the Trust.

142 The principle of construction embodied in the so-called doctrine of acceleration most often applies where an interest created by will is deferred or postponed for the period of a prior interest and permits acceleration of the interest where the prior interest comes to an end for any reason, even where the description of the termination point in the relevant instrument is confined to the death of the prior interest holder. The principle has also been applied to settlements of trust and to an interest as a taker in default.[99] More broadly, it may apply, subject to the terms of the instrument, whenever there is a gift over that would fail in the event of an earlier termination of the prior interest. At least that is so where there is a vested interest.[100]

143 As a principle of construction,[101] it must give way to a contrary intention expressed in the instrument. A contrary intention cannot be found in the fact that the instrument refers only to the death of the prior interest holder. As each of the cases discussed above demonstrates, the application of the principle of acceleration may involve a departure from the literal meaning of the text. For example, where the successor interest is expressly stated to arise on the death of the prior interest holder, the text may be treated as extending to termination of the interest in circumstances other than death. The exercise remains one of construction designed to give effect to the intention of the settlor, or de facto settlor, determined objectively.

144 Whether acceleration applies may be discerned from the structure of the instrument as a whole and how it treats the passing of successive interests. Equally, it may be necessary to apply the principle to avoid the failure of the gift and the creation of a resulting trust in favour of the settlor in circumstances where that would clearly not have been intended.

145 Clause 5(2)[102] identifies what is to happen on the Vesting Day and its practical operation depends on whether the Fund has been fully appointed pursuant to cl 5(1). On the Vesting Day, whether the Fund or any part of it vests in possession in favour of a Specified Beneficiary is contingent: it depends on whether there is a failure to appoint the whole Fund under cl 5(1) and on the Specified Beneficiary surviving until Vesting Day.

146 From the time the Trust was constituted until their death, each Specified Beneficiary was a taker in default of appointment under cl 5(2). Notwithstanding that a number of contingences had to be satisfied before the Fund could vest in possession in favour of a Specified Beneficiary, the interest of a taker in default was a vested interest. In that sense, the position of a Specified Beneficiary may be contrasted with the position of a General Beneficiary under cl 4(1) (dealing with income)[103] and cl 5(1) (dealing with the Fund).[104] None of the beneficiaries has a vested interest under either of those clauses. They are objects of the Trust who are capable of enjoying benefaction under the Trust but have no interest by reason of those provisions in the Trust income or Fund.

147 The position in cl 5(2) is quite different. It does not require any exercise of power or discretion by the Trustee.

148 The position of a taker in default was explained by the Full Court of the Federal Court in Federal Commissioner of Taxation v Ramsden[105] as follows:

A taker in default of appointment is ordinarily regarded as having a vested interest in the property to be taken, though liable to be divested by an exercise of the trustee's power to appoint elsewhere. The interest although vested, is defeasible. As takers of the trust fund on the vesting day in default of any appointment by the trustee, the specified beneficiaries also have a vested defeasible interest in the corpus of the trust.[106]

149 Although a vested interest, the interest was contingent on the Specified Beneficiary being alive at the Vesting Day and was liable to displacement by the exercise of the power of appointment on or before the Vesting Day. These matters 'rendered unstable the content of the interests' but did not deny their character as a vested interest.[107]

150 Clause 5(2) addresses the possibility that a Specified Beneficiary may die before the Vesting Day. The two most obvious alternatives that could address that event would be to enlarge the interests of the remaining Specified Beneficiaries or to pass the interest to the issue of the Specified Beneficiary who has died. An example of the former approach can be seen in cl 4(4)(c) in relation to the distribution of income in default of appointment.[108] Clause 5(2) takes the latter course.

151 Clause 5(2) contains two provisos. The first proviso states that the children of the Specified Beneficiary who has died shall take the share which that deceased Specified Beneficiary would have taken had he or she survived to the Vesting Day and attained a vested interest. If there is more than one child, they take equally as tenants in common. The words 'and attained a vested interest' do not add to the meaning of the proviso.

152 By the second proviso, the clause moves to the next generation. It provides that:

if any children of a deceased Specified Beneficiary shall die before the Vesting Day then the issue of any such deceased General Beneficiary remoter than his children and living at the Vesting Day shall take per stirpes and equally between them the share which such children would have taken if they had survived to the Vesting Day and attained a vested interest ...

153 The import of the second proviso is tolerably clear. The second proviso is predicated on the death of a Specified Beneficiary (which brings into play the first proviso) and the death of any of the children of that Specified Beneficiary (which provides the occasion for the second proviso to operate). The children of Specified Beneficiaries are General Beneficiaries. If one of those General Beneficiaries dies then their issue takes. In the event that a child of a Specified Beneficiary dies, the children of that deceased General Beneficiary take the share that their mother or father would have taken had they survived to the Vesting Day.

154 The pathway marked out by the clause is perhaps more easily seen by labelling the generations as parent, child and grandchild. Using that terminology, the parent is the de facto settlor, his children are the Specified Beneficiaries and the grandchildren are all General Beneficiaries. Clause 5(2) provides the following sequence:

(a) on the Vesting Day the children (Specified Beneficiaries) take the Fund in equal shares as tenants in common in default of appointment under cl 5(1);

(b) if on the Vesting Day, one of the children has died, then his or her children (ie the grandchildren) take the share that their father or mother would have taken had he or she survived to the Vesting Day; and

(c) if on the Vesting Day, one of the children has died, and one of his or her children (a grandchild) has also died, then the children of the deceased grandchild shall take their parent's share per stirpes and equally.

155 It may be accepted that the phrase 'the issue of any such deceased General Beneficiary remoter than his children' in the second proviso introduces a degree of ambiguity. However, it is not necessary to resolve the intricacies of the clause as it applies to the generation covered by the second proviso. What is important is that cl 5(2) addresses what is to happen in the event that a Specified Beneficiary has died - the interest passes to his or her progeny rather than being distributed pro rata to the remaining Specified Beneficiaries.

156 The prima facie position explained by Dixon J in Tompkins,[109] and applied in the other cases referred to above, is clearly apt in principle and not controverted by the Deed. It follows that the succession marked out applies to the vested interests, regardless of how they are terminated, whether by death or disclaimer.

157 It is necessary to deal with Memart's further submission that the grandchildren would be entitled only to that to which their fathers (Ian and Stephen) would have been entitled on Vesting Day, namely, by reason of the disclaimers, nothing.

158 We do not accept that submission. The operation of the doctrine of acceleration treats the earlier termination of the interest, by disclaimer, in the same way as the death of the interest holder. This means that it is necessary to determine what the Specified Beneficiary would have received on the Vesting Day had the terminating event not occurred. In this case, it is necessary to determine what Ian and Stephen would have received on the Vesting Day had they not disclaimed their interest.

159 The issue in Wells, upon which the Trustee relies, was very different. As a result of the ademption, the beneficiary had, in effect, already received the entitlement under the will and the earlier distribution had to be accounted for in determining the interest of the succeeding generation. The ademption determined the size of the estate to be distributed for reasons that were independent of the termination of the prior interest. On the other hand, in Dougharty, the debt that the defaulting executor owed to the estate was independent of the distribution and did not bind the succeeding generation.

160 In the case of disclaimer, the disclaiming beneficiary will have given up his or her interest in the estate. But this does not alter the nature or size of the interest that has been disclaimed, which simply passes to the next generation in line. The interest passes on termination regardless of the reason for the termination: the disclaimers have the same effect as the death of the Specified Beneficiary. Here, the grandchildren get no more, and no less, than they would have received had the prior interest been terminated by the death of the Specified Beneficiary who stood in line before them.

161 The Trustee contends that such a result is unfair and could not have been intended having regard to the terms of the 1995 Settlement Agreement in which two Specified Beneficiaries (Ian and Stephen) disclaimed any interest in the Trust on their own behalf and on behalf of their families and received a substantial payment in return.

162 We do not accept that this construction of cl 5(2) results in any unfairness to Evelyn and her children. That is so for two reasons. It is accepted by the parties that the 1995 Settlement Agreement did not bind the grandchildren. They were not a party to it. The grandchildren have not at any stage disclaimed their interests under the Trust.

163 Secondly, our conclusion is based on the proper construction of the Deed. The construction holds true from the date the Trust was constituted in 1978 and is not affected by the conduct of the parties thereafter. The organising principle that we have identified in cl 5(2) is that, in the event that the interest of a Specified Beneficiary terminates as a result of death or disclaimer, that interest passes down the same family line by descent. That is, the termination of the interest by death, disclaimer or otherwise, does not of itself interrupt the succession marked out by the clause. That is so regardless of the reason for the termination of the prior interest. It also means that the interests of the succeeding generations are not imperilled by the death or conduct of the earlier generation.[110]

164 Given that the Trust is a family trust intended to endure for almost 80 years and, by its express terms, is intended to be for the benefit of successive generations, the construction that we adopt is neither surprising nor unfair.

165 It follows that on the making of the disclaimers, the grandchildren became takers in default of appointment under cl 5(2) and they have a vested but defeasible interest in the Trust Fund which is equal to the amount that their fathers would have taken on the Vesting Day had they not disclaimed their interest.

166 Of course, as the High Court observed in Buckle, the interest of a taker in default of appointment is inherently unstable.[111] The interest carries no entitlement to be considered for any distributions or appointments from the Fund other than pursuant to cl 5(2), which has effect only on the Vesting Day and then only in relation to any part of the Trust Fund that has not been disposed of in accordance with cl 5(1).

167 It follows that we uphold Ground 1 of the grounds of appeal and reject the Notice of Contention.

The primary judge erred in:

(a) holding that the Respondent's 27 May 2014 declaration (May Declaration) that 'from the date of this declaration ... neither Ian Mandie nor Stephen Mandie shall have any interest whether as a ... Specified Beneficiary or otherwise ...' did not purport to exclude Ian Mandie and Stephen Mandie as Specified Beneficiaries of the Trust; and

(b) failing to hold that the Respondent made the May Declaration for an improper purpose.

(a) Did the May Declaration purport to exclude Ian and Stephen as Specified Beneficiaries?

(b) Was the May Declaration made for an improper purpose?

170 In their pleading, the applicants alleged that by the May Declaration, Memart purported to exclude Ian and Stephen as Specified Beneficiaries, which was beyond power,[112] and for the improper purpose of ensuring that the grandchildren would not be children of a Specified Beneficiary within the meaning of cl 5(2) of the Deed.[113]

171 The judge concluded that the May Declaration did not purport to do anything more than exclude Ian and Stephen as General Beneficiaries.[114] His Honour noted that the verb 'excluded' was used once and referred to exclusion from the class of General Beneficiaries.[115] He regarded the balance of the May Declaration as not exercising the power to exclude, or otherwise performing any action, but merely a statement of the Trustee's understanding of the status of Ian and Stephen by reason of the disclaimers.[116] His Honour found that the context of the May Declaration was the need to provide an authoritative statement to the WA regulator concerning the identity of the Specified Beneficiaries of the Trust.[117] That purpose explained the presence of the final section of the May Declaration, which was an accurate statement of the effect of the disclaimers.[118]

172 The judge went on to note that the May Declaration did not mention the grandchildren, nor did it have any impact on their interests.[119] He therefore rejected the improper purpose ground directed to the May Declaration.[120]

173 The applicants submit that the directors of the Trustee knew that the Trustee had no power to remove Ian and Stephen as Specified Beneficiaries but proceeded to do so. They rely on the email of Mr Cerché of 27 May 2014[121] as establishing knowledge by the Trustee that there was no such power and the respondent's submissions at the trial which expressly acknowledged that there was no power in the Deed to remove Specified Beneficiaries. They submit that notwithstanding the acknowledged absence of power, the May Declaration provides for the removal of Ian and Stephen for all purposes. They highlight the following words:

the Trustee declares that Ian Mandie and Stephen Mandie, being two of the children of David and Minnie Mandie, are excluded for all purposes from the class of General Beneficiaries from the date of this Declaration and neither Ian Mandie nor Stephen Mandie shall have any interest whether as a General Beneficiary, Specified Beneficiary or otherwise under the Deed of Settlement.[122]

174 They further submit that it was always the purpose of the Trustee to remove Ian and Stephen and their families (including the spouses of Ian and Stephen and the grandchildren) completely from the benefaction of the Trust, as evidenced by the advice they sought from counsel. They say that it was entirely unnecessary to remove Ian and Stephen since they had already disclaimed their interests and the directors of the Trustee knew that the Trustee had no power to exclude a Specified Beneficiary. Therefore, the Trustee's purpose in making the May Declaration could not have been proper.

175 The respondent submits, as it did below, that the May Declaration operates according to its terms to exclude Ian and Stephen as General Beneficiaries, and no more, and that the words that follow that exclusion simply declare the consequence of that step or the consequence of the disclaimers. Further, it submits that the applicants have failed to identify an improper purpose, asserting simply that there must have been one. It says that the evident purpose of the May Declaration was to make an authoritative statement about the interests under the Trust to the WA regulator.

176 Because Grounds 2 and 3 concern an attack on the exercise of the Trustee's discretionary power to exclude General Beneficiaries, it is necessary to refer to the applicable principles.

177 In Attorney-General (Cth) v Breckler,[123] the High Court accepted a summary of the principles that apply to a challenge to the exercise of a discretion by a trustee, which was in the following terms:

Where a trustee exercises a discretion, it may be impugned on a number of different bases such as that it was exercised in bad faith, arbitrarily, capriciously, wantonly, irresponsibly, mischievously or irrelevantly to any sensible expectation of the settlor, or without giving a real or genuine consideration to the exercise of the discretion. The exercise of a discretion by trustees cannot of course be impugned upon the basis that their decision was unfair or unreasonable or unwise. Where a discretion is expressed to be absolute it may be that bad faith needs to be shown. The soundness of the exercise of a discretion can be examined where reasons have been given, but the test is not fairness or reasonableness.[124]

178 In Karger v Paul,[125] McGarvie J emphasised that a trustee is not obliged to give reasons for a decision and where the trustee does not provide reasons, the exercise of an absolute and unfettered discretion is examinable only as to good faith, real and genuine consideration and absence of ulterior purpose, and not as to the method and manner of its exercise.[126]

179 Recently, this Court has noted that 'McGarvie J was at pains to make it clear that there were three obligations on a trustee exercising such a discretion: to do so in good faith, upon a real and genuine consideration, and in accordance with the purpose for which the discretion was conferred.'[127] This Court did not adopt the proposition, which was referred to by the High Court in Breckler,[128] that it may be essential to establish bad faith in cases of absolute discretion.[129] Rather, it was held that '[s]uch a discretion may be reviewed on the same grounds as more confined discretions, along the lines explained in Karger v Paul.'[130]

180 The exercise of a trust power for an improper purpose may, but need not be, accompanied by bad faith. In other words, consciousness of wrongdoing on the part of the trustee is not essential to a claim alleging improper purpose. It may be established where the power is exercised for a purpose, or with an intention, which extends beyond the scope of the terms of the trust so as to be a 'purpose foreign to the power'.[131]

181 The exercise of a discretion for an alien purpose, particularly in the context of decisions to exclude or prejudice minority interests in companies, is sometimes described as a 'fraud on the power'. The word 'fraud' in this context does not necessarily connote conduct that is dishonest or immoral.[132]

182 In Cachia v Westpac Financial Services Ltd,[133] Hely J said:

The equitable doctrine of 'fraud on the power' requires that a power, including an amendment power, reserved in a trust must not be exercised for a purpose, or with an intention beyond the scope of or not justified by the instrument creating the power.[134] The same principle applies to the exercise of a statutory power. In each case, the power has to be exercised bona fide, for the purpose for which it is given.[135] It may be that an amendment to a trust deed enabling the majority unitholders to expropriate the minority's units for the sole purpose of aggrandising the majority might fail for want of good faith, or because it would be beyond the scope of the enabling power.[136]

183 It is not necessary that the improper purpose be the only or dominant purpose for the exercise of the power. The improper purpose will constitute a fraud on the power if it is an operative or actuating purpose, one without which it cannot be said the appointment would have been made.[137]

184 In respect of the May Declaration, the applicants pleaded that it was made for the purpose of ensuring the grandchildren would not be children of a Specified Beneficiary within cl 5(2).[138] In respect of the September Declaration, the applicants rely on the three bases described in Karger v Paul: that it was made in bad faith, arbitrarily or capriciously; without any real or genuine consideration; and otherwise than for a proper purpose.[139]

185 The applicants sought to make a case of deliberate and conscious wrongdoing on the part of the Trustee.[140] In order to succeed in establishing deliberate and conscious wrongdoing on the part of the Trustee, the applicants require supporting evidence.[141] Innocent wrongdoing, on the basis of a misunderstanding of the power of exclusion or the nature of the interests held by the grandchildren under the Deed, could hardly justify such relief.

186 In those circumstances, a finding of wrongdoing of the kind alleged could only be made if the evidence supported it, having regard to s 140 of the Evidence Act 2008, and the principles propounded in Briginshaw v Briginshaw.[142]

187 The starting point for ascertaining the purpose of the May Declaration is its text and what it purports to do. The judge accepted the Trustee's submission that the May Declaration has two distinct aspects. First, a declaratory component which reflects the exercise of power and a further clause that simply recites the fact that Ian and Stephen have no interest in the Trust and which accurately reflects the disclaimers.[143] Second, a formal statement for the WA regulator that Ian and Stephen were not Specified Beneficiaries under the Trust.[144]

188 In contrast with the judge's construction, we do not read the May Declaration as containing two discrete components. The words 'are excluded for all purposes from the class of General Beneficiaries from the date of this Declaration and neither Ian Mandie nor Stephen Mandie shall have any interest whether as a General Beneficiary, Specified Beneficiary or otherwise' cannot be parsed in the manner submitted by the Trustee. The reference to the result that will occur 'from the date of this Declaration' and the statement that neither of the two brothers shall have any interest, strongly convey the impression that the May Declaration purports to effect as of that date a complete and immediate termination of all interests in the Trust. The word 'shall' points to what is to happen as and from the May Declaration, rather than recording a past act of renunciation.

189 It is also important to have regard to the immediate context of the May Declaration and its intended audience, namely, the WA regulator. In this respect, we note that the Trustee was advised that there was no need to provide the May Declaration to Ian and Stephen. The WA regulator would not approve the transfer of a liquor licence at Perth Airport without due diligence of those associated with the Trust. On the face of the Deed, those associates included Ian and Stephen. When told that only Evelyn had been involved in the Trust since 1995, the WA regulator sought evidence of the formal removal of the 'primary beneficiaries' which, in context, almost certainly meant the Specified Beneficiaries.[145] Plainly, the Trustee did not wish to involve Ian and Stephen in the dealings with the WA regulator. Given the correspondence, it may be inferred that the Trustee did not wish to provide the 1995 Settlement Agreement. That may have been due to confidentiality obligations in the 1995 Settlement Agreement, but no mention was made of the disclaimers in dealings with the WA regulator.

190 In our opinion, the May Declaration purported to formally remove Ian and Stephen as beneficiaries of the Trust. In the absence of a close study of the terms of the Deed, the May Declaration conveyed to the WA regulator that Ian and Stephen no longer held any interest in the Trust in any capacity. That is, the May Declaration was apt to convey an operative decision to remove any entitlement of Ian and Stephen as both General Beneficiaries and as Specified Beneficiaries under the Deed. We do not go so far as to find that the May Declaration was deliberately designed to mislead the WA regulator. Such a contention was foreshadowed by the applicants but not pleaded and not pursued.[146]

191 We accept that 'where there are two constructions that are open, one of which results in validity and one of which results in invalidity, it is in accordance with established principle to prefer the construction that preserves validity'.[147] That is an established principle of construction. However, it is predicated on there being two open constructions, which is not the case here. The meaning of the May Declaration is clear and, in our view, intentional.

192 It is not in dispute that the Trustee had no power to exclude a Specified Beneficiary from the Trust. To the extent that the May Declaration purported to do so, the terms of the instrument went beyond the powers conferred by the Deed.

193 That said, we are not satisfied that the evidence established that the directors of the Trustee knew that the May Declaration was, to that extent, beyond power at the time of its making. More importantly, we are not satisfied that it was designed, indirectly, to target or prejudice the grandchildren.

194 As to the knowledge of the directors, the email of Mr Cerché of 27 May 2014 observed that a Specified Beneficiary was a subset of the class of General Beneficiaries and that the power to exclude a Specified Beneficiary was not conferred expressly. The word 'expressly' is not reproduced in the extract of the email in the judge's reasons nor in the parties' submissions below, but we consider it is important. On one view, Mr Cerché was intending to convey that removing Ian and Stephen as General Beneficiaries would also remove them as Specified Beneficiaries and this involved an implied, but not express, power of exclusion. We note that this was an argument advanced to the judge, which he rejected.[148]

195 Further, the May Declaration gave effect to the 1995 Settlement Agreement, in which Ian and Stephen disclaimed their interests in the Trust, and it also gave effect to the Statement of Wishes. On that basis, the breadth of the language of the May Declaration would not have been surprising to the directors of the Trustee. We are not persuaded that when making the May Declaration, the directors knew that it was made beyond power in the way we have found it to be.

196 The May Declaration does not refer to the grandchildren. We are not persuaded that the directors of the Trustee had the grandchildren in mind when they made the May Declaration or that the grandchildren were the targets of the power. The Trustee had received advice about the power to exclude the grandchildren as General Beneficiaries and was advised to be cautious given that some of the grandchildren had court proceedings on foot to obtain information from the Trust. As well, the Trustee was dealing with the problem from the WA regulator then confronting it, which required a timely response. The most likely explanation is that, in making the May Declaration, the Trustee was concerned to satisfy the requirements of the WA regulator and it deferred dealing with the interests of the grandchildren. The evidence does not support the proposition that by making the May Declaration the Trustee was laying the groundwork for the exclusion of the grandchildren from the Trust.

197 It follows that we are not persuaded that the May Declaration was made for the improper purpose pleaded in [26C] of the FASOC, namely, to ensure that the first and third applicants (Ian's children) and the fifth and sixth applicants (Stephen's children) would not be children of a Specified Beneficiary for the purposes of cl 5(2) of the Deed.

198 Nevertheless, the May Declaration was invalid to the extent that it purported to oust Ian and Stephen as Specified Beneficiaries under the Trust. However, given that they had previously irrevocably disclaimed any interest in the Trust, the May Declaration did not prejudice Ian and Stephen. Nor did it affect the interests of the grandchildren or evidence the improper purpose that was pleaded.

199 As the applicants have failed to establish the improper purpose that they pleaded, and they were not affected by the May Declaration, we would not uphold Ground 2.

Ground 3: The September Declaration - should leave to amend have been given to allege absence of power?

200 Ground 3 relates to that part of the applicants' attack on the validity of the September Declaration[149] as concerns the Trustee's power to make it. It is in the following terms:

The primary judge erred in:

(a) refusing to permit the Applicants to submit that the Respondent did not have power to make its 18 September 2014 declaration (September Declaration); and if any amendment to the Further Amended Statement of Claim (FASOC) were necessary to enable them to do so.

(b) refusing the Applicants leave to amend the FASOC to add an express allegation that the Respondent did not have power to make the September Declaration; and

(c) failing to hold that the Respondent did not have power to make the September Declaration.

201 Ground 3 therefore mixes the applicants' substantive complaint that the September Declaration was beyond power with the complaint that they were not permitted to amend their pleading to agitate that substantive complaint.

202 In order to understand the issues raised by Ground 3, it is necessary to refer to the course of the trial.

203 The attack on the validity of the September Declaration was pleaded in [27] of the FASOC. Unlike the pleading in relation to the May Declaration, there was no separate ground alleging a want of power. Paragraph [27], in the form on which the trial was conducted, is in substance set out above,[150] and is directed to the purpose for which the power was exercised. The particulars,[151] which identify the improper purpose actuating the Trustee's decision, set out two bases: to ensure that the assets of the Trust enure for the exclusive benefit of Evelyn and the close members of her family, to the exclusion of the applicants; and, implicitly, as a response to the information proceeding.[152]

204 During closing submissions, the applicants sought to amend their pleading in two material respects.

205 First, they sought leave to add a new paragraph to the pleading ([26D]) alleging a want of power to make the September Declaration:

26D The making of the Second Declaration (referred to in paragraph 27 below) was beyond Memart's power as trustee of the Trust.

Particulars

The plaintiffs refer to paragraphs:

(a) [104]-[107];

(b) [119]-[123]; and

(c) [133]-[135]

of their Outline of Closing Submissions dated 19 March 2018 (Plaintiffs' Outline) as if they were here set out, omitting the words 'and could not be' from paragraph [134].[153]

206 The paragraphs of the applicants' closing submissions picked up by the proposed amendment dealt with three topics, each of which was directed to establishing that the September Declaration was beyond power:

(a) by [104]-[110], the applicants contended that the terms of the September Declaration went beyond the resolution supporting it and beyond the exclusion power in the Deed by purporting to oust the grandchildren as takers in default of appointment, which interest they claim to enjoy independently of their status as General Beneficiaries. The applicants alleged that the September Declaration, by including the words 'or otherwise' went beyond the resolution of the directors[154] and that the Trustee had, and the directors of the Trustee knew that it had, no power to declare lost, expunged or otherwise non-existent, their vested interests in the Trust. The applicants contended that the Trustee's admission in its defence that the Deed did not, at any relevant time, empower it to exclude the interests of any person or persons as a Specified Beneficiary[155] has the result that the Trustee has acknowledged that it did not have the power to declare lost, expunged, or otherwise non-existent the vested interest in the Trust of any taker in default of appointment;[156]

(b) in [119]-[123], the applicants asserted that the September Declaration was beyond power because it altered the original purpose or substratum of the Trust and effectively constituted a new settlement. Excluding Ian and Stephen's children and descendants, and leaving Evelyn and her family as the only objects of benefaction, impermissibly departed from the scheme of the Trust;

(c) in [133]-[135], the applicants asserted that the September Declaration was beyond power because it purported to exclude unnamed persons, or an indeterminate number of persons, and extended to persons who had not engaged in conduct warranting exclusion.

207 The second proposed amendment was to add particulars to the plea of improper purpose by picking up [164] of the applicants' closing submissions. This issue is relevant to Grounds 4 and 5 and is addressed below.

208 The judge refused leave to amend the FASOC. Although the judge made a single ruling, and the arguments on [26D] and the addition of the particulars overlap, it is convenient to deal with them separately.

The judge's rulings on the amendments regarding power - proposed [26D]

209 The steps leading up to the application to amend were as follows:

(a) The pleading had been amended on a number of occasions.[157]

(b) At trial, the FASOC drew a distinction between the attack on the May and September Declarations. The former was impugned on the basis that there was no power to make it[158] and it was made for an improper purpose,[159] the latter on the basis of improper purpose only.[160]

(c) Immediately before the start of the trial, and pursuant to a direction of the judge, the applicants served a Statement of Issues which included as an issue the question of:

[w]hether the purported declaration made by the defendant on 18 September 2014 ... was invalid and ineffective because the defendant, as trustee of the David Mandie Family Trust:

(a) did not have power to make the 18 September 2014 declaration; and or

(b) acted improperly in making the 18 September 2014 declaration.[161]

The applicants opened their case on this basis.

(d) The respondent responded to the Statement of Issues without directly providing its answer with respect to the issues identified as (a) and (b) above. It chose to respond equivocally, by saying that the Trustee 'is prepared to proceed with the attached Statement of Issues on the footing that the issues are to be understood by reference to the pleadings and particulars.'

(e) In its written and oral opening, the respondent submitted that the case was to be determined on the pleadings and the applicants should be held to their pleading.

(f) At the commencement of closing addresses, the applicants provided a written outline of submissions which included a number of paragraphs going to the question of power to make the September Declaration ([104]-[109], [110]-[124]; [125]-[136]).

(g) The written submissions, in [164(a) to (v)], set out parts of the evidence that the applicants submitted showed that in making the September Declaration, the Trustee: did not act honestly or in good faith; acted capriciously; and or was actuated by spite.

(h) During the course of the applicants' closing submissions, the respondent objected on the basis that the issue of whether the September Declaration as made was within power did not arise on the pleadings.

(i) The judge ruled that the submissions in [104]-[109] and [110]-[124] were outside of the pleaded case and would not be considered but he allowed the submissions in [125]-[136] insofar as they went to improper purpose.

(j) The respondent also objected to the submissions in [164] on the basis that the matters were not pleaded.

(k) The following day there was further argument on relevance and, in response, the applicants sought leave to amend the FASOC so as to bring the excised paragraphs and [164][162] of the applicants' closing submissions into the FASOC.

210 The judge refused leave to add the complaint set out above as [26D],[163] but held that the arguments on the third issue under [26D] fell within existing [27(iii)], which alleged that the power was exercised for an improper purpose. His Honour said he would consider the submissions insofar as they were relevant to the exercise of the power but not as to the existence of the power.

211 The judge's reasons are brief and given in the context that he had earlier ruled that the allegation that the September Declaration was beyond power fell outside the pleaded case. In order to place them in their context, it is convenient to set out the arguments made by the parties (which were repeated in this Court) as to the nature of the amendments and why they should have been permitted.

212 In response to the objection that the applicants' submissions as to the absence of power to make the September Declaration were unpleaded, the applicants submitted that the question of power was a legal conclusion based on the established facts that did not need to be pleaded.[164] In any event, they submitted that [27] of the FASOC pleaded that the Trustee had 'purportedly declared, in pursuance of the power' in cl 1(2) that the applicants were excluded for all purposes from the class of General Beneficiaries and none would have an interest as a General Beneficiary 'or otherwise'. They said the word 'purportedly' connotes that the September Declaration was made without power. Further, they said the respondent joined issue by positively pleading in its defence that the September Declaration was made 'in pursuance of the power vested in it' under cl 1(2).

213 On the second proposed basis, the applicants contended that the power of exclusion, like the power of amendment, did not authorise the Trustee to depart from the original purpose of the Trust, change the substratum of the Trust or produce what is in substance an entirely new settlement.[165] They said this was a legal consequence of the facts and did not need to be further pleaded.

214 The applicants submitted that there was no unfairness in allowing the amendment: they had served the Statement of Issues, foreshadowing the argument that the September Declaration was made without power before the commencement of trial; they had opened the case on that basis; the allegation did not rely on any new allegation of fact; and the amendment would not result in any prejudice.

215 The respondent submitted that the attack on the September Declaration was an attack based on an allegation of abuse of power and the existence of the power had never been put in issue. The respondent argued that the lack of power and the knowledge of the directors was required to be pleaded distinctly. Further, had the question of power been put in issue, consideration of whether the directors of the Trustee should give evidence and the content of such evidence would have been different. By way of example, how the words 'or otherwise' found their way into the September Declaration and their apparent departure from the authorising resolution could have been the subject of evidence.

216 The respondent said that it had not cavilled with the Statement of Issues but qualified its assent at the time by stating that the issues would be 'understood by reference to the pleadings and particulars'. It claimed to be irretrievably prejudiced if the amendments based on [104]-[107] were allowed.

217 In answer to the argument that the September Declaration was beyond power because it altered the substratum of the Trust, the respondent submitted that the plea of improper purpose did not carry with it any contention about the ambit of the power and that this would need to have been separately and distinctly pleaded. The substratum or purpose of the Trust could only be ascertained at the time of its creation and the respondent had not interrogated the history and context of the Trust for that purpose.

218 As noted, the judge ruled that [104]-[109] and [110]-[124] of the closing submissions went beyond the pleaded case and he would not have regard to them. His Honour rejected the argument that in order to identify whether a power has been misused one must first identify the ambit of the power on the basis that the pleading did not proceed in that way. As noted, he accepted [133]-[135] of the submissions insofar as they were relevant to purpose but not as to the existence of the power.[166]

219 An application was then made to further amend the statement of claim to put the various paragraphs of the submissions that had been ruled irrelevant directly into the pleading, by adding [26D] and supplementing the particulars to [27].

220 The parties essentially rehearsed the arguments that they had earlier advanced. The applicants referred to the late service of documents and the prejudice that would flow if the applicants were prevented from arguing the additional matters. The respondent repeated its objection, asserted that it would suffer irretrievable prejudice and that no stepping away from the case as pleaded should be entertained.

221 The judge said that he would have regard to the explanation for the delay and the question of prejudice. He noted that the trial was in its fourth day, the evidence was closed and the applicants were well into their final submissions. He referred to the explanation given by the applicants that some documents had only recently been delivered but he reiterated that in the absence of agreement, cases had to be tried on the pleadings. He said:

The issue of prejudice caused by the amendment involves some speculation, but the Court has to consider the stage at which the application is brought, the likelihood that the application, if granted, would lead to the need to call further evidence and the delay that would result. Once the question of possible delay arises, the Court has to consider the interests of both parties, but also of other litigants waiting to be heard by the Court. That area of consideration was emphasised by the High Court in 2009 in Aon Risk Services Australia Limited v Australian National University[167] and has been given legislative support by the enactment of the Civil Procedure Act in 2010.[168]

222 We take the judge to have accepted the respondent's submission that there was a likelihood that it would call evidence if the application were granted.

Parties' submissions on the appeal, [26D], Ground 3(a) and (b)

223 Before us, both parties essentially repeated the arguments they had put to the judge.

224 The applicants submit that given [27] referred to the 'purported' declaration, and the respondent pleaded that the declaration was made 'in pursuance of the power', the question of power was already properly in issue. Further, given the Statement of Issues, the openings and the fact that the allegations did not involve any new allegations of fact but the legal consequences of the facts, the judge erred in not permitting the [26D] amendment.

225 The respondent submits that no House v The King[169] error has been shown and there was no basis for appellate intervention on a matter of practice and procedure in respect of which the trial judge was best placed to make a determination in the running of the case. The respondent had fairly insisted that the applicants be held to their pleadings and no application to amend, raising the question of whether the September Declaration had been made without power, had been made until closing submissions.

226 The respondent further submits that the proposed amendments were devoid of merit and advanced reasons why the three bases for want of power must fail.

227 We are satisfied that the judge erred by refusing leave to add [26D] to the FASOC and that the discretion miscarried. First, the power of the Trustee to make the September Declaration was principally to be determined by reference to the Deed and the terms of the September Declaration. The possibility that the power might take its complexion in some relevant way from facts outside the relevant instruments was extremely remote.

228 We do not lose sight of the fact that the respondent submitted to the judge that it might have made different forensic decisions had the applicants alleged at the outset that there was an absence of power to make the September Declaration and we accept that the judge was better placed than this Court to assess that submission in the light of the conduct of the trial as a whole. Nevertheless, given that the nature of the exclusion power under the Deed was directly in issue in relation to the May Declaration, and there was a robust attack on the bona fides of the Trustee in respect of the September Declaration, it is difficult to accept that the entire factual matrix had not been explored and considered by the respondent in preparing for trial. We are confident that all of the relevant documents would have been obtained and read, and the calculus of calling viva voce evidence would not, in our assessment, have been materially altered by the inclusion of an additional argument about power.

229 Second, the arguments on whether there was power to make the September Declaration overlapped to a considerable extent with the arguments on the existence of the power to make the May Declaration, which was already expressly in issue. We cannot discern any meaningful prejudice to the respondent in extending the arguments to be tried to include the power to make September Declaration.

230 Third, the question of improper purpose must take as its starting point a consideration of the nature and breadth of the power. The question of power was unavoidable.[170] The judge allowed the applicants to argue that the power to exclude General Beneficiaries was in effect a power to remove someone for cause, ie that a General Beneficiary had engaged in conduct justifying removal. That argument was sought to be advanced both as to power and to improper purpose.

231 Fourth, as the submissions in this Court make clear, the respondent was in a position to offer answers to the additional ground of invalidity.[171]

232 Fifth, in dealing with the applicants' submission that documents had only recently been discovered, the judge noted that the case had to be decided on the pleadings. With respect, that observation, while no doubt correct, did not meet the submission advanced to amend the pleading. The point being made - and it was mainly directed to the matters set out in [164] of the closing submissions (which is dealt with below) - was that the particulars could not have been provided earlier. Of course, the delay in discovery did not explain why the application to amend was not made at the start of the trial (as would have been advisable), rather than at its close. A timely application for leave to amend would have avoided the risk that the applicants were acting inconsistently with the principles governing the conduct of civil litigation in the Civil Procedure Act 2010. However, the explanation of why the particulars could not have been provided earlier was not fully answered by the judge's observation that, nevertheless, the trial had to be conducted on the pleadings.

233 The judge was placed in a difficult position and the application to amend was made very late. Nevertheless, the relevant issue had been foreshadowed in the Statement of Issues and in opening. Allowing the question of the absence of power to be litigated in respect of the May Declaration but not the September Declaration introduced a degree of artificiality which meant that all of the critical issues were not determined. Further, the ongoing interests of the applicants under the Deed was a matter that fell to be resolved in the proceeding. The validity and ongoing effect of the September Declaration should have been resolved for the benefit of all of the parties, including the Trustee.

234 It follows that Grounds 3(a) and (b) have been made out. It is now necessary to consider the submissions on power as they relate to the September Declaration.

Was the September Declaration beyond power? Ground 3(c)

235 As noted, there were three bases to the arguments on power in respect of the September Declaration.

236 The first limb of the challenge is similar to that discussed in relation to the May Declaration and involves an argument that, by the words 'or otherwise',[172] the September Declaration purported to remove the interests of the applicants as takers in default of appointment. The Trustee's power to exclude was limited to the exclusion of a General Beneficiary. That power did not extend to the interests of the grandchildren as takers in default, which vested on the disclaimers by Ian and Stephen.

237 We do not accept the submission of the respondent that the words 'or otherwise' are simply an acknowledgement of the effect of the disclaimers. We adopt a similar analysis to that applicable to the May Declaration. We consider that the words used extend the operation of the September Declaration to make it clear that, by reason of that declaration, the named General Beneficiaries have no entitlements at all under the Deed. To treat the additional words as doing no more than reflecting the effect of the disclaimers is not warranted by the text itself. Given that the disclaimers did not bind the grandchildren, who were not parties to the 1995 Settlement Agreement, the words 'or otherwise' do not suggest a connection with the disclaimers. It follows that the text of the September Declaration travelled beyond the power conferred by the Deed.

238 However, we do not accept the second basis on which it is contended that the September Declaration was made without power, namely, that it altered the original purpose or substratum of the Trust and effectively constituted a new settlement.

239 In Kearns v Hill,[173] the New South Wales Court of Appeal rejected an argument that a broadly expressed amendment power should be read down so as to prevent an amendment that destroyed the 'substratum of the trust'. In the leading judgment, Meagher JA described the trust deed as:

an example of many such documents which have been commonly used for many years which are designed to deal with the disposal of family assets in such a way that the trustees are furnished with the most ample powers of management and disposition of the settled fund coupled with maximum flexibility in the use of those powers, so as to accommodate the settled fund to emerging and ever-changing economic and revenue considerations.[174]

240 Here, the Trust was established for a long period of time and the Deed identifies the persons who fall within the class of General Beneficiaries. The power to exclude General Beneficiaries is very broad in its expressed terms and the breadth of the discretion is confirmed by cl 19. The exercise of the exclusion power inevitably reduces the pool of persons who are entitled to be considered for benefaction of both income and corpus under the Trust. It is not submitted that the exercise of the exclusion power by the making of the September Declaration constituted an amendment or variation of the Deed.

241 An important purpose of the Trust was to benefit the family of David and Minnie across generations. Whether or not any benefit flowed through to the General Beneficiaries was a matter for the Trustee. It is not possible to discern from the Deed any intention that any particular beneficiary or beneficiaries would benefit. Once the power to exclude had been included in the Deed, it is impossible to conclude that the Trust required that, insofar as the list of General Beneficiaries is concerned, there could be no change to the original lineal descent. In our view, it was open to exclude the progeny of one or more of the Specified Beneficiaries as General Beneficiaries because of changes to the broader family dynamic. A limited entrenchment of the interests of descendants of Specified Beneficiaries is reflected in cl 5(2) on the Vesting Day (as we have discussed) but that implication supplies an inadequate basis to read down the broad language of the exclusion power.

242 Plainly, it could not be submitted that the power of exclusion did not extend to direct descendants of the Specified Beneficiaries. Such a reading would be entirely at odds with the text of the Deed. Once that is recognised, it is not a large step for all of the children of one or more of the Specified Beneficiaries to be excluded as General Beneficiaries. And, in our view, that course can be achieved in the manner chosen in this case.

243 We also reject the third limb of the argument as to power. There is simply no warrant to read down the generality of the power by confining it to an exclusion for cause in response to disentitling conduct.

244 It follows that to the extent that the September Declaration purported to have an effect beyond the removal of the applicants as General Beneficiaries it was beyond power, but not otherwise.

245 We would uphold Ground 3(c) on the limited basis that we have described. To this point, the applicants have only established an excess of power. That finding says nothing about whether the breach occurred knowingly and for an improper purpose.

Grounds 4, 5 and 6: Was the September Declaration made for an improper purpose?

246 By these proposed grounds, the applicants seek to establish that the September Declaration was made in bad faith and for an improper purpose. The three grounds are connected. They provide:

1. The primary judge erred in failing to find that, in the circumstances appearing in the evidence, the balance of probabilities favoured the drawing of an inference (the inference) that in making the September Declaration the Respondent acted:

(a) in bad faith, arbitrarily, capriciously;

(b) without any real or genuine consideration; and or

(c) otherwise than for the purpose for which the power in the further proviso to clause 1(2) of the Trust Deed was conferred.

1. Further to Ground 4 above, the primary judge erred in:

(a) refusing to permit the Applicants to submit that the circumstances appearing in the evidence included the matters identified in paragraph 164 of the Applicants' Outline of Closing Submissions; and, if any amendment to the FASOC were necessary,

(b) refusing the Applicants' application for leave to amend paragraph 27 of the FASOC by adding as particulars to it the matters set out in paragraph 164 of the Applicants' Outline of Closing Submissions.

1. The primary judge erred in failing to hold that an inference of the kind referred to in Ground 4 above was open from facts proved by direct evidence and the circumstance that the Respondent might have proved the contrary had it chosen to adduce any evidence from any of its officers was properly to be taken into account as a circumstance in favour of drawing the inference.

247 In assessing whether the judge erred in the manner contended for in Ground 4, it is again first necessary to deal with the grounds concerning the application to add particulars to [27] of the FASOC and to rely on the substance of those particulars in support of the allegation of improper purpose.

Ground 5 - Should the applicants have been entitled to rely on [164] to support the allegation of improper purpose?

248 While Ground 5 is divided into two sub-grounds, we deal with them compendiously. As already noted, in their closing submissions to the judge, the applicants sought to rely on [164], which was in the following terms:

164 The evidence before the Court shows that:

(a) the Trustee is, and since the death of David Mandie has been, subject to the de facto control of Evelyn Danos:

(i) the Trustee's solicitors' earliest response to Edward's and Nicholas's initial request for information about the Trust, referred to a need to consult 'Evelyn Danos, Director of Memart Nominees Pty Ltd';

(ii) Evelyn Danos is:

a) an executor of David Mandie's Will;

1. a trustee of David Mandie's estate (the assets of which include the two shares in the Trustee); and

1. the principal beneficiary of David Mandie's Will and estate;

(iii) since the death of David Mandie, Evelyn Danos alone on behalf of the Trustee has signed:

1. the financial reports of the Trustee for the year ended 30 June 2011;

2. the financial reports of the Trustee for the year ended 30 June 2012;

3. the financial reports of the Trustee for the year ended 30 June 2013;

4. the financial reports of the Trustee for the year ended 30 June 2014;

(iv) Evelyn Danos has purported to exercise the powers of the directors of the Trustee alone:

1. on 29 June 2012, when she purported to resolve to distribute Trust income (exceeding $3,050,060) to herself and entities in which she is interested; and
2. on 27 June 2013, when she purported to resolve to distribute Trust income exceeding ($8,800,000) to herself and entities in which she is interested;

(v) Evelyn Danos as director of the Trustee attended the conference with the Trustee's Counsel on 9 October 2013;

(vi) Mark Cerché drafted the 27 May 2014 purported declaration so as to include reference to Specified Beneficiaries at 'Evie's request' (ie Evelyn Danos's request); and

(vii) Evelyn Danos was the Chairperson of the meeting of directors of the Trustee held on 27 June 2014, at which the Trustee's directors resolved to appoint all of the Trust's income for the year ending 30 June 2014 as follows:

a) $640,000 to Evelyn Danos; and

1. the balance, in an unspecified aggregate sum, exceeding $1,470,000, to trusts of which Evelyn Danos and members of her family (other than Ian Mandie and Stephen Mandie and their families) are beneficiaries;

(b) Evelyn Danos, on one hand, and her brothers Ian Mandie and Stephen Mandie, on the other hand, are estranged;

(c) Evelyn Danos, on one hand, and the plaintiffs, on the other hand, are estranged;

(d) since the death of David Mandie in August 2011, Evelyn has treated the Trust and the Trust property as if it were her own;

(e) all of the distributions made from the Trust since the death of David Mandie, including those resulting from the purported distribution decisions made by Evelyn Danos alone in 2012 and 2013, have been made (directly or indirectly) for the benefit of Evelyn Danos and her family and none has been for the benefit of any of the plaintiffs;

(f) within weeks of Edward and Nicholas commencing the information proceeding in mid-August 2013, the Trustee sought advice from Counsel in relation to the Trustee's object, purpose and intention, expressly stated, to exclude all of the plaintiffs (among others) as General Beneficiaries of the Trust;

(g) by 12 September 2013, the Trustee proposed 'to exclude each of Ian and Stephen Mandie, and their spouses and descendants from the class of general beneficiaries under the deed' for two reasons (communicated to the Trustee's Counsel and recorded in writing), namely, because of:

(i) 'the fact of the settlement in 1995 with Ian and Stephen'; and

(ii) 'David Mandie's [asserted] desire to exclude Ian, Stephen, their spouses and children from the Trust';

(h) as to sub-paragraph (g)(i) above, although none of the plaintiffs was party to, or bound by, the 'settlement in 1995 with Ian and Stephen', in and after September 2013, the Trustee (or, more particularly, Evelyn Danos) was aggrieved that 'the plaintiffs ... exhibited an evident intent not to respect' the settlement in 1995 with Ian and Stephen;

(i) as to sub-paragraph (g)(ii) above, the Trustee knew that by the time of David Mandie's death in August 2011, David Mandie had no wish or intention to exclude the spouses or children of Ian Mandie or Stephen Mandie from the Trust:

(i) at no time between 1995 and David Mandie's death in August 2011, throughout which time David Mandie controlled the Trustee and the Trust, did David Mandie take steps to exclude the spouses or children of Ian Mandie or Stephen Mandie from the Trust;

(ii) in David Mandie's Will, made on 14 October 2004, he made an identical bequest to each of his grandchildren living at the date of his death;

(iii) on 8 October 2013, the Trustee instructed the Trustee's Counsel that:

'David did not want to make changes at the time of the 1995 settlement because he and his wife, Minnie, were simply too upset to deal with this. After that time, he never got around to making the changes and just did not want to know about dealing with this aspect';

(iv) in conference on 9 October 2013, the Trustee's Senior Counsel, James Merralls QC, asked the Trustee's solicitor, Mark Cerché, 'why weren't they excluded at the time?' to which Mr Cerché replied:

'David didn't want to'; and

(v) by 13 October 2013, the Trustee had instructed the Trustee's Counsel that:

'Following the settlement David was advised to take irrecovable (sic) steps to exclude Ian and Stephen and their families from, among other things, the David Mandie Family Trust. David did not exclude Ian and Stephen and their families from the Trust because:

1. he and Minnie were too upset to deal with this matter at around the time of the settlement;
2. he preferred to keep his options open;

1. he hoped there may be a reconciliation with his sons';

(j) [omitted]

(k) minutes of the meeting of directors of the Trustee apparently held on 27 May 2014, at which the directors resolved to make the 27 May 2014 purported declaration, were (apparently) prepared on 13 May 2014, two weeks before the meeting, deliberation and resolution that they purport to record;

(l) on 27 May 2014 the Trustee made the (unnecessary and invalid) 27 May 2014 purported declaration for an improper purpose, as to which see paragraphs 76 to 84 above;

(m) on 26 June 2014, the Trustee (disingenuously) invited information in writing from Edward, Isabella and Nicholas (and from Daniella's parents in respect of Daniella) by 30 June 2014 as to their needs and circumstances but on 27 June 2014 resolved to distribute to Evelyn Danos (and other entities in which Evelyn Danos and her family have interests but the plaintiffs do not) all of the distributable income of the Trust for the year ended 30 June 2014;

(n) on 1 September 2014, soon after the dismissal on 22 August 2014 of Edward's and Nicholas's application for an extension of time in which to appeal from the order determining the information proceeding, the Trustee took steps to attempt to exclude all of the plaintiffs (among others) as General Beneficiaries of the Trust;

(o) on 1 September 2014 the directors of the Trustee purported to authorise the making of a declaration in one form;

(p) however, on 18 September 2014, the Trustee purported to make a declaration in an altogether different and broader form, that is, that of the 18 September 2014 purported declaration; (the 18 September 2014 purported declaration was, and is, therefore, unauthorised by any resolution of directors of the Trustee);

(q) the timing of the 18 September 2014 purported declaration was almost certainly attributable to the Trustee's desire to attempt to avoid an inference 'that there were improper considerations motivating the Trustee' because, on 3 October 2013, the Trustee's Counsel had advised the Trustee that:

As you know, there is a reasonable likelihood that any decision to exclude Stephen and Ian's spouses and children will sought (sic) to be impugned on the basis that the discretion was not exercised in conformity with the requirements set out in Karger v Paul. In particular, it might be expected that the excluded beneficiaries would content [sic] that the trustee decided to exclude them only after the two proceedings were commenced. Even if the directors of the trustee company were to deny this, the coincidence in timing is difficult to escape, and the Court will likely be asked to infer that there were improper motivations motivating the trustee';

(r) in and about September 2014, the Trustee made no inquiry of any of the plaintiffs as to their needs or circumstances;

(s) the Trustee did not make, and could not have made, any proper inquiry of, or in respect of, the needs or circumstances of any of the unborn objects of the Trust that on 18 September 2014 it purported to exclude;

(t) the Trustee did not make, and could not have made, any proper inquiry of, or in respect of, the needs or circumstances of any of the unnamed objects of the Trust (other than the plaintiffs) that on 18 September 2014 it purported to exclude;

(u) the Trustee has refused to make discovery of documents in these proceedings - despite conceding that it had in its possession documents relevant to the issues in the proceeding of which it could have made discovery, within seven days, if the Court required it to do so; and

(v) the manner in which the Trustee has pleaded, and conducted, its defence in these proceedings suggests strongly that the Trustee made the 18 September 2014 purported declaration at least partly, if not solely, due to:

(i) Evelyn Danos's caprice and spite towards Ian Mandie, Stephen Mandie and the plaintiffs;

(ii) conduct of Ian Mandie and Stephen Mandie;

(iii) the Trustee's perceptions of Ian Mandie's and Stephen Mandie's circumstances; and or

(iv) the plaintiffs' familial relationships with Ian Mandie and Stephen Mandie.[175]

249 At trial, Senior Counsel for the Trustee made oral submissions on the objections to what were said to be new and unpleaded matters. Specifically, in relation to [164], the Trustee objected to the proposed amendment on the basis that it included the word 'spite', which the Trustee contended introduced a new and particular aspect of bad faith. Next, it submitted that [164] was directed to Evelyn, which constituted a 'pivotal change to the focus of the complaint'.[176] In this respect, the Trustee noted that in earlier iterations of their pleading, the applicants had alleged that the two independent directors, Stock and Lasnitzki, were in the thrall of Evelyn and acted at her direction. Those allegations had been abandoned.

250 The Trustee submitted that the allegation that its directors knowingly acted outside the wishes of David (sub-paragraph (i)) was a new allegation of dishonesty per se. Finally, it said that sub-paragraph (v) introduced an entirely new case that the litigation had been conducted for an improper purpose, an allegation which it said inevitably cast aspersions on the lawyers for the respondent. As described by Senior Counsel below, sub-paragraph (v) introduced a new case, in a 'wounding way, dropped in at the end of a long litany of fragments gathered together in a gallimaufry of otherwise inconsequential propositions.'

Parties' submissions on the appeal in relation to [164]

251 The applicants submit that [164] sets out facts and inferences drawn from documents that were tendered by consent. Indeed, many of those documents had been discovered by the respondent.

252 The respondent refers to its submissions at trial and submits that no House v The King error has been established.

253 We have already referred to the judge's ruling on the amendment application above. In addition, in dealing specifically with [164], it is appropriate to note that in [163] of their closing submissions, the applicants alleged that the respondent did not act honestly and that it was actuated by spite. No application was made to amend [27] of the pleading to specifically allege these two matters. In addition, the applicants withdrew the words 'and spite' from [164(v)(i)] in relation to Evelyn.

254 We would observe that the test of acting honestly is the same as the test of acting in good faith; an 'act which falls short of good faith is done in bad faith.'[177] Here there was an express allegation that the Trustee had acted in bad faith; in this context it was in effect an allegation of dishonesty.

255 Subject to one matter, in our opinion, the judge should have permitted the applicants to rely on [164] of their closing submissions in support of their allegation of improper purpose and any amendment to the pleadings was unnecessary.

256 Each of the matters in [164] contained relevant and admissible facts that were capable of supporting the applicants' pleaded case under [27]. To reiterate, the applicants pleaded three bases on which it was alleged that the discretion to exclude them was infected by bad faith or dishonesty. Insofar as this was based on improper purpose, the applicants pleaded that the September Declaration was made:

(a) to ensure that Evelyn and her family benefited to the exclusion of the applicants; and

(b) in circumstances where the grandchildren had sought information from the Trustee and, it might be inferred, were investigating the Trustee for breach of duty.

257 In our view, in order to make out that case, it was open to the applicants to rely on evidence that showed that Evelyn was a driving force in the administration of the Trust and that she and her family would gain from the exclusion. Those two propositions were hardly controversial. The pleading alleged that the Trustee had made the September Declaration in bad faith for the purpose of benefiting Evelyn. Given that Lasnitzki and Stock had both authorised Lasnitzki to make the September Declaration, it was open to the applicants to adduce evidence as to the nature of the decision-making and to seek to establish Evelyn's influence in that regard. We consider that the applicants did not require an amendment to the pleadings to make the submissions in [164].

258 The single qualification is that the original formulation of [164] alleged spite on the part of Evelyn. As mentioned, that allegation was also found in [163] of their closing submissions in relation to the Trustee. That aspect added a dimension to the attack that meant that the exclusion was motived not just by self-interest but also out of personal animus or malevolence directed to Ian and Stephen and their families. In the course of argument, the judge raised with the applicants' counsel that this was a new allegation. The judge was correct to make that point.

259 However, the correct course was to permit the applicants to rely on the evidence they identified in order to make out their pleaded case. That pleaded case was confined to the two improper purposes that had already been alleged.

260 We would uphold Ground 5. It follows that the allegations in [164] (with the changes accepted by the applicants) should be considered in assessing whether the applicants succeed on improper purpose. That is the subject of Ground 4.

261 Before turning to Ground 4, it is convenient to address Ground 6.

Ground 6 - Should the judge have drawn a Jones v Dunkel inference?

262 The applicants submit that the failure to call the directors of the respondent to give evidence as to the reasons for making the September Declaration meant that the Court should have inferred that their evidence would not have assisted the respondent's case.[178]

A discretionary trustee is not obliged to disclose to objects the reasons actuating them in arriving at a decision. ... [N]o amount of notice of the appellants' allegation could require Prudence (as the mind of the trustee and by whom the trustee gave evidence), either in her affidavit or in any additional evidence in chief at the trial, to state her reasons for decision. As a matter of law, she was entitled not to do so. ... No adverse inference of any improper purpose could be drawn from the non-disclosure in her evidence of the trustee's reasons.[179]

264 In our opinion, that principle provides the answer to Ground 6. We reject Ground 6.

Ground 4 - Should the judge have inferred improper purpose?

265 The applicants submit that the judge erred in not concluding that the September Declaration was made in bad faith and for an improper purpose.

266 The judge accepted that the effect of the September Declaration was that it was likely that the Trust would continue only for the benefit of Evelyn and her family.[180] However, he noted that the exercise of the power to exclude persons as beneficiaries would necessarily prejudice some family members, to the potential corresponding advantage of others.[181]

267 The judge found no evidence that the Trustee did not give genuine consideration to the circumstances of the applicants or was unaware of their position.[182] He accepted that it was open to the Trustee to proceed on the basis that the exclusion of Ian and Stephen and their spouses and children was in accordance with the Statement of Wishes, notwithstanding the bequests made to the grandchildren in David's will.[183]

268 The judge declined to draw an inference from the failure of the directors to give evidence and said that no Jones v Dunkel point arose.[184]

269 In our view, the judge was entirely correct to proceed on the basis that the purpose of the September Declaration was to ensure that the Trust continued for the benefit of Evelyn and her family to the exclusion of the families of Ian and Stephen. However, the fact that Evelyn and her family would benefit in this way did not necessarily mean that the September Declaration was made for an improper purpose. As the judge rightly pointed out, the exercise of the power of exclusion necessarily has the potential to prejudice the excluded party.

270 The contention that the September Declaration was made in response to the information proceeding cannot be made out because the declaration was made after that proceeding had been completed, including the refusal of an application for leave to appeal out of time, and the Trustee had received advice to be cautious in respect of any decision affecting the applicants during the currency of any proceeding against the Trustee.

271 In our view, it follows that the judge was correct to reject the pleaded case on the basis of improper purpose and bad faith.

272 Perhaps recognising the weakness of the pleaded case, in their oral submissions in this Court, the applicants focused on the purported effect of the September Declaration on the applicants as takers in default of appointment under cl 5(2). They submit that the inclusion of the words 'or otherwise' in the September Declaration reveals an illegitimate intention to remove the applicants from their position as takers in default in circumstances where the power would only authorise their removal as General Beneficiaries.

273 We have already found that the words 'or otherwise' took the September Declaration beyond the power conferred on the Trustee to exclude General Beneficiaries.[185] However, we are not satisfied that the applicants have established a sufficient basis to infer that the inclusion of those words was a deliberate or knowing breach of power by the Trustee.

274 The resolution authorising the Trustee to make the September Declaration did not include those additional words and was confined to the removal of the applicants as General Beneficiaries. There are a number of possible explanations for the insertion of the words 'or otherwise' in the September Declaration, including the following. There might have been an unthinking repetition of the words or sentiment found in the May Declaration. The directors of the Trustee may have had a mistaken belief that the applicants could not in substance benefit from their status as takers in default because they could only take that which their fathers could have taken, which was nothing because of the disclaimers. There may have been the belief, again mistaken, that cl 5(2) confers a defeasible vested right on a General Beneficiary which falls away once the person is excluded from that class. There may have been a deliberate ploy to impermissibly remove the applicants from the Trust entirely.

275 We are unable to draw, to the requisite level of satisfaction, an inference that the insertion of the two words 'or otherwise' was a deliberate misuse of power.

276 The focus of the decision-making process leading to the making of the September Declaration was the exclusion of the applicants as General Beneficiaries. That was their principal status under the Deed and the status that gave them the potential to participate in appointments from the Fund. The advice of counsel, which was given on a number of occasions, was targeted at the exclusion of the applicants as General Beneficiaries. There is no evidence that the residual interests of the grandchildren as takers in default under cl 5(2) were ever expressly considered. Their status as takers in default is not immediately apparent from the text of the Deed, and requires some knowledge of the doctrine of acceleration and how the words in cl 5(2) may be extended beyond their literal meaning, particularly in respect of Specified Beneficiaries who 'shall have died before the Vesting Day'. Further, even if the status of the grandchildren as takers in default was appreciated by Lasnitzki, the content of the interest was unstable and subject to numerous contingencies and it would be surprising if that status would attract a conscious act of bad faith.

277 The applicants' case is circumstantial. It is made more difficult by the nature of the discretionary power to exclude and the fact that the Trustee is not required to give reasons for a decision. As this Court explained in Curwen, no adverse inference of any improper purpose can be drawn from the non-disclosure of the Trustee's reasons or from the fact that the directors did not give evidence as to their purpose in making the September Declaration.[186]

278 At this point, it is relevant to return specifically to the position of the spouses of Ian and Stephen who, as mentioned, are also applicants. They are not takers in default and the only interest they had under the Deed was as General Beneficiaries. At least in respect of them the words 'or otherwise' in the September Declaration, to reflect their complete exclusion from any interest under the Trust, are accurate. They simply had no ongoing interests under the Trust once they were excluded from the class of General Beneficiaries. The fact that the spouses were also expressly referred to in the September Declaration provides a further indication that the Trustee was not thinking of cl 5(2) and the unstable interests it creates when the September Declaration was made.

279 Although the interests of the grandchildren as takers in default under cl 5(2) were the focus of much of the oral argument on the appeal, we are not persuaded that it was a matter that informed the making of the September Declaration.

Ground 7: Had David Mandie's sentiment changed from his Statement of Wishes?

281 Under cover of Ground 7, the applicants complain that the judge erred in his finding concerning David's wishes in relation to Ian and Stephen and their families. There can be little doubt that the Statement of Wishes was a powerful and emotional expression of disappointment in Ian and Stephen. It reflects a schism in the family and what might become an irreconcilable parting of the ways.

282 Equally, there was evidence of a close relationship between the grandchildren and their grandfather, some evidence of a harmonious relationship between David and Jane and Amanda, and some less powerful evidence of a rapprochement between David and his two sons.

283 However, in our view, the judge was correct in his conclusion that the Trustee was entitled to take into account the wishes of David and Minnie expressed in the Statement of Wishes. The weight given to those wishes was a matter for the Trustee. The judge's finding in this regard went no further than that the Trustee was entitled to conclude that the exclusion of Ian and Stephen's families was in accordance with the Statement of Wishes, despite the bequests that David made in his will.[187] There was no error in that approach.

Ground 8: Did Memart know that the grandchildren were well provided for?

285 The applicants assert under cover of this ground that the judge erred in finding that it is likely that the respondent knew that Edward, Isabella, Nicholas and Daniella had been well provided for by their parents.

286 There is nothing in this ground. First, the finding was undoubtedly correct on the evidence. The lifestyle of the applicants was readily observable and there is no reason to think that Evelyn and the other directors would not have had knowledge of it. More importantly, the finding is not relevant to the relief originally sought at trial in relation to the May and September Declarations. In the absence of a finding of improper purpose or bad faith, there was no basis to remove the Trustee.

288 We would grant leave to appeal. We uphold Grounds 1, 3 and 5. We reject Grounds 2, 4, 6, 7 and 8.

289 As we would allow the appeal, the grounds in respect of the special costs order the judge made on 12 April 2019 have become academic and we do not address them.

290 In the result, we would not make any order in relation to the May Declaration. We would allow the appeal and make the declarations we have set out above.[188]

MEMART NOMINEES PTY LTD (ACN 005 024 617) (as trustee of the David Mandie Family Trust)

[1] For example, the Trust booked a profit of approximately $5 million in 2012 and $6 million in 2013.

[2] Edward is the first applicant, Jane is the second, Isabella is the third, Amanda is the fourth, Nicholas is the fifth and Daniella is the sixth. First names are used because of the common surname without any disrespect. The references in this judgment to the applicants are to the applicant grandchildren (Edward, Isabella, Nicholas and Daniella) unless the contrary appears from the context. When we refer to 'the grandchildren' we mean Edward, Isabella, Nicholas and Daniella. We shall return to the position of the spouses of Ian and Stephen (Jane and Amanda, respectively) later in this judgment.

[3] In this judgment, the respondent is referred to as 'Memart', 'the Trustee', or 'the respondent'.

[5] Mandie v Memart Nominees Pty Ltd [2018] VSC 719 ('Reasons').

[9] Ground 5. Grounds 7 and 8 deals with the judge's findings about David Mandie's wishes and the extent to which the applicants have been well provided for by their parents.

[10] For convenience, we refer hereafter simply to 'the appeal'.

[11] The first two declarations reflect those sought in the pleadings.

[12] Both Lasnitzki and Stock work in the James Richardson Group which conducts the business established by David; the former as chief executive officer and the latter as 'duty free chairman'.

[13] The first proviso excluded from the class of General Beneficiaries specific persons, namely (i) the Settlor; (ii) the Guardian; (iii) the Trustee and (iv) any corporation or the Trustee of any trust or settlement in which any of the persons excluded under (i), (ii), or (iii) have any beneficial interest so long as that interest continues.

[14] The parties agree that the reference to cl 10 should be a reference to cl 19 that provides for every discretion vested in the Trustee to be absolute and uncontrolled.

[16] Ibid cl 4(1)(b). See also cl 4(2)(d) and (e).

[23] Re Gulbenkian's Settlement Trusts [1970] AC 508, 521 (Lord Upjohn).

[24] Chief Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226, 242 [37] (Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ); [1998] HCA 4 ('Buckle'); Kennon v Spry (2008) 238 CLR 366; [2008] HCA 56.

[25] National Trustees Executors & Agency Co of Australasia Ltd v Federal Commissioner of Taxation [1923] HCA 63; (1923) 33 CLR 491, 504 (Isaacs J); [1923] HCA 63.

[31] [1984] VicRp 13; [1984] VR 161 (McGarvie J).

[34] Citing Karger v Paul [1984] VicRp 13; [1984] VR 161 and Curwen v Vanbreck Pty Ltd [2009] VSCA 284; (2009) 26 VR 335, 348 [24]; [2009] VSCA 284 ('Curwen').

[35] Citing Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405, 429-31 (Mahoney JA) and Breakspear v Ackland [2009] Ch 32, 36 [6G]-[7H], 37 [8B].

[36] Although the meaning of this sentence is unclear, this is as it appears in the original.

[37] Mandie v Memart Nominees Pty Ltd (2014) 42 VR 325; [2014] VSC 290.

[38] Further Amended Statement of Claim [25]-[26] ('FASOC').

[46] Re Stratton's Disclaimer; Stratton v Inland Revenue Commissioners [1958] 1 Ch 42, 54 (Jenkins LJ, with whom Sellers LJ and Roxburgh J agreed).

[47] Duke of Portland v Topham [1864] EngR 339; (1864) 11 HLC 32; 11 ER 1242; Vatcher v Paull [1915] AC 372, 378 (Lord Shaw, Lord Parker, Lord Sumner and Sir Joshua Williams) ('Vatcher'); D M Maclean, Trusts and Powers (Law Book Co, 1989) 86.

[48] Re Brook's Settlement; Brook v Brook [1968] 1 WLR 1661, 1668E (Stamp J); Redman v Permanent Trustee Co of New South Wales Ltd [1916] HCA 47; (1916) 22 CLR 84, 93 (Griffith CJ and Barton J); [1916] HCA 47.

[55] Ibid; Re Day [2017] HCA 2; (2017) 91 ALJR 262, 268 [18] (Gordon J); [2017] HCA 2.

[56] Or, in the case of Daniella, who was not born at the time of the disclaimers, from the time of her birth in 1997.

[58] He said: 'Under the terms of the Trust Deed, the plaintiff grandchildren's interests under clause 5(2) as takers in default of appointment exist despite Ian and Stephen's disclaimers. This is because the provision operates on the assumption that the deceased father would have taken a vested interest. Under the Trust Deed, as distinct from the disclaimers, had the fathers not died before the vesting day, they would have attained a vested interest in any share of the Trust property that had not been otherwise appointed': Reasons [101].

[61] (1931) 44 CLR 546; [1931] HCA 8 ('Tompkins').

[63] [1957] 1 WLR 401 ('Flower's Settlement').

[67] [1980] VicRp 13; [1980] VR 109.

[68] Ibid 114 referring to Lainson v Lainson [1854] EngR 872; (1854) 5 De GM & G 754, 756-7; [1854] EngR 872; 43 ER 1063, 1064 ('Lainson').

[69] Ibid 116, citing Lainson [1854] EngR 872; (1854) 5 De GM & G 754; 43 ER 1063 and Jull v Jacobs [1876] UKLawRpCh 246; (1876) 3 Ch D 703.

[72] [1930] NSWStRp 19; (1930) 30 SR (NSW) 150 ('Wells').

[78] [1935] VicLawRp 39; [1935] VLR 333 ('Dougharty').

[82] [1966] 1 WLR 1456 ('Dawson's Settlement').

[83] Ibid 1459, citing Re Young's Settlement Trust [1959 1 WLR 457; [1959] 2 All ER 74 and Re Shuckburgh's Settlement [1901] UKLawRpCh 167; [1901] 2 Ch 794.

[88] Tompkins [1931] HCA 8; (1931) 44 CLR 546, 558 (Dixon J). See [110] above.

[89] [1985] VicRp 88; [1985] VR 891.

[94] This is despite the judge accepting that '[b]y reason of clause 5(2) of the Trust Deed, from the creation of the Trust on 24 April 1978 Ian Mandie and Stephen Mandie were each a taker in default of appointment with a vested, although defeasible, interest in the Trust': Reasons [20].

[95] Edward was born in April 1992, Isabella in August 1994 and Nicholas in August 1992.

[96] In the case of Daniella, who was born after the date of her father's disclaimer, her interest was that of a vested, although defeasible, taker in default of appointment under the Trust that arose upon her birth in October 1997.

[97] As mentioned, this was either 2057 or such earlier date (if any) as appointed by the Trustee with the consent of the Guardian. The judge did not consider the latter alternative of an ambulatory date.

[99] Flower's Settlement [1957] 1 WLR 401; Dawson's Settlement [1966] 1 WLR 1456.

[100] Hamersley v Newton (2005) 30 WAR 568; [2005] WASC 221.

[101] Collins v Equity Trustees Executors & Agency Co Ltd [1997] 2 VR 166, 170 (Batt J), citing Re Hartigan [1989] 2 Qd R 401 (Williams J) and Re Howes; Quinton v Howes [1971] 2 NSWLR 387 (Helsham J).

[102] See [32] above.

[103] See [22] above.

[104] See [31] above.

[105] (2005) 58 ATR 485; [2005] FCAFC 39.

[106] Ibid 494 [37] (Lee, Merkel and Hely JJ) (citations omitted).

[107] Buckle [1998] HCA 4; (1998) 192 CLR 226, 238 [24] (Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ); [1998] HCA 4.

[108] See [26], [28] above.

[109] (1931) 44 CLR 546; [1931] HCA 8.

[110] Dougharty [1935] VicLawRp 39; [1935] VLR 333, 339 (Mann J).

[111] [1998] HCA 4; (1998) 192 CLR 226, 238 [24] (Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ); [1998] HCA 4.

[115] Ibid. See [77] above.

[121] See [76] above.

[123] (1999) 197 CLR 83; [1999] HCA 28 ('Breckler').

[124] Ibid 99 [7] (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ) (citations omitted); [1999] HCA 28.

[125] [1984] VicRp 13; [1984] VR 161. As mentioned at [57] above, Karger v Paul was relied upon by counsel in giving advice to the Trustee.

[126] Ibid 163-6; Curwen [2009] VSCA 284; (2009) 26 VR 335, 348-9 [25] (Redlich and Bongiorno JJA and Hansen AJA); [2009] VSCA 284.

[127] Wareham v Marsella [2020] VSCA 92, [91] (Tate, McLeish and Hargrave JJA).

[128] (1999) 197 CLR 83, 99-100 [7] (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ); [1999] HCA 28.

[129] Wareham v Marsella [2020] VSCA 92, [94] (Tate, McLeish and Hargrave JJA).

[131] Curwen [2009] VSCA 284; (2009) 26 VR 335, 351 [38] (Redlich and Bongiorno JJA and Hansen AJA); [2009] VSCA 284, citing Commonwealth v Colonial Combing, Spinning & Weaving Co Ltd [1922] HCA 62; (1922) 31 CLR 421, 472 (Higgins J).

[132] Vatcher [1915] AC 372, 378 (Lord Parker); Ngurli Ltd v McCann [1953] HCA 39; (1953) 90 CLR 425, 438 (Williams ACJ, Fullagar and Kitto JJ); [1953] HCA 39.

[133] [2000] FCA 161 ('Cachia').

[134] Vatcher [1915] AC 372, 378.

[135] Lancedale Holdings Pty Ltd v Health Group Australasia Pty Ltd [1999] NSWSC 609 (Bryson J); 1999 NSWCA 460 (on appeal).

[136] [2000] FCA 161, [74].

[137] Curwen [2009] VSCA 284; (2009) 26 VR 335, 352 [42] (Redlich and Bongiorno JJA and Hansen AJA); [2009] VSCA 284.

[140] It is to be remembered that the ultimate relief sought by the applicants was the removal of the Trustee.

[141] To establish deliberate wrongdoing on the part of the Trustee, it would be necessary for the applicants to adduce evidence of particular conduct of the Trustee from which it could be inferred, relevantly, that it was aware it lacked the power to set about doing what it intended to do but was determined to proceed regardless.

[142] (1938) 60 CLR 336; [1938] HCA 34.

[145] Respondent's closing submissions at trial [24(f)].

[146] See applicants' final submissions at trial [79], [81] and [83(o)].

[147] Lewski v Federal Commissioner of Taxation (2017) 254 FCR 14, 67 [151] (Perram, Pagone and Moshinsky JJ); [2017] FCAFC 145 (citations omitted).

[149] See [83] above.

[150] See [86] above.

[151] See [87] above.

[153] This wording was provided in response to a request from this Court, before the hearing of the appeal, for a marked-up version of what the Proposed Second Further Amended Statement of Claim ('PSFASOC') would have looked like if leave to amend had been granted.

[154] Applicants' closing submissions at trial [104]-[107].

[155] See [86] above.

[156] Applicants' closing submissions at trial [104], fn 136.

[157] Mandie v Memart Nominees Pty Ltd [2015] VSC 446; Mandie v Memart Nominees Pty Ltd [No 2] [2015] VSC 622; Mandie v Memart Nominees Pty Ltd [2016] VSCA 4. See also Mandie v Memart Nominees Pty Ltd [No 3] [2016] VSC 267 (which concerns an application for recusal) and Mandie v Memart Nominees Pty Ltd [No 4] [2018] VSC 49 (which concerns discovery).

[162] This had not yet been the subject of a ruling.

[163] See [204] above; that is, [133]-[135] of the applicants' closing submissions.

[164] Karsales (Harrow) Ltd v Wallis [1956] EWCA Civ 4; [1956] 1 WLR 936, 941; Re Vandervell's Trust [No 2] [1974] Ch 269, 321-2 (Lord Denning).

[165] Re Ball's Settlement Trusts; Ball v Ball [1968] 1 WLR 899, 905 (Megarry J); Re T's Settlement Trusts [1964] 1 Ch 158, 162 (Wilberforce J); Cachia [2000] FCA 161, [68] (Hely J).

[166] These were dealt with in the Reasons at [132], [139] and [165].

[168] Mandie v Memart Nominees Pty Ltd (Supreme Court of Victoria, Ginnane J, 20 March 2018) 428.

[169] (1936) 55 CLR 499; [1936] HCA 40.

[170] Aon (2009) 239 CLR 175, 191 [28] (French CJ).

[171] See the discussion at [236]-[243] below.

[172] See [83] above.

[173] (1990) 21 NSWLR 107.

[175] Citations omitted. Emphasis in original. It should be noted that, on the appeal, when the applicants prepared their PSFASOC, they omitted the words 'and spite' from [164(v)(i)] in the proposed particulars to [27].

[176] The submission of 'spite' in [163] was directed at Memart, whereas the submission of 'spite' in [164(v)(i)] was directed at Evelyn.

[177] Karger v Paul [1984] VR 162, 164 (McGarvie J). See also Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] FCA 1628, [152] (Finkelstein J); Wilden Pty Ltd v Green [2009] WASCA 38; (2009) 38 WAR 429, 454-5 [114], 467 [162] (McClure JA); [2009] WASCA 38.

[178] Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, 308 (Kitto J), 312 (Menzies J) and 320-1 (Windeyer J); [1959] HCA 8.

[179] [2009] VSCA 284; (2009) 26 VR 335, 348-9 [25] (Redlich and Bongiorno JJA and Hansen AJA); [2009] VSCA 284 (citations omitted).

[185] See [237] above.

[186] [2009] VSCA 284; (2009) 26 VR 335, 348-9 [25] (Redlich and Bongiorno JJA and Hansen AJA); [2009] VSCA 284.

[188] See [8] above.