There is nothing elsewhere in the document suggesting that the removal and appointment were to be dependent on cl 4 taking effect. The hypothesised invalidity of cl 4 leaves the earlier provisions of the document intact.
4. Breach of fiduciary obligation
142 The plaintiffs next submit that Nicola appointed Mr Nicholls in breach of fiduciary obligation. They submit that her action on 16 June 2010 was not for the benefit of Pamela or for the benefit of "the beneficiaries" but was for Nicola's own benefit.
143 The plaintiffs' reference to Hillcrest (Ilford) Pty Ltd v Kingsford (Ilford) Pty Ltd (No 2) [2010] NSWSC 285 may be put to one side. In that case the appointor removed a trustee and appointed a company in which he was the sole director and member in its place. The decision might have been relevant if Nicola and her Company had continued to support the latter's appointment on 16 July 2008, but now it is only the appointment of the independent Mr Nicholls that is in issue.
144 There was a good deal of confusion in the plaintiffs' submissions between two powers: the power of appointment given to Pamela by cl 8A of the Deed of Settlement and the power given by the Power of Attorney.
145 The fundamental power to which regard must be had is the power to remove and appoint a trustee given to Pamela by cl 8A of the Deed of Settlement.
146 Counsel began by citing Re Norris; Allen v Norris (1884) 27 ChD 333 which he summarises: "father invalidly appointing son as co-trustee". However, that case concerned the trusts of a will that were being administered by the Court and Pearson J went to some trouble to distinguish other cases.
147 There were two trustees of a will and on the retirement of one of them, the continuing trustee, who was also the solicitor to the trustees appointed his son, who was his partner in his business, to be the new trustee. While not sanctioning the appointment, his Lordship said (at 341):
I am very far from saying, and I must not be understood to say, that, if there was a trust which was not being administered by the Court and the person who had the power of appointing new trustees had bona fide appointed as trustees a father and his son who were solicitors in partnership, it would be a bad appointment, so as to render any deed executed by the trustee so appointed null and void. I should be very sorry to hold that such an appointment outside the Court would be invalid. If such a case came before me, and I found that the appointment had been made bona fide outside the Court I should certainly hold that the trustees were validly appointed.
148 It follows that Re Norris is of no assistance to the plaintiffs.
149 Mr Burchett next cited Jacobs' Law of Trusts in Australia (7th ed 2006) at para [1512] for the proposition that "[t]he power of appointment of a trustee is fiduciary". In that paragraph the learned authors, Justice Heydon and Mr Lemming SC, note that in Re Newen [1894] 2 Ch 297 at 308 and Re Skeats' Settlement (1889) 42 ChD 522 there are strong statements that the position of the appointor is a fiduciary one and that it would be an improper exercise of the power for the appointor to appoint himself or herself. The authors also refer to Re Burton (1994) 126 ALR 557 at 559-560. As to the latter aspect, reference must be made to the Trustee Act 1925 (NSW) s 6(2)(f) and (3) but no issue of the Appointor (Pamela) appointing herself arises in the present case.
150 I accept that the power of removal and appointment given to Pamela by cl 8A was to be exercised by her not for her own benefit but for the benefit of "the beneficiaries": Re Skeats' Settlement (1889) 42 ChD 522 at 526; Re Newen; Newen v Barnes [1894] 2 Ch 297 at 308-309; Inland Revenue Commissioners v Schroder [1983] STC 480 at 500; Fitzwood Pty Ltd v Unique Goal Pty Ltd (2002) 188 ALR 566 (reversed on other grounds at [2002] FCAFC 285) at [98]; Hillcrest (Ilford) Pty Ltd v Kingsford (Ilford) Pty Ltd (No 2) [2010] NSWSC 285 at [38], [39].
151 I also accept the general proposition that as Pamela's agent, Nicola had fiduciary obligations to Pamela in relation to the exercise of the powers given by the Power of Attorney: see Klotz v Neubauer [2001] SASC 454 at [33] - [35]; Watson v Watson [2002] NSWSC 919 at [48], [49].
152 However, Pamela cannot be in a position more beneficial to herself than she would be if she were of full mental capacity and were contemplating exercise of the power of removal and appointment. As Appointor, Pamela was obliged not to exercise the power of removal and appointment for her own benefit but to exercise it for the benefit of "the beneficiaries" (it would be necessary for her to regard them as a whole, in view of the nature of the Trust as a discretionary trust). This position is not altered by the fact that she had appointed Nicola her attorney. The foundation platform for consideration of the present question is the Deed of Settlement, the power of removal and appointment given to Pamela by cl 8A of that document, and the fiduciary obligations incumbent on Pamela attached to any exercise of that power. Prior to appointing Mr Nicholls on 16 June 2010, Nicola had to ask herself what was the benefit of "the beneficiaries", including but not limited to Pamela.
153 Although Nicola may not have been entitled, vis-à-vis Pamela, to exercise the power of appointment exclusively for her own benefit and not for Pamela's at all, I do not see what scope this constraint would have to operate in view of the nature of Pamela's overarching fiduciary obligation to exercise the power of appointment for the benefit of "the beneficiaries".
154 For these reasons I do not find it necessary to consider to finality the extent to which Nicola was at liberty under the Power of Attorney to act in her own interests, or the difference of view on this question as between Austin J and Hammerschlag J as to the proper construction of s 163B of the Conveyancing Act 1919 (NSW) and the form of power of attorney contained in Schedule 7 to that Act (which was the form of the power of attorney executed by Pamela in favour of Nicola): see Spina v Conran Associates Pty Ltd; Spina v M & V Endurance Pty Ltd [2008] NSWSC 326 (Austin J) and Spina v Permanent Custodian Limited [2008] NSWSC 561 (Hammerschlag J). In oral submissions counsel for the plaintiffs also referred to Sweeney v Howard [2007] NSWSC 852 (Windeyer J), Wong v Wong [2008] NSWSC 300 (White J) and Siahos v J P Morgan Trust Australia Ltd [2009] NSWCA 20.
155 Another source of confusion in the plaintiff's submissions relates to timing. The submissions referred to various aspects of Nicola's earlier conduct which are irrelevant to the question whether, on 16 June 2010, she breached her fiduciary obligation by removing whatever trustee was in office (Moon Moon or her Company) and appointing Mr Nicholls in its place.
156 In support of their submission that the appointment of Mr Nicholls was tainted by a breach of fiduciary obligation, the plaintiffs make the following submissions (references to transcript and Court Book omitted):
31. The inference as to the 2 nd Defendant's improper purpose is available from:
a) her making the previous invalid appointment:
i) upon objection to her accessing the Trust's Perpetual investment account without obtaining the co-signature of another director of Moon Moon P/L, as previously agreed.
iii) intending "always", as admitted by her in cross-examination …, to pay herself a wage in an amount designed to 'spite' her sisters … and reimburse herself purported loans by use of the power of appointment … .
iii) admittedly (in various affidavits) to supposedly protect her operation of the farm, which has never turned a profit and was only ever for her benefit, and the property, Rock Abbey, in which she resides rent free, from the possibility of sale without her approval.
b) her actions on the basis of that invalid appointment
i) promptly and repeatedly attempting to secure to herself the access to the investment with Perpetual, dishonestly representing to it, that she had authority on the behalf of Moon Moon P/L, to transfer it to her own company, when she knew she had neither the approval nor the authority of Moon Moon P/L … .
ii) selling the farm's stock without notice to the plaintiffs, despite their agreement to pay for its feed upon presentation of accounts and then failing to disclose that fact, while she helped herself to the proceeds, contrary to the interests of the trust.
iii) paying herself supposed retrospective wages and reimbursement of 'loans', when she is shown to owe the trust a substantial amount in its accounts, and
iv) withholding financial statements and information from beneficiaries.
c) her Cross-Summons for the appointment of Mr Nicholls specifically for the purpose of winding up the trust, selling and distributing its assets, substantially to herself, contrary to its terms and despite her past claims of seeking to uphold the wishes of the late Mr Sheaffe and give priority to the interests of her mother, both of which would require the maintenance of the trust and particularly, the property, Rock Abbey. She was incapable in cross-examination of explaining how this course was of benefit to her mother, as asserted, although in truth if her mother has been excluded from any benefit by the contribution of her loan account to the trust fund, as it appears, then the stated purpose of benefiting a person so excluded would also be improper.
d) the affidavits of Mr Nicholls filed in support of her Cross-Summons, in which:
i) he expresses an expectation only of doing "the work of administration in winding up the trust" … , as proposed by the 2 nd defendant.
ii) he plans to charge far in excess of the rates authorised by the trust deed … .
iii) his claims in his recent affidavits of not having any arrangement as to how to administer the trust or having no dealings with any members of the Sheaffe family plainly do not include his arrangement and dealing with the defendants' solicitor, whereby he gave his first affidavit.
e) the timing of her appointment of Mr Nicholls only upon her appointment of her own company being fully accepted by her to be invalid.
157 I agree that Nicola's past conduct is open to strong criticism. I also accept that but for her late acceptance that her appointment of her Company was invalid, she would never have appointed Mr Nicholls. It is important, however, to appreciate that the issue presently being considered is simply whether her appointment of Mr Nicholls was itself in breach of fiduciary obligation.
158 The appointment of the independent and experienced Mr Nicholls was a perfectly reasonable course for Pamela (acting through Nicola) to take. It is a course that I would have taken if Nicola on behalf of Pamela had not had power to take it and the power had been available to me.
159 I will address below the plaintiffs' particular claim that Mr Nicholls is not a suitable person to be appointed. It is sufficient to note here that Mr Nicholls is a Chartered Accountant and registered liquidator and has previously been appointed by this Court to act as trustee on the sale of assets held by trusts. He consents to being appointed by the Court as trustee of the Trust. I accept that Mr Nicholls's qualifications and experience make him an appropriate person to be trustee of the Trust. I accept at [184] ff below that he is independent of all the parties.
160 In the light of this it is difficult to understand on what basis it can be said that the appointment of Mr Nicholls was a breach of fiduciary obligation.
161 The plaintiffs' submission in sections (a), (b) and (c) above all relate to Nicola's past conduct and need not be addressed in detail. They do not impinge on her act of appointing Mr Nicholls on 16 June 2010. Only the following observations seem to be called for.
162 The flavour of the passage in the transcript to which reference is first made in the above submission is as follows:
Q: You don't think there's a problem with paying yourself money out of a trust for other people without their approval?
A: It was a running account for the trust. I had to pay workmen out of that account, that was the normal trading account. I had always intended to be able to pay myself a small wage that's $200 a week. My sisters previously had agreed to $25 a week and they decided that was too much. So I had to negotiate a 3 months trial.
Q: Sorry, you think they decided $25 was too much. When do you say that happened?
A: It's in one of my brother-in-law's affidavits. In fact, what happened is they went to bed, woke up the next morning and said, "No, it's too much, they don't want to pay you anything." I said to Percy, "How about a 3 months trial?" And then I thought how silly.
Q: So they agreed to $25 a week at that time?
A: A 3 months trial on that.
Q: That was on the basis that you were told by your sisters that the cattle operation would have to be able to show a profit to pay you a wage. Is that right?
A: There would have to have been bends in the working account to be able to pay. By this stage I was owed $7,000. There was a drought. To about August we'd had roughly 13, 14 inches of rain which is really bad for us because our normal rainfall is about 26 inches, so a shocking drought and unfortunately we had a kangaroo plague and I got the roo shooters on. They shot 60 roos over 2 nights. A kangaroo eats about as much as three quarters of a cow. That doubled our stocking quantities. In a dry time they go where ever. They jump fences. I had the roos shot, but we'd run out of feed basically, so then I had to buy feed and so I did this. My sisters were there and they helped me fee out bales and I got them to help. And also pellets. So they knew all this.
Tina said to me, "We don't want you to be personally out-of-pocket", and I said, "How do you think I'm paying for it?" She said, "Let me know and I'll get the money for you out of Perpetual." This is for a roughly $800 bag of pellets. So I said, "How can you access Perpetual?" and she said, "I know the person to talk to. If we all sign, they'll give us the money" because I said to her the money is frozen. She said she would pay me back which was good because I had completely run out of money. Just before Christmas they were begging me to sell the cattle, and so by December I really had to sell the cattle, there'd been no rain and we'd run out of feed and I ran out of money. I rang Tina and said, "Please, the cattle haven't sold. So please send me some money", and she said, "We haven't got those things, you haven't sent us proof. Until you do that, we won't do it." Warren and I had sent all those documents about seven times, probably three. They are amongst the subpoenaed documents, they've had those all along. [my emphasis]
163 It is a misreading of the evidence contained in the second passage of transcript referred to to say that Nicola agreed that she had paid herself a wage in an amount designed to "spite" her sisters. It is plain that Nicola was tongue in cheek in her first answer in the following passage:
Q: So you decided to pay yourself $200 a week just to spite them, is that right?
A: Yep, it's a high wage. If I get a workman on the place it's $200 a day.
Q: But you didn't tell them you were proposing to repay yourself the loans, did you?
A: No. [my emphasis]
164 There is no question but that in the light of the invalid appointment of her Company, Nicola was not entitled to cause it to pay away the moneys that it paid. It is therefore not necessary to consider whether, if the appointment of her Company had been valid, the payments would still have been unlawful for other reasons, notably, as being a breach of fiduciary obligation.
165 However, the dynamic that was operating between the three sisters should be understood. I accept, and her sisters do not dispute, that Nicola had worked hard over the years on the farm and in caring for her parents there, while holding down her part-time job at Horseland Saddlery in Tamworth, for no payment from the Trust. (It is unhelpful to make the gratuitous assertions that the operation of the farm was only ever for Nicola's benefit or that Nicola's purpose in appointing Mr Nicholls was to ensure a sale by him of the Trust's assets substantially to herself.) What seems to have occurred is that Nicola ultimately bridled at the need to provide to her sisters documentary support for her claims for funds to pay farm-related outgoings and to get the approval of her sisters in Sydney to a release of funds for the making of payments. As well, she may have come to regret the years that she had spent on Rock Abbey for virtually no financial reward. On the other hand, she was unwilling to recognise, as she was bound to do, that no matter how she may have felt, Rock Abbey and the business were Trust property: they were not Nicola's to do with as she pleased. All three sisters were "beneficiaries" and all three were directors of Moon Moon.
166 Nicola acknowledged that two signatures were required before Moon Moon could access the Perpetual account and that her sisters did not approve of her accessing that account unilaterally, purporting to do so as a director and secretary of Moon Moon.
167 I am not satisfied that in her act of appointing the independent chartered accountant, Mr Nicholls, Nicola breached the fiduciary obligation owed by Pamela to "the beneficiaries". In my opinion the appointment of an independent person is, in one way or another, inevitable, in view of the inability of the three sisters to co-operate.
5 Order by way of review under s 36(4) of the Powers of Attorney Act 2003 (NSW)
168 One of the alternative forms of relief sought by the plaintiffs in their Third Further Amended Summons is an order by way of a review of the making or the operation and effect of the Power of Attorney under s 38 of the Powers of Attorney Act 2003 (NSW). However, s 38 refers to an application by an attorney for advice or directions by a review tribunal (the expression "review tribunal" is defined in s 26 of the Act to mean for the purposes of Pt 5 of the Act, the Guardianship Tribunal or this Court). Section 38 seems totally inappropriate to the case.
169 In his written submissions, however, counsel for the plaintiffs seeks an order under s 36(4) of the Act, which provides:
A review tribunal may, if satisfied that it would be in the best interests of the principal to do so or that it would better reflect the wishes of the principal, make any one or more of the following orders relating to the operation and effect of a power of attorney: