MICHAEL SCOTT CHEYNE (by his Guardian Ad Litem HELEN RITA LLOYD)

Trusts and trustees - Court ordered trust of judgment sum - Meaning of 'advancement' and 'benefit' - Whether disposition of trust fund capital for superannuation policy to be held directly for beneficiary, by his limited administrator, is within terms of trust

Trusts and trustees - Section 17 Trustees Act 1962 (WA) - Meaning of 'investment' - Whether disposition of trust fund capital for superannuation policy to be held directly for beneficiary, by his limited administrator, is an investment

Practice and Procedure - Parens patriae power of the court - Whether parens patriae power authorises the disposition of trust funds sought

Guardianship and Administration Act 1990 (WA)

Supreme Court Act 1935 (WA)

Trustees Act 1962 (WA)

Directions given that the proposed transfer is within the terms of the Court Compensation Trust

Beverley's Case of Non Compos Mentis [1598] EngR 5; (1603) 4 Co Rep 123b, 126; [1598] EngR 5; (1603) 76 ER 1118

Cadwallender v The Public Trustee [2003] WASC 72

Carseldine v Director of Department of Children's Services [1974] HCA 33; (1974) 133 CLR 345

Clay v Clay [1999] WASCA 8; (1999) 20 WAR 427

Department of Health and Community Services (NT) v JWB & SMB (Marion's Case) [1992] HCA 15; (1992) 175 CLR 218

Inland Revenue Commission (NZ) v Ward [1970] NZLR 1

Khoo Tek Keong v Ch'ng Joo Tuan Neoh [1934] AC 529

McInnes (by her next friend Gail McInnes) v Insurance Commission of Western Australia [2011] WADC 17

Nelson v Greening & Sykes (Builders) Ltd [2007] EWCA Civ 1358

Perpetual Trustee Company Limited and MSC [2011] WASAT 127

Perpetual Trustees WA Limited and the Public Trustee [2009] WASAT 253

Pilkington v Inland Revenue Commissioners [1964] AC 612

Re Baron Vestey's Settlement v O'Meara [1951] Ch 209

Re CAC [2009] QGAAT 63

Re Eve (1986) 31 DLR (4th) 1

Re White [1959] VicRp 86; [1959] VR 661

Re Wragg [1919] 2 Ch 58

Wellesley v Duke of Beaufort (1827) 2 Russ 1; (1827) 38 ER 236

1 This application seeks the answer to a deceptively short question. The question concerns the powers of a trustee under a court ordered trust of judgment funds for the benefit of a severely injured plaintiff (Mr Cheyne). The question is whether the trustee has the power to transfer trust funds to a superannuation fund to be administered for the benefit of Mr Cheyne. The evidence is that such a transfer could accrue millions of dollars of benefit to him.

2 In other jurisdictions, trustees who have failed to consider such a transfer have been held liable: Re CAC [2009] QGAAT 63. But a decision of the District Court of Western Australia has held that the wide powers of trustees do not extend to making such a disposition. The reason given was that the trustee would divest itself of the 'legal estate in the money' and the court would be deprived of any protective control. That decision was referred to with approval by the State Administrative Tribunal (the SAT) in this case.

3 This application is not an appeal from the SAT. The SAT has delivered reasons but has adjourned the delivery of its orders to permit this application. This application is effectively for a direction that the transfer of trust funds is possible. Alternatively, the applicant seeks a variation of the terms of the trust to permit the transfer. The application is supported by Mr Cheyne's guardian, who has discussed the application with him.

4 The application is urgent. The investment must be made by 31 August 2011 in order to obtain the financial benefit from investment in a superannuation fund. The SAT will reconvene on 28 August 2011 to make orders. These reasons are designed to assist in that process.

5 In these reasons, I explain why the trustee has the power to make the transfer sought. These reasons are divided into the following sections:

(6) Does the Court Compensation Trust permit the proposed transfer?

(7) Is the transfer of the trust funds to Perpetual Superannuation an 'investment' within s 17 of the Trustees Act 1962 (WA)?

(8) Can the proposed transfer be approved in the parens patriae power of the court?

6 My conclusion is that the trustee has the power to make the transfer under the Court Compensation Trust in these circumstances. The circumstances are that the trustee will act as the limited administrator for Mr Cheyne in respect of Mr Cheyne's rights as a superannuation member.

7 This originating summons was listed for urgent hearing on 25 August 2011. The background is as follows.

8 In 2001 Mr Cheyne sustained serious injuries as a result of a motor vehicle collision between a road train and a sedan. Mr Cheyne was then 37 years old. He will never work again. He subsequently commenced proceedings in the District Court seeking damages arising from that accident. On 27 May 2011 the action was compromised for $5,479,806.20. The orders compromising the action were made by her Honour Judge Sweeney SC (the Compromise Orders). The Compromise Orders provided for a trust to be created over the vast majority of the judgment sum. In order 3(c) of the Compromise Orders, her Honour provided as follows:

To Perpetual Trustee Company Limited the balance of the judgment sum[,] namely[,] the sum of $5,250,000.00 for investment on behalf of the Plaintiff[,] and Perpetual Trustee Company Limited be empowered at its discretion to apply from time to time the whole or any part of the income from the investment monies with recourse if considered necessary to the capital thereof for the maintenance, welfare and advancement or otherwise for the benefit of the Plaintiff, pending further order of the court.

9 On 2 June 2011 the defendant to the Compromise Orders paid that amount to Perpetual Trustee Company Ltd (Perpetual Trustee). Those funds are held by Perpetual Trustee on the court ordered trust for Mr Cheyne (the Court Compensation Trust). Mr Cheyne is the sole beneficiary of the Court Compensation Trust.

10 In August 2011 Perpetual Trustee applied to the SAT effectively seeking orders that $5 million of the trust funds (approximately 98% of the trust funds) held by Perpetual Trustee be transferred to Perpetual Superannuation Ltd (Perpetual Superannuation). Perpetual Superannuation is a company related to Perpetual Trustee. Perpetual Trustee formed the view that this transfer was in the best interests of Mr Cheyne.

11 On 8 August 2011, the application was heard by the deputy president, a senior member and a member of the SAT. The SAT delivered reasons for decision, which I discuss below. The SAT was not satisfied that it was appropriate to make the orders sought at that time: [33]. However, the SAT considered that were it not for the current terms of the Court Compensation Trust, the SAT would have granted the administration order which was sought: [37]. In order to provide Perpetual Trustee with the widest range of options in the time available, the SAT did not make any orders giving effect to its reasons. Instead the proceedings were adjourned until 25 August 2011: [36].

12 One option contemplated by the SAT, and one reason for adjourning its decision, was for Perpetual Trustee to make an application to this court under the Trustees Act: [34]. This is what has been done. This is the application which is now before me.

13 Perpetual Trustee brings this originating summons seeking orders that the summons has been duly served and abridging the time for hearing. The following substantive orders are sought in this court:

1. A declaration that the terms of the Court Compensation Trust as established pursuant to the order made by the District Court on 27 May 2011 in District Court Proceedings No. 1212 of 2007, and in particular paragraph 3(c) thereof, namely:

'3. In satisfaction of the judgment the Defendant do within 10 days of the date of service of this Order pay:

(c) To Perpetual Trustee Company Limited the balance of the judgment sum namely the sum of $5,250,000.00 for investment on behalf of the Plaintiff and Perpetual Trustee Company Limited be empowered at its discretion to apply from time to time the whole or any part of the income from the investment monies with recourse if considered necessary to the capital thereof for the maintenance, welfare and advancement or otherwise for the benefit of the Plaintiff pending further order of the court.'

grants to the Plaintiff the power and the discretion to advance all or part of the capital of the Court Compensation Trust into a superannuation fund for the benefit of the Defendant.

1. In the alternative to paragraph 3 above, an order that the terms of the Court Compensation Trust be varied, and the Plaintiff (as trustee of the Court Compensation Trust) be empowered and authorised in its discretion to transfer up to $5,000,000 from the capital of the Court Compensation Trust held by it on behalf of the Defendant to a superannuation fund managed by Perpetual Superannuation Limited, to be invested by Perpetual Superannuation Limited on the terms of its trust deed and subject to the terms of the Superannuation Act for the benefit of the Defendant.

14 Order 3 (the declaration) is the primary order sought by Perpetual Trustee. If a declaration is unavailable then, in the alternative, Perpetual Trustee seeks order 4 (the variation of the trust): (ts 2).

15 This application was listed for urgent hearing. A financial analysis prepared by Perpetual Trustee estimates that the transfer of the trust funds into a superannuation fund would accrue significant financial benefits to Mr Cheyne. But if the transfer of the funds into superannuation is not made by 31 August 2011 then these benefits will be lost: see the affidavit of Ms Primrose, par 12.

16 If the transfer sought by Perpetual Trustee had been to use trust funds to purchase shares or property then there could be no doubt that there was power to do that if the purchase was in Mr Cheyne's best interests. Similarly, Perpetual Trustee could have used trust funds in Mr Cheyne's best interests to invest with another trustee. The other trustee would then hold the funds or their investment proceeds on trust for Perpetual Trustee, which would then be held on sub-trust for Mr Cheyne: Nelson v Greening & Sykes (Builders) Ltd [2007] EWCA Civ 1358.

17 Both of these situations are examples of the investment power of Perpetual Trustee under the Court Compensation Trust. However, since a member of a superannuation fund does not have a beneficial interest in the fund itself, the latter option of investment was not open to a superannuation fund investment by Perpetual Trustee. Instead, Perpetual Trustee has devised a transfer of funds which is close, in effect, to the investment of funds in exchange for a beneficial interest.

18 The difference between the transfer of funds proposed in this case and a trust fund investment which is made in exchange for a beneficial interest is that the proposed transfer of trust funds to Perpetual Superannuation is in exchange for the limited interest as member in relation to a superannuation fund. The interest will be held by Mr Cheyne as a member_._ It is Mr Cheyne, not Perpetual Trustee, who will have the rights as a member against Perpetual Superannuation. So Perpetual Trustee proposes to have itself appointed as a limited administrator of Mr Cheyne for the purpose of administering Mr Cheyne's interest as a member of the superannuation fund.

19 In summary, the material difference between this proposed transfer and a transfer by Perpetual Trustee of trust funds in exchange for a beneficial interest is that the proposed member's interest in the superannuation policy acquired will be administered by Perpetual Trustee as Mr Cheyne's limited administrator rather than as Mr Cheyne's trustee of the Court Compensation Trust. The question before this court is whether that transfer is possible.

20 In June 2011, Perpetual Trustee made an urgent application to the SAT. Perpetual Trustee explained that it wanted authorisation to make a transfer of trust funds into a superannuation fund for Mr Cheyne. Perpetual Trustee explained that it wanted to be appointed as a limited administrator of the estate of the plaintiff with the powers to make such an investment.

21 For reasons I explain below, this was a prudent course to take. If the orders are made then Perpetual Trustee, as a limited administrator of all Mr Cheyne's rights in relation to the transferred funds, will be subject to the direction of the SAT (including the power of removal). Perpetual Trustee will also be subject to ongoing supervision under the Guardianship and Administration Act 1990 (WA) s 80. The motive for Perpetual Trustee to pursue the orders before the SAT was therefore to ensure that in relation to the proposed transfer to Perpetual Superannuation there was additional protection for the interests of Mr Cheyne.

22 Perpetual Trustee sought orders which would grant it the following functions:

1. To call upon funds from the compensation court trust established for the benefit of the represented person for placement into an appropriate superannuation fund for the benefit of the represented person;
2. to act on behalf of the represented person with respect to that superannuation investment;

1. from time to time, to call for funds from the said superannuation investment for the represented person's benefit; and

1. to receive such funds and to apply and expend the sum for the maintenance, necessaries [sic], comforts and benefits of the represented person in such a manner and to such extent as the administrator, having regard to the circumstances and the value of [the] represented person's estate, considers proper and reasonable, including the option of depositing such funds back into the compensation court trust on the represented person's behalf.

23 The application to the SAT was made under the Guardianship and Administration Act s 86(1). That section gives the SAT power to review an administration order. Leave to apply for review was granted by a member of the SAT on 19 July 2011.

24 On 8 August 2011 the application was heard by the SAT. The Public Trustee appeared before the SAT to oppose the orders sought. The SAT delivered reasons the same day in Perpetual Trustee Company Limited and MSC [2011] WASAT 127. The SAT declined to make the orders sought. However, the SAT adjourned making any orders so that Perpetual Trustee could pursue a number of other options. One of those options was an application to this court for a declaration that the investment could be made, alternatively for a variation of the Court Compensation Trust.

25 In its reasons, the SAT relied heavily upon the decision in McInnes (by her next friend Gail McInnes) v Insurance Commission of Western Australia [2011] WADC 17. That decision had dealt with a nearly identical question. In that case the learned judge refused to permit the investment of the trust funds in a superannuation fund, even though the evidence was that there would be a financial benefit from such investment of approximately $180,000 a year. I have considered that decision below.

26 After applying the McInnes decision, the SAT explained that its primary concern in making an administration order is the best interests of the represented person, Mr Cheyne. The SAT held that ordinarily an administration order would be in the best interests of a represented person where that person would be better off financially: [23].

27 In McInnes, an application was made before a District Court judge by ANZ Trustees Limited, which was the trustee of a court compensation trust. The trustee sought authorisation from the court to invest a substantial part of the trust fund in a superannuation fund administered by a subsidiary of the Australia and New Zealand Banking Group. The application was refused.

28 The decision in McInnes is succinct. It is just over one page long. But it has very significant effects as this case demonstrates. The practical effect of the decision is that although a trustee of a court ordered trust fund has a broad discretion to invest the trust funds in a very wide range of assets, the trustee has no power to dispose of the trust funds in the manner proposed. The proposed disposal is one would substantially reduce the tax liability of the beneficiary, and accrue significant financial benefits to him.

29 The essence of the reasons in McInnes are contained in [3] and [5] - [7] of the decision. In those paragraphs the judge said:

1. Upon the transfer of the moneys to that entity, the Trustee would cease to be the legal owner and administrator of the funds, although it is said that it would continue to manage the investment of the funds in the superannuation account on the same basis as it manages investment of the balance of the trust fund.

1. ... The Trustee's powers of investment are regulated by Pt III of the Trustees Act 1962, and pursuant to s 17 it may invest trust funds in any form of investment. What is proposed here, however, cannot be categorised as an investment, since the Trustee intends to divest itself of the legal estate in the money.
2. The trustee of the Portfolio One Superannuation Fund is not an entity in respect of which the court would have any control, and it seems that the superannuation trustee would be obliged to disgorge monies to the plaintiff on demand, subject to any statutory restriction.
3. What is fatal to the application is that upon the Trustee divesting itself of the funds, the court having no relationship with the superannuation trustee, would be deprived of any protective control, contrary to the parens patriae jurisdiction reflected by O 70, and particularly r 12(2) which provides:

'The court may at any time, and from time to time, give directions for the application of the income or of the capital and income of the investment for the maintenance, welfare, advancement or otherwise [for] the benefit of the person under a disability.'

30 The first point made in the decision is that the trustee would cease to be the legal owner and administrator of the funds; the trustee will 'divest itself of the legal estate in the money': [3], [5]. It is true that the disposition will involve the trustee divesting itself of a large sum of money. But every investment requires a trustee to divest itself of money or title to assets. It cannot be an objection to a disposition by a trustee that the trustee will give up its legal rights. Instead, the point being made by the learned judge must have been that a disposition by a trustee of money, without receipt of anything by the trustee in exchange, cannot be characterised as an 'investment' for the purposes of s 17 of the Trustees Act. As I explain below, I consider that conclusion to be correct. However, as the learned judge implicitly recognised, this is not an obstacle if the orders are sought otherwise than by reference to the investment power in s 17 of the Trustees Act.

31 The second point made in the reasons in McInnes concerned the operation of the courts parens patriae powers. Even though the court concluded that it did not have the power to make the orders sought pursuant to s 17 of the Trustees Act, its parens patriae powers fell for consideration as an alternative. The learned judge considered that the orders sought could not be made under those powers essentially because reliance upon those powers would be to deprive the court of protective control in relation to the funds: [7].

32 There is, of course, a difference between the existence of a power and the discretion concerning whether it should be exercised. For reasons I explain below, I consider that the court does have parens patriae powers to make the orders sought. In any case where a person is the subject of those powers of the court, the overriding question is whether the exercise of the powers would be in the best interests of the person subject to the court's power.

33 As mentioned above, there are two sources of power to make the orders sought which were considered in McInnes. They are:

(1) whether Perpetual Trustee unilaterally has the power to make the transfer to Perpetual Superannuation by s 17 of the Trustees Act; and

(2) whether the court, in exercise of its parens patriae powers, can make orders authorising that transfer.

34 In deference to the detailed and careful submissions of counsel on these two points I have considered them both in detail below. My conclusion is that the court has power in its parens patriae jurisdiction to support the orders sought where those orders are in the best interests of the person subject to the court's control. But Perpetual Trustee does not have the power to make the proposed transfer by reference to s 17 of the Trustees Act.

35 However, before turning to those two potential heads of power, there is a simpler and more direct route to the primary order sought by Perpetual Trustee. If the proposed transfer is within the terms of the Court Compensation Trust then this court has the power to give directions that the trustee can lawfully exercise its discretion to make the transfer.

Does the Court Compensation Trust permit the proposed transfer?

36 The simplest route to the primary order sought by Perpetual Trustee would be for this court to give directions that cl 3(c) of the Court Compensation Trust empowers Perpetual Trustee to make the proposed transfer. Section 92 of the Trustees Act gives the Supreme Court (see s 6(1) Trustees Act) the power, on application by a trustee, to give directions respecting the exercise of any power or discretion vested in the trustee. Perpetual Trustee has sought these directions.

37 Clause 3(c) of the Court Compensation Trust provides for the trust funds to be vested in Perpetual Trustee for investment. The clause then continues, providing that Perpetual Trustee,

be empowered at its discretion to apply from time to time the whole or any part of the income from the investment monies with recourse if considered necessary to the capital thereof for the maintenance, welfare and advancement or otherwise for the benefit of the Plaintiff pending further order of the court.

38 There are several relevant parts to cl 3(c). It grants Perpetual Trustee a power at its discretion (1) to 'apply', (2) 'if considered necessary', the capital from the trust fund, (3) 'for the maintenance, welfare and advancement or otherwise for the benefit of the plaintiff pending further order of the court'.

39 Perpetual Trustee says that it proposes to do exactly that. It proposes to apply $5 million of the capital from the trust fund which it considers necessary for the advancement or otherwise for the benefit of Mr Cheyne. It proposes to do this by the transfer to Perpetual Superannuation which will realise substantial tax benefits to Mr Cheyne.

40 There are, essentially, three preconditions imposed by cl 3(c) which Perpetual Trustee must satisfy in order to show that the transfer of the trust funds to Perpetual Superannuation is within the terms of cl 3(c). These are:

(1) Is the transfer of the trust funds an 'application'?

(2) Since it is capital which is being transferred, is it 'considered necessary' to apply the funds?

41 As to (1), it is clear that the proposed transfer of trust funds to Perpetual Superannuation is an application of those funds. In Re White [1959] VicRp 86; [1959] VR 661, 665, Smith J said that the word 'application' should be 'widely construed. It appears to be used with no more precise meaning than that of a "devoting to" or "an employing for the purpose of"'. In that case, it was held that there was an application of trust funds by the proposed transfer to a trustee of proceeds from the sale of trust assets (667). See also Re Baron Vestey's Settlement v O'Meara [1951] Ch 209; Inland Revenue Commission (NZ) v Ward [1970] NZLR 1.

42 As to (2) and (3), there is considerable evidence that the use of the funds would be for the advancement, or for the benefit of, Mr Cheyne. The term 'advancement' in this context may add little to the broad catch-all reference to 'benefit'. Historically, the addition of the words 'or otherwise for the benefit of' was an inclusion of words which are 'the largest of all' to ensure that a trustee's power to apply funds is not restricted by limitations which might otherwise inhere in the concept of advancement: Pilkington v Inland Revenue Commissioners [1964] AC 612, 634 (Viscount Radcliffe); Clay v Clay [1999] WASCA 8; (1999) 20 WAR 427, 461 [97] (Wallwork, Owen & Parker JJ).

43 The SAT concluded [33], and I agree, that the evidence showed that the transfer would be to the significant financial advantage of Mr Cheyne. I have been provided with an affidavit from Mr Jamie O'Donnell, sworn on 24 August 2011, which amends an earlier affidavit of his. In that affidavit Mr O'Donnell provides a substantial summary of the legal consequences of the proposed transfer. Those consequences were also the subject of supplementary written submissions concerning the effect of the Income Tax Assessment Act 1997 (Cth) (ITAA) which were helpfully provided by counsel, at my request, immediately after the hearing. Although it is not necessary to resolve the detail of all the superannuation and taxation benefits to Mr Cheyne, I am satisfied that the financial benefits are considerable. In the broadest summary, provided the transfer is made to Perpetual Superannuation by 31 August 2011 then, as a member of Perpetual Superannuation, the significant financial benefits which may accrue to Mr Cheyne (by his administrator, Perpetual Trustee, if appointed for this purpose) could include the following:

(1) No income tax will be payable on the transfer, or contribution, to Perpetual Superannuation provided it is made within 90 days of receipt of the funds or the order of the District Court (see s 292-95(1)(b) ITAA).

(2) Either no income tax, or substantially reduced income tax, of 15% will be paid on income from investment of the contribution, depending upon whether the investment by Perpetual Superannuation is supporting an income stream (see s 280-20(3),(4) ITAA generally, s 295-10 ITAA method statements, and s 295-385 and s 295-390 ITAA excessive contributions tax).

(3) No income tax will be payable on withdrawal of the superannuation contribution by Mr Cheyne whether as a lump sum or as an income stream (see s 292-95(1) ITAA, and s 301-10 and s 301-30 ITAA).

(4) Even if the conclusion in (3) is incorrect, then provided that the payment qualifies as a 'disability superannuation benefit', tax free status may apply to some or all of the after tax earnings from investment by Perpetual Superannuation. Alternatively, a substantially reduced income tax (a maximum of 20%) due to offset benefits, will be payable on withdrawal. The extent of the benefit depends upon whether the payment is made to Mr Cheyne before age 59 (which is Mr Cheyne's preservation age: see reg 6.01 Superannuation Industry (Supervision) Regulations 1994 (Cth)) and whether it is taken as a lump sum or an income stream: s 301-35(2) ITAA, s 301-20 and s 960-285 ITAA (lump sum payments), and s 301-25 and s 301-40 ITAA (income payments).

44 An example of the financial significance of the proposed transfer is provided in a report prepared by Mr Christopher Marshall, the senior financial consultant at Perpetual Trustee. Mr Marshall estimates that by the age of 82 the additional benefit to Mr Cheyne's $5 million fund would be $10 million: see affidavit of Mr Christopher Marshall, affirmed on 22 August 2011, [9] and annexure CM-2.

45 Although the SAT considered that the transfer would be to the significant financial advantage of Mr Cheyne, the SAT expressed reservations concerning whether the transfer would be for Mr Cheyne's benefit, or in his best interests. The reason for the concern of the SAT, echoing a concern expressed in McInnes was that the vast bulk of the trust fund would be removed from the protective jurisdiction of the court: [24].

46 The question whether the removal of the trust fund from the power of the District Court (which created the trust) was in Mr Cheyne's best interests was the subject of substantial submissions before me. These included a number of submissions which were not made before the SAT. My conclusion is that the removal of the trust funds by the transfer to Perpetual Trustee does not detract from the benefit to Mr Cheyne. Although the District Court will not have power directly to supervise those funds as trust funds, the administration of those funds by Perpetual Superannuation will be subject to at least the same degree of scrutiny and Mr Cheyne will have at least the same degree of protection. The scrutiny and protection of Mr Cheyne will be as follows:

(1) Provided that the SAT makes orders sought by Perpetual Trustee (and supported by Mr Cheyne, by his guardian) appointing Perpetual Trustee as a limited administrator, then all of the rights which Mr Cheyne has, as a member, against Perpetual Superannuation, will be subject to the control of the SAT: see Guardianship and Administration Act s 71, s 71A, s 72.

(2) As a limited administrator, both the District and Supreme Courts will also have jurisdiction over Perpetual Trustee in respect of Mr Cheyne's rights as a member against Perpetual Superannuation. Those rights will be administered by Perpetual Trustee for Mr Cheyne.

(3) Again, provided that the SAT makes the orders sought appointing Perpetual Trustee as a limited administrator, Perpetual Trustee will be required to file annual accounts with the Public Trustee. Those accounts can be surcharged or falsified and Perpetual Trustee could be held personally liable for any defalcation: Guardianship and Administration Act s 80 and Perpetual Trustees WA Limited and the Public Trustee [2009] WASAT 253.

(4) Finally, Perpetual Superannuation itself is also subject to regulation and supervision:

(a) as a licensed public offer licensee under the Superannuation Industry (Supervision) Act 1993 (Cth);

(b) under the Superannuation Industry (Supervision) Regulations;

(c) under the Retirement Savings Accounts Act 1997 (Cth); and

(d) under the Retirement Savings Accounts Regulations 1997 (Cth).

47 Although I have reached the conclusion that the transfer of trust funds is an application which is for the benefit of Mr Cheyne, the terms of the Court Compensation Trust direct attention to whether Perpetual Trustee consider it necessary to make the application of funds for the benefit of Mr Cheyne.

48 The issue of whether the proposed transfer is 'considered necessary' by Perpetual Trustee is addressed in a supplementary affidavit of Mr Christopher Marshall, affirmed on 25 August 2011. Mr Marshall says, at par 4, that taking into account the financial benefits which I have described, and Mr Cheyne's future needs, particularly if his guardian is unable to care for him in the future, the proposal 'is necessary so as to maximise savings on taxation and the return on the growth of the fund to provide for the maintenance, welfare and advancement of Mr Cheyne and for his benefit'.

49 As I have explained above, I am satisfied that the conclusion of Perpetual Trustee is correct. In these circumstances I do not need to consider one further question which might otherwise arise. This is the extent to which the determination of 'necessity' is a matter for the discretion of Perpetual Trustee and the degree to which this court could interfere with the exercise of such a discretion. I note also, in passing, that the requirement of 'necessity' is not a requirement which appears in the equivalent provision for a court compensation trust where the Public Trustee is the trustee: see O 70 r 12(2) of the Rules of the Supreme Court 1971 (WA).

Is the transfer of the trust funds to Perpetual Superannuation an 'investment' within s 17 of the Trustees Act?

50 Having concluded that a direction can be given in the terms sought, it is not strictly necessary for me to go further to consider the alternative question of whether Perpetual Trustee has the power to make the transfer by reference to s 17 of the Trustees Act. However, I express my opinion on that matter, and also the issue of parens patriae, because I was provided with substantial written and oral submissions on these issues. Further, the McInnes decision, which was so influential in this case, deals only with those matters.

51 Section 17 of the Trustees Act gives a trustee a general power as follows:

A trustee may, unless expressly prohibited by the instrument creating the trust -

(a) invest trust funds in any form of investment; and

(b) at any time, vary an investment or realize an investment of trust funds and reinvest money resulting from the realization in any form of investment.

52 There is one significant difference between the usual meaning of 'investment' and the transaction which is proposed by Perpetual Trustee. The usual meaning of investment in this context is to '[e]xpend (money, effort) in something from which a return or profit is expected': New Shorter Oxford English Dictionary, page 1410, definition 6. However, the transaction which Perpetual Trustee wishes to make is one where Perpetual Trustee will not receive anything in return. This must have been the concern which the learned judge in McInnes had when his Honour explained that the trustee would be disposing of the 'legal estate in the money'.

53 Section 17 is a provision which falls within pt III of the Trustees Act which is entitled 'Investments'. The word 'investment' is not defined anywhere in the Act. Section 17 was introduced by the Trustees Amendment Act 1997 (WA) s 6. It has been suggested that it was introduced, in part, as a reaction to conservative approaches to the meaning of 'investment' at common law: Heydon JD & Leeming M, Jacobs' Law of Trusts in Australia (7th ed, 2006) 426 [1807]. An example of the previous common law approach is the decision in Khoo Tek Keong v Ch'ng Joo Tuan Neoh [1934] AC 529. In that case the Privy Council held that an unsecured loan was not an investment.

54 Section 17 has plainly expanded the definition of 'investment' beyond the previous common law approach to include, for example, unsecured loans. But there is nothing in s 17, or pt III, which contemplates extending the meaning of 'investment' beyond the boundaries of cases involving exchange, or purchase: see the definition in Re Wragg [1919] 2 Ch 58, 65 (Lawrence J).

55 The other provisions in pt III also clearly contemplate this core meaning of investment. For instance, s 18(3) imposes a requirement upon a trustee to review the performance of trust investments at least once a year. The assumption underlying this provision is that something will be received by the trustee in exchange for the disposition of trust funds. Similarly, s 19(1)(b) refers to a duty not to invest trust funds in investments which are speculative or hazardous. Section 26C refers to setting off losses against gains made by trust investments, again contemplating that an investment will involve an exchange. Other sections give examples of investments, all of which include receipts of something in exchange by the trustee which forms part of the trust fund: eg s 24(1) (a dwelling house); s 26 (a debt secured against property); s 26D (housing loans).

56 For these reasons, I do not consider that the transaction contemplated by Perpetual Trustee is an investment within the terms of s 17 of the Trustees Act. This is because Perpetual Trustee will not receive anything in return. This means that s 17 does not give Perpetual Trustee a unilateral power to make the transfer to Perpetual Superannuation.

Can the proposed transfer be approved in the parens patriae power of the court?

57 Because I have concluded that directions can be made that the proposed transfer is lawful, this issue, like the s 17 Trustees Act issue, does not strictly arise for decision. But, again, because it was a central issue in this application, as in McInnes, and because I have been urged by counsel to express a conclusion on the matter, I have provided my reasons below.

58 A related issue arose in Cadwallender v The Public Trustee [2003] WASC 72. In that case, Mr Cadwallender suffered serious injury from a car accident. Litigation in the District Court of Western Australia was compromised for $100,000. A judgment trust was ordered, with the $100,000 held as trust funds by the Public Trustee. Nine years after the creation of the trust, Mr Cadwallender was living a near normal life. He brought an originating summons in the Supreme Court seeking to wind up the trust and for the transfer of the trust funds to him absolutely. EM Heenan J made orders to that effect. In the course of doing so, his Honour explained that the Supreme Court has the power to make an order vesting trust funds (in that case, winding up the trust) despite the trust having being established by the order of a different court, namely the District Court. EM Heenan J recognised that one source of that power was the parens patriae jurisdiction of the Supreme Court.

59 These proceedings differ in two respects from Cadwallender. First, in these proceedings it is not the winding up of the trust which is sought, but the distribution of trust funds to be held on terms of a superannuation trust. But, if a court has the power to terminate a trust entirely it must surely have the power to permit the disposition of part of the trust funds where those funds would be used to the significant benefit of the beneficiary. A second difference between Cadwallender and this case is that the application in this case is made by the trustee, Perpetual Trustee, not the beneficiary. However, the nature of the applicant cannot affect the issue of the court's prerogative power to make the orders sought, particularly where the application is supported by the beneficiary.

60 Section 16(1)(d) of the Supreme Court Act 1935 (WA) granted the Supreme Court of Western Australia the power of the Lord Chancellor of England, including the power to appoint guardians and to act in those cases as the Lord Chancellor could have done. Holdsworth, in a passage which is commonly cited, described the parens patriae jurisdiction of the court, and the associated power, as a prerogative delegated from the Crown rather than an inherent power: History of English Law, vol VI, page 648; see Carseldine v Director of Department of Children's Services [1974] HCA 33; (1974) 133 CLR 345, 350 - 351 (McTiernan J).

61 As EM Heenan J recognised, the prerogative power is broad: [29]. The prerogative was virtually unlimited. Sir Edward Coke said of a person falling within the jurisdiction of the Chancery court that 'there is no expectation, but that he, during his life, will remain without discretion and use of reason, the law has given the custody of him, and all that he has, to the King': Beverley's Case of Non Compos Mentis [1598] EngR 5; (1603) 4 Co Rep 123b, 126; [1598] EngR 5; (1603) 76 ER 1118, 1124. The scope of the prerogative power has never been limited: Re Eve (1986) 31 DLR (4th) 1, 16 (La Forest J). It is based on the care that the King has for those who cannot take care of themselves: Wellesley v Duke of Beaufort (1827) 2 Russ 1, 20; (1827) 38 ER 236, 243 (Lord Eldon LC); Department of Health and Community Services (NT) v JWB & SMB (Marion's Case) [1992] HCA 15; (1992) 175 CLR 218, 258 (Mason CJ, Dawson, Toohey & Gaudron JJ) .

62 In Marion's Case the joint judgment also said that the power is to do what is for the benefit of the incompetent, and that the more contemporary descriptions of the power accept that 'in theory there is no limitation upon the jurisdiction' (258). There is, therefore, clearly a parens patriae power for the court to make the orders sought. However, since that power flows from the responsibility of the Crown to look after those who cannot look after themselves, it must be exercised for the benefit of Mr Cheyne, and in his best interests.

63 The primary order sought in this case need not draw from the parens patriae power of the court since I have concluded that directions can be given that the transfer sought, and the manner in which it is sought, is within the terms of the Court Compensation Trust. However, if it were necessary to do so, the parens patriae power of this court could also have permitted orders to be given to allow the proposed transfer.

64 Since the terms of the Court Compensation Trust are satisfied by the transfer in this case, it is not necessary for me to consider the question which might otherwise have arisen concerning whether the court could, or should, exercise a parens patriae power, where to do so would be inconsistent with the terms of a court ordered trust. Such a question may, in any event, only be a theoretical one because if a court concluded that a transfer was in the best interests of the beneficiary, the trust could be amended.

65 I have concluded that the proposed declaration can be made, and directions can be given, that it is lawful for Perpetual Trustee to transfer $5 million trust funds to Perpetual Superannuation on terms that Perpetual Trustee will act as the limited administrator of Mr Cheyne's rights in relation to those funds, as described above at [22].

66 It is not necessary for me to consider the question of whether the Court Compensation Trust should be amended, or the respects in which amendment would be needed, in order to permit the transfer to be made.

67 I will hear from counsel concerning the form of directions, under s 92 of the Trustees Act, to give effect to these reasons.