43 An order approving an arrangement enables the sui juris parties to proceed to effect the variation by entering into a Deed as in this case proposed. The court order does not make the variation, it merely provides a consent to the arrangement by and on behalf of those who cannot otherwise give consent[6].
44 It may be that an arrangement involves a risk from the point of view of infants and unborn persons. That is not necessarily decisive against approval. The arrangement and its benefits and disadvantages must be considered overall. So considering the matter it may be concluded that the risk to infants and unborn persons "is a risk that an adult would be prepared to take" and which the Court is prepared to take on behalf of those persons[7].
45 It seems implicit but should be noted that the concept of benefit is not confined to benefit of a financial nature. In Re Weston's Settlements[8] Lord Denning MR referred to educational and social benefit. A year later Pennycuick J in Re Remnant's Settlement Trusts said that the court was entitled to consider not merely financial benefit but benefit of any other kind. That case concerned a forfeiture provision that operated in relation to religion and which Pennycuick J described as "a source of possible family dissension", and in respect of which he approved an arrangement which eliminated the forfeiture provision. I would, with respect, suggest that the view of this decision expressed by McPherson J in Re Christmas' Settlement Trusts[9] has much to commend it. That is, it extended the notion of benefit further than could be justified. McPherson J further expressed the view that "the mere hope of avoiding possible future family friction would ordinarily not suffice, at least in the case of relatives as remote as cousins living apart". Nevertheless the possibility of family dissension may be an appropriate consideration in the circumstances of a particular case, of which Nicholas v Equity Trustees & Executors Agency Co Ltd[10] where there was substantial litigation is an obvious example. And in Dwyer v Strahan[11] Southwell J considered a risk of dissension between the families a factor but the variation there proposed was simple and otherwise appropriate.
46 The plaintiff submitted that benefit was to be found in a range of matters which were, in summary, the following: the avoidance of family dissension; an enhanced flexibility and capacity to make distributions adapted to the individual needs of the 15 family lines; the opportunity for more varied and appropriate investment strategies; an increased ease of administration; the capacity to reduce costs; and education by reason of increased opportunities for beneficiaries to act as trustees. These matters were elaborated upon by the plaintiff in her affidavit sworn on 23 May 2005 and by Mr Starkins in his report, and the written and oral submissions of counsel. I have regard to all that they said.
47 The avoidance or lessening of family dissension was much emphasised by counsel for the plaintiff. It was to be achieved by dividing the fund into 15 equal parts. That produced equality of treatment between the 15 family lines. Up to now the cl 8(a) beneficiaries have achieved such equality by refusing to provide the trustees with personal information, thus denying the trustees the ability to make a needs-based distribution. However the trustees have stated that they will endeavour to distribute on a needs-basis. The cl 8(a) beneficiaries believe it is hard to maintain equality and fairness in the present single trust. By creating a trust for each family line the capacity to make needs-based distributions and to advance income and capital in a tax-efficient manner will be enhanced, particularly as the number of beneficiaries increases.
48 In developing this aspect counsel said that the family groups apprehended that the testatrix had intended equality. Whilst that was not what the will provided, that was how the beneficiaries apprehended it. It was further apprehended that there would be jealousy and disharmony if there was competition between the family lines of the 15 cl 8(a) beneficiaries. The variation to 15 trusts would avoid that by producing equality between the 15 families.
49 Then, counsel said, no-one suggested that there was a present apprehension of dissension arising out of unequal treatment within the family group. But, as counsel rightly conceded, disharmony could arise in the future within the individual family group. This was however a "mere risk of future family friction" and not the reality of "a present apprehension that friction would exist". The cl 8(a) beneficiaries wished to avoid such friction by the present proposal, as they had hitherto by refusing to provide personal information.
50 A further point in the argument is that the senior family member in each family group will be a trustee and able to bring his or her familiarity with the family and individual circumstances to the determination of distributions.
51 All of this seemed to me not to add up to very much. The starting point was the asserted view of the cl 8(a) beneficiaries - a view initially pressed by their parents - that the testatrix had intended equality. This view was in direct conflict with the testatrix's intention of one large fund held on a discretionary trust with no primary beneficiary and in light of a foreseeably ever increasing number of beneficiaries. The testatrix could, for example, have provided for four trusts (one for the descendants of each nephew and niece) if she had wished, or any other number, but she determined on a single discretionary trust with one fund and with many beneficiaries. This did not manifest an intention of equality in distribution. Rather it contemplated a fund which with careful management by trustees would provide a source of payments to beneficiaries in the discretion of the trustees, a discretion likely to be attracted by particular need.
52 Then, even allowing that the apprehension of dissension has been held, and that the avoidance or lessening of dissension through unequal distributions among family members is beneficial, the split into 15 trusts will not, from the time when needs-based distributions are commenced, prevent the occurrence of jealousies and tensions within the family groups. It would be to deny the frailties of human nature, and the experience of life and the variety of personal circumstances within families, to suggest otherwise.
53 Furthermore, as the trustees' counsel submitted, if the trusts run their course to 2075 some family lines may contract while others may increase with consequent effect on the potential for individuals to enjoy distributions of income or capital and the amount thereof. The proposal is that under the 15 new trusts distributions be made on a needs-basis. There is an inherent risk of perceived or actual unfairness in this and therein is carried the seeds of disharmony between the family lines.
54 For these reasons, whilst in principle the avoidance or lessening of family dissension may be a benefit to beneficiaries, in the circumstances of the present proposal the immediate perception of benefit, together with the benefit of an informed assessment of need in each family line, is accompanied by a readily foreseeable risk of disadvantage for decades ahead.
55 The next matter advanced is an enhanced flexibility and capacity to make distributions adapted to the individual needs of those in the 15 family lines. I have already referred to the advantage of the principal family member being one of the trustees. However that person will be only one of three trustees and decisions as to distributions will be made by them acting together. Further, needs-based decisions could have been made up to now if the nephews and nieces and the cl 8(a) beneficiaries had not precluded that by their action. If they had co-operated with the trustees and provided information there is no reason to suppose that the trustees, particularly bearing in mind the experience and resources of Perpetual in such matters, would not have made decisions in an appropriate and considered way. Notwithstanding these considerations the addition of the family member as a trustee and concentration on that particular family line may be seen as a benefit by reason of the personal knowledge of the family concerned and their personalities and individual needs.
56 The next matter is the opportunity for more varied and appropriate investment strategy. Here reliance is placed on the report of Mr Starkins. As against that is the report of Ian Neil Ramsay which the trustees rely upon. I have read both reports. It is not necessary to set out their contents. In essence, while making no criticism of the trustees for the management of the fund to the present time, the plaintiff submits, relying on Mr Starkins, that the split into 15 trusts would permit investment decisions to be attuned to the circumstances of the beneficiaries of that trust. At present the trustees' approach is, inevitably, a "one size fits all" approach. It seems evident enough that it would be of benefit to have the 15 trusts invested with close regard to the circumstances of each family group. But the trustees must also regard future beneficiaries. And it is to be remembered that the investment of trust funds by trustees must have regard to the matters in s 8 of the Act. In short, it may not be as easy as might be supposed to invest the fund in a manner that presently suits beneficiaries including their individual taxation requirements, particularly if the group is of a reasonably large size.
57 But it is not to be assumed that the trustees under the new trusts would invest with appreciably better results than those experienced to date. Mr Starkins' report was helpful but also somewhat argumentative in his suggestions as to possible requirements in investment strategy. These in the end are matters of judgment in particular circumstances and on which views may differ. In itself growth is one thing but balance and the assessment of risk in an 80 year trust fund with discretionary payments of income and capital throughout its life is another, as Mr Ramsay cogently discussed.
58 It is important to bear in mind that Perpetual, under which the fund has been managed, is to be a trustee along with Mr Gilchrist. Hence, while the establishment of the 15 trusts would mean that investment decisions must be made in each trust, those decisions will be made with an eye to the circumstances of the beneficiaries, and the trustees must invest in light of the nature and period of the trust and the number and profile of the beneficiaries. Thus while the establishment of the 15 trusts may have a benefit in the area of more attuned investment decisions, those decisions will be made in the circumstances of a trust and with the benefit of the experience of Perpetual and Mr Gilchrist.
59 It is convenient to mention the taxation issues on which Mr Murphy gave advice. He advised on capital gains tax implications on splitting the trust, whether the varied trusts would cease to be testamentary trusts for income tax purposes, and family trust elections. Relying on counsel's opinion it was submitted that the better view was that no liability to capital gains tax would be triggered by the arrangement. The point was not that the trust would be better off but that it would not be disadvantaged by the variation to 15 trusts. I do not consider it appropriate on an application such as the present that I undertake an analysis of the capital gains tax position. Counsel's opinion left doubt open and a ruling could have been sought. Further, the issue has not been argued. I am left uncertain on the point, although I note that counsel for the fourth defendant was content to take the position that there was no substantial benefit or detriment from the capital gains tax point of view. I will act on that basis. It seems that the varied trusts should retain their status as testamentary trusts. There is however a difficulty with the family trust elections, which enable franking credits to be passed on to beneficiaries, which is that the benefit would not run to the final generation of beneficiaries. Nor are the cl 8(d) corporate beneficiaries covered by a family trust election.
60 The matters of an increased ease of administration and a capacity to reduce costs may be considered together. It was said by the plaintiff in her affidavit that the cl 8(a) beneficiaries and their spouses were predominantly trained and employed in professional occupations and have some familiarity with financial markets and investment. Thus their capacity to be a trustee and manage the trust investments or appoint competent managers or advisers to carry out or assist in that task. It was further expected that the varied trusts would be largely self-managed family trusts in which fees paid to trustees would be less than has been the case without any appreciable loss of economies of scale on account of administration or transaction costs. The Trust was paying management fees of 6 percent of income on funds under management together with commission on transactions.
61 These observations of the plaintiff must be considered afresh in light of the context provided by the revised Deed of Arrangement. The significant changes effected by the Deed are the inclusion of Mr Gilchrist and Perpetual as trustees and Mr Gilchrist as a joint appointor. These changes guard against early vesting but also mean an involvement of independent persons in the management of the trust in addition to the primary beneficiary. Hence the earlier foreshadowed element of the varied trusts being largely self-managed must be re-assessed in light of the arrangements now proposed for the conduct and management of the varied trusts.
62 A particular point arising from the identity of the proposed trustees concerns their remuneration. Clause 23 of the varied trusts common provisions carries forward from the will the right of the trustees to retain as remuneration for their services a commission upon the income of the fund at the rate chargeable by a trustee company. The rate, which is 6 percent, is payable irrespective of the work done in administering the Trust. And so it will be under the varied trust. Hence whatever amount of work is required the cost will not increase as the rate is fixed. In his reply counsel for the plaintiff conceded this was so, that even if family members did not take commission any saving would be small and unlikely to make enough difference to be a telling consideration. The position was the same in respect of commissions and fees paid to brokers and the like. These are unavoidable and in my view there is no appreciable reduction likely, nor indeed as I followed it was the likelihood strongly pressed in argument. It would be thought that a trustee such as Perpetual would be in as strong a position as anyone to gain any discount in that regard.
63 Regarding the matter from the simple point of the number of beneficiaries to be considered, the lesser number in each of the varied trusts would result in a concomitant reduction in the burden of administration. Of course the actual number of beneficiaries in each varied trust, and their circumstances, will vary from time to time. Nevertheless, overall an advantage is seen there but against it is the fact that whereas there is now one Trust with a single set of annual accounts and tax return, and fees related thereto, under the variation there will be 15 sets of accounts and tax returns and related fees. Likewise there will be an exponential increase in the number of meetings required in the administration of the trusts including for the purpose of determining on distributions. It is axiomatic also, as counsel for the plaintiff conceded on the matter of ease of administration, that if the trustees are now to consider the circumstances of families (as the beneficiaries have thus far precluded the trustees from doing) the burden of work will increase. In this respect I note the position of the existing trustees that they see the additional burdens on their time as being extensive and foreshadow that they might need to have their remuneration arrangements altered if they have to administer 15 trusts. In my view this apprehension is reasonably based and indicates a significant disadvantage in the proposal.
64 The final matter advanced by the plaintiff was the educative benefit to a beneficiary derived from acting as a trustee. That may be accepted as a benefit to those individuals[12]. It also accords with the wish of the testatrix that from time to time a member of the Tallis family be a trustee.
65 Whilst I have accepted certain matters as being of benefit to the beneficiaries represented by the fourth defendant, such matters are much affected by the range of balancing or off-setting considerations discussed. So regarded, in my view, no appreciable benefit of financial value is clearly enough made to appear. Indeed the likelihood is greater administration and costs.
66 But there is another factor which was strongly pressed by the trustees and the fourth defendant as telling against the proposal. It is this. Whereas as at present a beneficiary has a hope or expectation of payment in respect of a fund of $17,157,593 (as at 31 December 2006) under each varied trust the fund would be $1,143,840. Whilst it is true that no beneficiary has a right to payment yet the present fund has a much greater capacity to cater for beneficiaries who might suffer a significant financial distress. The trustees instanced the premature death of a parent with a dependent spouse and children, the destruction of a business or the loss of a home. The plaintiff herself gives the actual example of a family member who lost a business due to fire. The larger the fund the greater must be the ability to make a payment of an appropriate amount to aid a beneficiary without significantly reducing the fund and thereby the ability to provide for other beneficiaries until the fund had grown. It is so obvious as to go without saying that trustees of a fund of the size to be held by each varied trust would have significantly less capacity to make a substantial payment to such a beneficiary.
67 I accept that this is a significant and readily appreciable matter that tells against the proposal. It is not a mere argumentative or ephemeral matter, of which there are elements in the plaintiff's contentions, but a matter of material concern to beneficiaries both now and throughout the period of the varied trusts. There is a difference in the degree of cover or protection that the larger fund offers a beneficiary in the event of a downturn in personal circumstances and the need for capital or income.
68 It is not an irrelevant consideration that the present single fund exists because that is what the testatrix determined upon as being appropriate in the circumstances which included the reasonable foresight of a large number of beneficiaries. A division of the fund into 15 parts with the consequent diminished ability to make payments of income and capital would constitute a significant change in her intended position. This is a relevant although not determinative consideration. The question remains one of benefit for the represented beneficiaries and whether it is fit and proper to approve the arrangement. Nevertheless the departure from that intended is substantial and it is proposed to occur at a very early stage in the life of the Trust before the majority of beneficiaries have been born.
69 It cannot be said, or at least there is no evidentiary basis for doing so, that any approximate number of beneficiaries will be likely to suffer circumstances that might warrant an appreciable amelioration by the trustees. The point is not put in that way. Indeed with good fortune the risk of beneficiaries suffering such a misfortune might not become a reality, although the occurrence of relationship breakdown and employment and business failure is common. Hence, conversely, beneficiaries might suffer misfortune and it is to cater for such possibilities that the discretionary trust is ideal, and the larger the fund the better for reasons of the type discussed.
70 I am of the view that to approve the variation would involve the beneficiaries accepting a risk that an adult acting sensibly in his or her own interest would not take when regard is had to the relatively minimal benefits to be gained.
71 In the end I conclude, allowing for the benefits discussed, and having regard to the advantages and disadvantages of the proposed arrangement, that the arrangement should not be approved on behalf of the represented persons. On balance their position is diminished by the split into 15 funds, and that disadvantage is not offset or outweighed by any financial or other benefit of the arrangement.
72 For these reasons the application will be refused. I add merely that I have of course dealt only with the arrangement before me, the essential element of which was to divide the fund into 15 parts, a proposal which in my view was too bold by half.