Plaintiffs v Defendants

Supreme Court of Victoria|2005-04-22|Before: Mandie, J

TRUSTS - restructure proposal in relation to trusts of estate involving the transfer in specie to beneficiaries of shares in company in satisfaction of their beneficial interests - whether power may be granted to trustees pursuant to s.63 of the Trustee Act 1958 (Vic) to distribute the shares in the manner proposed.

2 The background to the proceeding is set out in my reasons for judgment in Hornsby v Playoust[1] handed down on 23 November 2004 and in the reasons for judgment of the Court of Appeal in Playoust v Hornsby[2] handed down on 7 April 2005 and Playoust v Hornsby[3] handed down on 14 April 2005. For present purposes, it is convenient to set out part of what I said in my reasons of 23 November 2004.

3 The Trustees are advancing a proposal for the "restructure" of the business presently conducted by the Estate (the "Restructure Proposal")[4].

4 The deceased died in Tasmania on 23 September 1904 leaving a will dated 16 March 1901 and a codicil thereto dated 31 May 1902, both executed in Tasmania. At the time of his death, the deceased was a resident of and domiciled in Tasmania. Prior to his death he conducted at Hobart a sweep under the style or name of "The Tattersalls Sweep Consultation care of George Adams" ("the Sweeps business").

5 In his will the deceased authorised and empowered the Trustees "to carry on and continue or to use their best endeavours to carry on and continue in Tasmania or in any other place whatsoever [the Sweeps business]... as heretofore carried on by me with the fullest most complete and most absolute powers in all respects as if they were the sole owners thereof."

6 Since the death of the deceased, the Trustees have continuously conducted the Sweeps business and, for many years now, the deceased's estate has been administered in Victoria. The Sweeps business has expanded and now includes sweeps, lotteries (including Tattslotto), Club Keno and electronic gaming machines. It is a very substantial business conducted throughout Australia and in a number of other countries. The Sweeps business has been incorporated and the Trustees hold all the issued shares in the relevant corporations.

7 The Restructure Proposal involves the following, inter alia:

(a) the incorporation of a public company, Tattersalls Ltd (which has occurred);

(b) legislation (see the Gambling Regulation (Amendment) Act (Vic) 2004) to enable the transfer of relevant licenses from the Trustees to Tattersalls Ltd;

(e) a transfer of substantially all of the assets of the estate, including the shares in existing companies operating the business, to Tattersalls Ltd and, in consideration thereof, the issue of shares in Tattersalls Ltd to the Trustees;

(f) the distribution of the shares in Tattersalls Ltd by the Trustees to the beneficiaries who are entitled thereto in the proportions to which they are so entitled;

(g) the public flotation of Tattersalls Ltd and its listing on the ASX;

8 The firstnamed plaintiff, Mr Hornsby, deposed in an affidavit sworn 24 August 2004 that:

"The entirety of the business is proposed to be transferred to a new company called Tattersalls Limited in exchange for a large number of shares to be issued to the trustees of the Estate. It is proposed there will be a distribution of shares to beneficiaries, the provision of shares to current employees and the provision for shares to be issued to a trustee (or trustees) on behalf of current and future employees. Tattersalls Limited will then be floated and listed on the Australian Stock Exchange, with additional shares being offered to the public. Beneficiaries of the Estate will be given the opportunity to sell their shares to the public in the float via a special purpose entity established [f]or the purpose. The trustees will then wind-up the Estate. Those beneficiaries who have not sold all their shares to the public will remain as shareholders in the listed company, Tattersalls Limited."

9 In his affidavit,[5] Mr Hornsby deposed that there were a number of reasons why the Trustees considered that it was in the best interests of beneficiaries (including the employees) that the Restructure Proposal be implemented. Those reasons included greater scope for business expansion, greater marketability of investments in the business and so on.

10 In this proceeding, a number of questions came before the Court on 18 April 2005 and answers were given to them. For the purposes of these reasons, only the following two questions and answers need to be set out:

"4(a) Do the Trustees have power pursuant to the Will to effect the Restructure Proposal?

Answer: The proposed distribution in specie of shares in Tattersall's Limited is not authorised by the Will. Otherwise unnecessary to answer.

4(b) If no to question 4(a), may orders be made pursuant to sec 63 of the Trustee Act 1958, sec 63A of the Trustee Act, the inherent power of the Court or otherwise to confer such powers on the Trustees as are necessary to enable them to effect the Restructure Proposal?

Answer: Orders may be made pursuant to sec 63 of the Trustee Act 1958 to confer on the Trustees such powers, together with all powers which are ancillary and incidental thereto, to enable them to distribute the shares in Tattersall's Limited to the beneficiaries pursuant to the Restructure Proposal."

11 The answer to question 4(a), the parties agreed, was dictated by the reasons of the Court of Appeal referred to above. It is therefore unnecessary for further reasons to be stated. In relation to the Restructure Proposal, the Trustees do not have the power under the Will to distribute in specie the shares in Tattersall's Limited. Nor are they able to obtain the consent of all beneficiaries in order to satisfy the rule in Saunders v Vautier[6]. It was not sought to make any submissions in relation to s.63A of the Trustee Act and the submissions made were all directed to showing that the Court might make orders granting the Trustees the necessary power to distribute the shares in specie pursuant to s.63 of the Trustee Act.

12 Section 63(1) of the Trustee Act provides:

"Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, expenditure or other transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument (if any) or by law, the Court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose on such terms and subject to such provisions and conditions (if any) as the Court thinks fit ..."

13 In Riddle v Riddle,[7] Dixon J said[8] that the equivalent provision in New South Wales was a provision conferring very large and important powers upon the Court which depended upon the Court's opinion of what was expedient (in the interests of the beneficiaries), a criterion of the widest and most flexible kind. In that case the Court was concerned with powers of investment which, said Dixon J, were "typically and traditionally matters arising in the administration of trust funds"[9]. In the same case,[10] Williams J said that the order must relate to the management or administration of the property so that the trusts or powers referred to must be administrative trusts or powers. Although dissenting in the case, Fullagar J, referring to the section, its English prototype and its successors in Victoria and elsewhere, said that this was a new and beneficial jurisdiction which should be interpreted liberally.[11]

14 Riddle v Riddle was a case involving powers of investment. The present case involves the power to distribute trust property in satisfaction of the interests of the beneficiaries under the trusts of the Will. In substance, the Trustees are seeking the power to terminate the trust because once the shares are distributed to beneficiaries the Trustees will have nothing further to do but to wind up the estate.[12]

15 The prime question, therefore, in the present proceeding is whether a power to distribute the trust property in satisfaction of the interests of beneficiaries, where there is no power of that kind in the trust instrument, is a disposition or other transaction which arises "in the management or administration" of the trust property.

16 In Arakella Pty Ltd v Paton[13] ("Arakella"), Austin J had before him an application under s.81 of the Trustee Act 1925 (NSW). That section is very similar to s.63 of the Victorian Trustee Act, but expressly empowers the Court to confer on trustees, as part of any order, a capacity to adjust the rights of beneficiaries. In Arakella the trustee wished to implement a proposal, akin to a scheme of arrangement, by amending the trust instrument for a trading trust. The amendment would have irrevocably affected the rights of unit holders in the trust. The transaction involved a new company acquiring all the units in the trading trust from the unit holders in exchange for shares in the new company. The new company would then operate the business concerned under the regime applicable to private companies. It would seem that the trading trust remained in existence but that the sole unit holder was the new company. However the proposal necessarily involved the beneficiaries receiving shares in a company in satisfaction of their beneficial interests in the trust. Austin J concluded that the necessary powers to achieve this proposal might be granted to the trustees "in the management or administration" of the trust property, notwithstanding that the beneficial interests in the trust instrument would be affected thereby.[14] In my view, the reasoning in Arakella supports the potential application of the Victorian section to circumstances such as those arising in the present proceeding.[15]

17 Submissions were advanced by Mr Merralls QC, who appeared with Mr Pearce as counsel for the first defendant, and those submissions were supported and adopted by respective counsel for the Trustees and the other parties. Mr Merralls submitted that, in s.63 of the Trustee Act, the word "management" and the word "administration" were not synonymous and that their disjunctive use indicated that they bore different meanings. Mr Merralls referred to definitions of "administration" in the context of deceased estates which, as one would expect, included within the concept of "administration" the disposal or distribution of the estate by the executor or administrator to the persons beneficially entitled.

18 Mr Merralls went on to submit that the word "management" in s.63 of the Trustee Act referred to the management of trust property in the commercial or practical sense, whereas the word "administration" referred (or I would say encompassed) all of the legal powers and duties which might be possessed by a trustee in respect of trust property. It was submitted that there was no warrant for confining the words "management or administration" of trust property to the continued holding of such property.[16]

19 I generally agree with the above submissions. In my opinion, the proposed distribution in specie of shares in Tattersall's Limited to the beneficiaries in satisfaction of their beneficial entitlements under the Will is a transaction which, on the facts of this case, arises in the "administration" of the trust property constituted by those shares.

20 Further, if the Trustees had been expressly granted such a power of distribution or appropriation by the Will, such a power would, I think, have been correctly characterised as an administrative power possessed by the Trustees. Indirect support for that proposition may be found in Long v Comptroller of Stamps[17] in which Adam J had to consider whether a certain indenture amounted to a resettlement of property on trusts within the meaning of the Stamps Act (Vic) 1958. In the course of considering this question, he said:[18]

"A power of appropriation is of an administrative nature which permits of specific assets being transferred or appropriated to a beneficiary in or towards satisfaction of his share in a trust estate without the necessity for conversion."

21 Moreover, as in Arakella, the Restructure Proposal as a whole is concerned with the management and administration of the trust property; and part of the proposed restructure that is necessary to the whole proposal, but which involves the transfer of shares to the beneficiaries in satisfaction of their beneficial interests, cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the will.

22 I conclude that the Trustees may be granted, pursuant to s.63 of the Trustee Act, the power they seek to distribute the shares to the beneficiaries, provided that the Court is of the opinion that it is expedient do so, in the interests of the beneficiaries and in the context of the Restructure Proposal as a whole.

23 There is substantial material before the Court supporting the proposition that the Restructure Proposal, more particularly the distribution of the shares to the beneficiaries, is expedient in the interests of those beneficiaries. Moreover, the beneficiaries have been fully informed and consulted and a vote of beneficiaries demonstrated overwhelming support for what is proposed. The parties before the Court all support the proposal and no beneficiary has indicated a wish to be heard in opposition thereto. I am satisfied in principle that it is expedient, within the meaning of s.63 of the Trustee Act, to grant the Trustees the power sought. The making of any such order will await certain further developments and documentation and the proceeding has been adjourned to 28 April 2005 to consider whether any, and, if so, what, order should be made.

24 For the foregoing reasons, the questions were answered as above set out.

[1] [2004] VSC 472.
[2] [2005] VSCA 73.
[3] [2005] VSCA 84.
[4] The current version of the Restructure Proposal is contained in the draft Agreement which is Exhibit "A" (Confidential).
[5] See paras [105]-[111] of the affidavit.
[6] [1841] EngR 765; (1841) Cr & Ph 240, [1835-42] All ER Rep 58.
[7] [1952] HCA 12; (1952) 85 CLR 202.
[8] [1952] HCA 12; (1952) 85 CLR 202, 214.
[9] [1952] HCA 12; (1952) 85 CLR 202, 214.
[10] [1952] HCA 12; (1952) 85 CLR 202, 219.
[11] [1952] HCA 12; (1952) 85 CLR 202, 227.
[12] There is a claim for executors' commission which is the subject of a separate proceeding and which is also the subject of an indemnity from Tattersall's Limited, but these matters do not affect the above characterisation.
[13] [2004] NSWSC 13; (2004) 60 NSWLR 334.
[14] [2004] NSWSC 13; (2004) 60 NSWLR 334, at [91] and [117].
[15] See too Re A.S. Sykes (Deceased) [1974] 1 NSWLR 597, Bowmil Nominees Pty Ltd [2004] NSWSC 161, James N Kirby Foundation v Attorney-General NSW [2004] NSWSC 1153; (2004) 213 ALR 366 at [13].
[16] See Re Mayne (Deceased) (1928) 28 SR (NSW) 157, 161 per Harvey CJ in Eq; compare Municipal and General Securities Co Ltd v Lloyds Bank Ltd [1950] 1 Ch 213, the correctness of which was doubted in Re Allison [1958] NZLR 678, 682 - see too Riddle v Riddle [1952] HCA 12; (1952) 85 CLR 202, 222 per Williams J.
[17] [1964] VicRp 104; [1964] VR 796.
[18] [1964] VicRp 104; [1964] VR 796, 801.

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