PERPETUAL TRUSTEES WA LTD as Executor and Trustee of the Estate of HERBERT ROSS ANDREW (DEC)

Trustees Act - Application for vesting order and variation of trust - Deed of arrangement executed by all adult beneficiaries presently entitled - Deed of arrangement carried into effect by orders approving arrangement - No new principles - Turns on own facts

Trustees Act 1962, s 78, s 90

Perpetual Trustees WA Ltd v Kelly & Anor (1993) 8 WAR 480

1 HASLUCK J: This is an application for an order vesting in the plaintiffs all that property now held by the defendant upon trust for the plaintiffs pursuant to the terms of the Will of Herbert Ross Andrew, deceased, dated 20 October 1970. The vesting of the trust property is to take effect in the manner set out in a deed of family arrangement executed by the plaintiffs on 28 June 2001.

2 The plaintiffs seek relief pursuant to s 90 of the Trustees Act 1962. This provides that, without limiting any other powers of the Court, where any property is held on trusts arising under a Will the Court may, if it thinks fit, approve on behalf of any interested person or any unborn or unknown person any arrangement varying or revoking all or any of the trusts.

3 Section 90(2) provides that the Court shall not approve an arrangement on behalf of any person if the arrangement is to his detriment. In determining whether any such arrangement is to the detriment of a person, the Court may have regard to all the benefits that may accrue to him directly or indirectly in consequence of the arrangement, including the welfare and honour of the family to which he belongs.

4 I will assume, without deciding, that an unborn or unknown person within the meaning of the section is a person who may not have been conceived and may not presently exist.

5 Counsel for the plaintiffs also placed some reliance upon s 78 of the Trustees Act which provides that the Court may make a vesting order where property is vested in the trustee and it appears to the Court to be expedient to make a vesting order.

6 The application for relief was supported by the affidavit of the first-named plaintiff, Elizabeth Marion Muhling sworn 6 July 2001. She is one of three children of Herbert Ross Andrew and Mary Venables Andrew. Her co-plaintiffs are her children and she was authorised by them to make this application.

7 It is apparent from the relevant affidavit that the first-named plaintiff's father, Herbert Ross Andrew, died on 9 August 1990 and that probate of his Will was granted to Elizabeth Muhling and her mother on 20 August 1991.

8 By his Will, Mr Andrew, after a specific bequest to his wife, gave her the income of his residuary estate during her lifetime. The first-named plaintiff's mother, Mary Venables Andrew, died on 18 August 1994. The effect of Mr Andrew's Will was that a life interest in the income of his residuary estate was given to such of his daughters who should survive him and his wife as tenants in common.

9 There is a substitution or gift of the income, if any daughter should not survive to take this interest, in favour of the children of the relevant daughter who survive and attain the age of 25 years. In the event, Mr Andrew's three daughters survived him. It follows that they became entitled to enjoy in equal shares the income of the residuary estate. In the meantime, arrangements had been made for the defendant trustee company to act as trustee of the Will and estate of Mr Andrew.

10 The effect of the Will was that upon the death of his daughters, Mr Andrew gave the residuary estate as to both capital and income to be divided into three equal parts, each such part to be shared equally between such of the children of his daughters who shall attain or shall have attained the age of 25 years.

11 By deed of family arrangement dated 5 September 1996, Elizabeth Muhling's sisters and their children agreed to vary the trust of the Will relating to the portions of the residue of the estate to which they were entitled in the manner set out in that deed.

12 The 1996 deed recognised that there was no probability of the deceased's daughters, Rosemary Stanbrook and Margaret Knewstub, having more children and therefore, as to what was called the "first trust", provision was made for 60 per cent of the assets to be vested in Rosemary Stanbrook absolutely, with the balance being vested in her four children absolutely as tenants on common in equal shares. As to the second trust, 50 per cent of the assets were to be vested in Margaret Knewstub absolutely, with the balance being vested in her two daughters as tenants in common in equal shares.

13 The trusts of the Will would continue as to the remaining third part, under the administration of the deceased's daughter, Elizabeth Muhling, this being known for present purposes as the "third trust".

14 The parties to the 1996 deed recognised that both in relation to the income and the capital of the residuary estate, under the provisions of the Will, there was a possibility that grandchildren as yet unborn could benefit under the trusts of the Will. It was for that reason that an application was made to the Supreme Court for a proposed variation and revocation of the trusts of the Will in the manner reflected in the 1996 deed of family arrangement.

15 By Supreme Court action CIV 2170 of 1996, the deceased's daughters, Rosemary Stanbrook and Margaret Knewstub and their children, being all of the beneficiaries of Herbert Andrew's Will other than the plaintiffs to the present proceedings, applied to the court for the vesting of the property held by the defendant upon trust for them pursuant to the terms of the subject Will.

16 That application was not opposed by the plaintiffs in the present proceedings. In Stanbrook & Ors v Perpetual Trustees WA Ltd & Ors, unreported; SCt of WA; Library No 980445; 24 July 1998 his Honour Murray J granted the orders sought by Elizabeth Muhling's sisters and their children.

17 In the course of his reasons for judgment, Murray J said:

"Speaking generally, it seems to me that the overall effect of the proposed arrangement is beneficial to all concerned. It enables the plaintiffs to obtain absolutely, interests in the two-thirds of Mr Andrew's estate which would ultimately fall to them, although not, of course, in the interests provided by the Will. Nonetheless, the result ultimately achieved, so far as each family group is concerned, is essentially that which would be the final result of the administration of the deceased's estate. The benefits to the Muhling family interests and particularly to the third defendant, seem to me to remain substantially intact pursuant to the terms of Mr Andrew's Will. Again, particularly so far as the third defendant and any unborn or unknown potential beneficiaries may be concerned, it seems that the risk of any possible detriment is so remote that it should not be allowed to stand in the way of the generally beneficial arrangement proposed."

18 By deed of family arrangement dated 28 June 2001, the deceased's daughter, Elizabeth Muhling and her five children, being the co-plaintiffs in these proceedings, agreed to vest the assets of the trusts of the Will relating to those portions of the residue of the estate to which they were entitled in the manner set out in that deed.

19 The 2001 deed is similar to the 1996 deed which was carried into effect as a consequence of the orders made by Murray J.

20 The 2001 deed contains a recital setting out the history of the matter and recognises that, as a consequence of the preceding events, the portion of the estate in which Elizabeth Muhling and her children had an interest was known as the third trust. The recital goes on to say that the beneficiaries of that trust, being of full age and capacity and entitled or presumptively entitled to the remaining assets in the third trust, wished to vest and distribute the assets and terminate the trust.

21 The deed goes on to provide that by way of family arrangement and for the consideration recited the beneficiaries direct the trustee to transfer the assets the subject of the third trust to the beneficiaries in the following manner, that is to say, 60 per cent of the assets to Elizabeth Muhling absolutely and the balance to her co-plaintiffs absolutely as tenants in common in equal shares.

22 The deed provides that the beneficiaries will release the trustee from the third trust and all or any claims relating to the administration of the same and with provision for an indemnity.

23 Elizabeth Muhling confirms in her affidavit that she and all her co-plaintiffs are of full age and capacity. The co-plaintiffs are all her children. She has no other children and has no intention or design to have more children. She practises safe sex and does not consider that there is any possibility that she will have more children. She confirms that her co-plaintiffs and herself seek the vesting of the trusts upon the basis that they are of full age and capacity and are capable of handling their own affairs.

24 It follows from the preceding narrative that although, theoretically, any future born child of Elizabeth Muhling would arguably have a contingent interest in the income and capital comprising the third trust, there is only a remote likelihood of such an interest being asserted. The beneficiaries who are parties to the 2001 deed are all adults and see advantages in an immediate vesting of their interest in the trust in the proportions previously mentioned. The defendant trustee company does not oppose the application and will abide the orders of the Court. It is therefore difficult to see that any party with an actual or potential interest in the trust is likely to be exposed to a detriment.

25 It is clear that the power to approve conferred by s 90(1) is discretionary. In essence, the power of the Court is to give its consent or approval on behalf of those beneficiaries or potential beneficiaries, infants, unborn and ascertained persons who, by reason of those and other disabilities, are incapable of consenting. The process is one in which the Court, in effect, joins with beneficiaries who are sui juris and entitled to the trust property so that they may exercise their proprietary rights to modify the intention of a testator: Palmer v McAllister (1991) 4 WAR 206.

26 A function of the Court on an application of this nature is to act as a substitute for the persons who are incapable, either because they lack capacity or because they are not born, to signify their consent. The proposal for variation is to be considered as a whole and, although the application may be designed to interfere with or modify the intention of the settlor, if there is no detriment likely to accrue to any person contingently interested and all interests will best be served by carrying into effect the proposed modification, then the application will be approved: Faye & Ors v Faye & Ors [1973] WAR 66.

27 Where, whilst the scheme proposed would be generally beneficial, there is a risk of detriment to the person or class of persons in respect of whom the Court's approval is sought, the Court may have regard to the degree of risk and, if it is a risk that an adult would be prepared to take to achieve the benefits to be derived from the scheme of rearrangement, then the Court may take that risk on behalf of the person or persons for whom its approval is sought: Re Cohen's Will Trusts [1959] 3 AER 523.

28 After taking account of these principles, I am satisfied that the discretionary power allowed to the Court by s 90 of the Trustees Act should be exercised in the manner proposed, that is to say, by providing for the property now held by the trustee company upon trust for the plaintiffs to be vested in the plaintiffs in the manner and for such estate and interest as is set out in the deed of family arrangement dated 28 June 2001. There is no real likelihood of detriment to a future born child. The beneficiaries presently entitled are adults and have arrived at their own estimation as to what is an appropriate division of the property. There are benefits to be obtained in an immediate vesting. The overall effect of the arrangement is beneficial to all concerned.

29 I note in passing that the factors which the Court should take into account in determining whether a vesting order is "expedient" for the purposes of s 78 of the Trustees Act are similar to the considerations relevant to the discretion conferred by s 90 of the Trustees Act. It follows that, further, and in any event, I am satisfied that the powers allowed to the Court by that provision should also be exercised so as to approve and carry into effect the subject deed of family arrangement.

30 Accordingly, an order will be made in terms of par 1 of the summons dated 12 July 2001, save that the words "or in such manner as the court may direct" are to be deleted. The defendant's costs of the application are to be taxed and paid out of the trust fund.