SALKELD & ORS v SALKELD & ANOR

Supreme Court of SA|2000-08-31|Before: Perry J

Judgment No. [2000] SASC 296

1 PERRY J. This is an application for orders which, if granted, will have the effect of varying the terms of three trusts so as to enable them to be wound up and the capital distributed in accordance with a proposed deed of family arrangement.

2 The three trusts were established by Fred William Hughes, a Sydney wool merchant, for the benefit of his family. Deeds of settlement establishing the trusts were executed by Mr Hughes in March and April 1937. The trusts are known as the F.W. Hughes Settlement No 1, the F.W. Hughes Settlement No 2 and the F.W. Hughes Settlement No 3. The settlements now comprise in all assets in excess of $37 million, the bulk of which are in New South Wales.

3 Two of the plaintiffs are granddaughters of Mr Hughes, being children of his daughter Laura. They are the plaintiff Gwenneth Laura Salkeld ("Gwenneth") (now aged 87) and Brenda Alice Linnell ("Brenda") (now aged 84). The plaintiff Roger Salkeld and the defendant David John Salkeld are sons of Gwenneth. The remaining plaintiff, Janet Peta Linnell, is the daughter of Brenda and the cousin of Roger and David Salkeld.

4 Gwenneth and Brenda enjoy a life interest in the income of the three trusts. Various provisions will come into operation upon their death which will have the net effect of postponing final distribution of the trusts until 21 years after the last death of each of them.

5 The defendants David Salkeld and Perpetual Trustee Company Limited ("Perpetual") are currently joint trustees of the three trusts. The deeds of settlement named other trustees, but the defendants have over a period of time assumed that office when their predecessors as such were replaced either on death or for other reasons.

6 There is now a relatively small number of living persons who could claim an interest in the various settlements, contingent upon the deaths of Gwenneth and Brenda.

7 A question of construction arises under each of the deeds of settlement, more particularly as to the meaning of the word "issue" which appears in various clauses in the deeds.

8 Roger and David Salkeld and Janet Linnell assert that they are the only persons who fall within the meaning of the word "issue" where that word is used. If that assertion is correct, they will be the only persons entitled to share in the income and capital of the settlements after the deaths of their mothers, assuming that they survive their mothers. Even in that eventuality, however, a final distribution, that is, final vesting of accumulated income and capital of the trusts, will not occur until 21 years after the death of the last survivor of Gwenneth and Brenda.

9 On the other hand, if the word "issue" refers to successive generations rather than to children, the class of beneficiaries would be much wider and could extend to remoter issue as yet unborn.

10 All of the living potential beneficiaries, assuming the wider construction of the word "issue", are sui juris (one who was 17 at the time the proceedings were instituted is now 18). They have agreed to release their rights under the settlements in favour of Roger and David Salkeld and Janet Linnell. They have all entered into, or are willing to enter into, a deed of family arrangement to give expression to a settlement on that basis. If implemented, the deed would result in a final distribution of the trust. Amongst other provisions, Gwenneth's and Brenda's life interests would be capitalised at discounted present-day value which would then be paid to them.

11 Different opinions have been given by learned counsel over some years as to the meaning of the word "issue" where it appears in the deeds of settlement. The possibility cannot be excluded that the Court may find that the word "issue" covers remoter issue. If the word was to be construed in that way, membership of the class of ultimate beneficiaries could not be determined until 21 years of the last death of Gwenneth and Brenda. Actuarial opinion is that this could defer final distribution of the trusts for a further 33 years from now.

12 Quite properly, Perpetual, consistent with what it perceives to be its duties as trustee, is not prepared to agree to the implementation of the proposed deed of family arrangement while unresolved doubts remain as to the identity of the class of beneficiaries entitled to share in the final distribution of the trust. It takes the view that the proper course is for the Court to construe the word "issue" so that the doubts as to its meaning will be resolved.

13 The plaintiffs and David Salkeld do not wish to have the Court determine the meaning of the word "issue". Instead they have proposed a compromise which, if implemented, would break the deadlock which has arisen. Essentially they suggest that the deed of family arrangement be varied so that an amount is set aside from each settlement fund, to be devoted exclusively for the members of the class of unborn beneficiaries. With the assistance of actuarial opinion, the amount necessary to be set aside for that purpose has been estimated.

14 Actuarial opinions have been obtained by Perpetual and separately on behalf of the unborn children and there is no issue as to the correctness of the actuarial calculations which have been put forward by the plaintiffs and David Salkeld.

15 So that the issue becomes one of determining whether the plaintiffs and David Salkeld should be allowed to proceed in the way which they suggest, bearing in mind that all living potential beneficiaries are in agreement with that course.

16 Perpetual's position is that it stands by its contention that the word "issue" should be construed by the Court, and that at the very least the "compromise" should be approved by the Court before its implementation.

17 By order made on 25 November 1999, a Master directed that Piper Alderman solicitors be appointed as solicitors and Mr D.M. Quick QC as counsel to represent any unborn beneficiaries. On 29 June 2000 I ordered the substitution of Mr Besanko QC for Mr Quick QC. That order was made on the basis of difficulties associated with Mr Quick QC's availability and in no way reflected upon Mr Quick QC's ability to discharge that role.

18 Before the proceedings had proceeded far, Perpetual took out an application pursuant to the Jurisdiction of Courts (Cross-Vesting) Act 1987 seeking an order that the proceedings be transferred to the Supreme Court of New South Wales. That application was opposed by all other parties, including Perpetual's co-trustee, David Salkeld. By order made on 3 April 2000, I dismissed the application.[1]

19 The plaintiffs' substantive application came on for hearing before me on 1 August 2000.

20 In the initiating summons, the plaintiffs advance their application on alternative bases.

21 In the first place, they seek an order pursuant to s 62(2) of the Law of Property Act 1936 varying the terms of the three settlement trusts by advancing the vesting of the trusts from 21 years after the death of the last survivor of Gwenneth and Brenda on terms which would permit final distribution of the capital either now or on various dates earlier than as provided in the settlement trusts.

22 Alternatively, in the summons they seek an order approving the compromise of the proceedings in the terms agreed upon, or an order varying the settlement trusts pursuant to s 59C of the Trustee Act 1936, in effect to give expression to the terms of the compromise.

23 Although the plaintiffs in their summons sought an order that in the event that the relief which I have described was not granted, a declaration be made that on a true construction of the deeds of settlement the word "issue" where it appeared should be construed as meaning "children", that part of the application was very much a last resort and ultimately was not pressed.

24 In their final submissions, the plaintiffs contended first for an order approving the compromise, or alternatively that an order be made varying the terms of the trust deeds pursuant to s 59C of the Trustee Act 1936.

"59C (1) The Supreme Court may, on the application of a trustee, or of any person who has a vested, future, or contingent interest in property held on trust-

(i) distribute the trust property in such manner as the Court considers just; or

(ii) resettle the trust property upon such trusts as the Court thinks fit; or

26 Although the parties agree that the proper law of the trusts is the law of New South Wales in the sense that New South Wales law must be taken to govern the construction of the deeds of trust and substantive questions to do with their administration, it does not follow that s 59C of the Trustee Act 1936 may not be invoked, in proceedings in this Court. It is accepted that there is no statutory analogue of s 59C applicable in New South Wales. But it was decided in Re Ker's Settlement Trusts[2] that the power conferred by s 1 of the Variation of Trusts Act 1958 (UK) permitted the Chancery Division of the High Court of England to vary a settlement the proper law of which was Northern Ireland. As I pointed out in the Reasons for Decision delivered by me with respect to the cross-vesting application, that decision has been followed in this country in the context of cases concerning local statutory provisions similar to the Variation of Trusts Act 1958 (UK) applicable in a jurisdiction other than that of the proper law of the trust.[3] In the circumstances I see no reason why I should refrain from exercising the jurisdiction conferred by s 59C in this case if it otherwise seemed appropriate to do so.

27 However, for reasons which I will come to, I think that the preferable course is to exercise the inherent jurisdiction of the Court to approve a compromise involving persons under a legal disability.

28 Counsel for Perpetual put forward most helpful submissions on the question whether the power to approve a compromise in such circumstances extends to situations where the interests to be protected are those of persons as yet unborn. As with Perpetual's other submissions, they were not advanced in the context of any adversarial contest between the parties, but rather on the footing that Perpetual owed a duty to answer to the obligation imposed on any trustee to uphold the trusts and to endeavour to see that the wishes of the settlor are given effect to.

29 After careful consideration of the cases to which I have been referred, I accept the plaintiffs' submissions that the inherent power of the Court to approve a compromise extends to approval of a compromise affecting interests of unborn persons. I do not propose to canvass the authorities at any length, but I rely particularly upon the observations in that regard of Lord Simons and Lord Morton in Chapman v Chapman.[4]

30 It must be accepted that the power to sanction a compromise depends on the existence of genuinely competing claims.[5] There does not have to be a hostile controversy.[6]

31 However, I do not accept the contention of Perpetual that because the unborn children are not legal entities, and there could never be a contract with them at this time, there could not be a "compromise". In my opinion, it is sufficient if there is real doubt or uncertainty as to the entitlement of the unborn persons, and if there has been a genuine arrangement struck between existing interested parties which will have the effect of removing the doubt or uncertainty and which will make what the Court considers to be appropriate provision for the class of potential unborn beneficiaries.

32 Furthermore, in such circumstances, as has already occurred in this case, the Court may appoint a representative of the unborn persons, which it clearly has power to do under SCR r 29.01 which relevantly provides:

the Court may appoint one or more persons to represent any person (including an unborn person) (whether presently or for any future, contingent or unascertained interest) who may have a relevant interest or who may be affected by the proceedings where:

(i) the person, class or some member of the class cannot be ascertained or cannot readily be ascertained;

33 It remains then to consider whether the terms of the proposed compromise are such that the Court should approve it.

34 Consistent with the usual practice of this Court when it comes to consider whether or not to approve a compromise in such circumstances, an opinion has been furnished by Counsel as to the desirability of the proposed compromise. The opinion has been given by Mr Besanko QC, who, as I have explained, is also counsel appointed to represent the unborn beneficiaries. I expressly intimated in open court that I saw no reason why Mr Besanko QC should not give an opinion in the matter to assist the Court, notwithstanding the fact that he was appointed to represent the unborn beneficiaries.

35 One reason for indicating that that course would be proper flows from the recognition of the fact that these proceedings are not, in the ordinary sense, adversarial. Furthermore, they have not proceeded to a trial. In those circumstances, I had no hesitation in accepting that Mr Besanko QC's opinion is proffered from an independent standpoint.

36 No objection has been taken to me following that course.

37 As is normal in such circumstances, his opinion has been given in confidence in the sense that it has not been released to the defendants. I will, however, refer to salient features of it.

38 Mr Besanko QC states that the plaintiffs have retained an actuary who has calculated the amount (on various assumptions) which represents the present value ("the relevant amount") of the notional entitlement of the unborn beneficiaries on the assumption that the word "issue" where it appears in the deeds of settlement is not restricted to children. Those calculations have been considered by an actuary engaged on behalf of the unborn beneficiaries who has advised that the methodology and calculations adopted by the actuary engaged by the plaintiffs are reasonable and appropriate.

39 As Mr Besanko QC points out, the plaintiffs propose the retention in the various trusts of sums of money and assets, called in proposed amendments to the deeds of settlement the "individual contingency component". It is proposed to retain 50 per cent of the relevant amount in the case of F.W. Hughes Settlement (No 1) and 40 per cent of the relevant amounts in the case of F.W. Hughes Settlement (No 2) and F.W. Hughes Settlement (No 3) respectively.

40 Mr Besanko QC indicates that he has considered the question of construction referred to in the summons and expresses the view that-

"... it is far from certain how the question of construction would be resolved should it proceed to judicial determination. There are substantial arguments either way."

41 Mr Besanko QC had access to and took into account various opinions given by eminent learned counsel over the years on the same question. Details of the opinions are as follows:

42 Those opinions have been exhibited to affidavits which were tendered at an earlier stage of the proceedings. I have read and considered them. I have separately applied my mind to the strength of the varying contentions as to the meaning of the word "issue" in the context in question.

43 If the compromise proceeds, an amount represented by various share holdings will be retained in the trusts as the individual contingency component amounting to some $4.98 million in settlement No 1, $1.228 million in settlement No 2 and $0.581 million in settlement No 3.

44 In its written submissions Perpetual contends that the actuarial estimate of the full benefit the unborn beneficiaries would have derived if the settlement were to be construed in their favour, and if each trust operated until the date originally intended for its distribution, has a present value of approximately $11 million to $12 million. It submits:

"No satisfactory explanation or justification has been advanced to support the extent to which this actuarial estimate has been so significantly reduced in the process of compromise ..."

45 It should be noted that the variations to the deeds of settlement which will eventuate in the event that the compromise is approved, are likely to give rise to a liability both for capital gains tax and for stamp duty. The plaintiffs have offered to bear those additional liabilities as a term of the proposed compromise. Any capital gains tax payable now as a result of the proposed amendments will be dealt with in the same way.

46 As to the possibility that capital gains tax might be payable in the future, the plaintiffs have agreed to the making of a provision amounting to some 13.6 per cent of the individual contingency component. As well, the plaintiffs are offering to meet the legal costs incurred on behalf of the unborn beneficiaries.

47 Perpetual expresses concern that the proposed compromise may not be for the benefit of the unborn beneficiaries and points out that the authorities require that the unborn beneficiaries must not be made materially worse off by the settlement.

48 But in my opinion, a narrow view of the word "benefit" should not be taken. Looking at the matter overall, there is a distinct advantage if the compromise is proceeded with, in that certainty is achieved with respect to the entitlement of the unborn beneficiaries and family disputes in the future would be avoided. In any event, where there is a compromise of legal rights which turn on an uncertain construction of a written instrument, it becomes a matter of judgment for counsel advising in the matter, and ultimately for the Court, to determine whether or not the amount to be paid pursuant to the compromise represents a fair estimation of the risk of an adverse outcome from the point of view of the parties to be benefited.

49 Mr Besanko QC expresses his opinion in this way:

"In my opinion, if the Court concludes that it is appropriate that the general proposal put forward by the plaintiffs should go forward ...... then although it is not possible to be precise, the amounts proposed to be set aside .... represent a fair and reasonable compromise for the unborn beneficiaries, having regard to the risks on the question of construction."

50 With respect to Mr Besanko QC, I share that view.

51 In my opinion, the proposed compromise should be approved.

52 Terms of an order giving expression to the Court approval have been submitted. After delivery of these Reasons, I will give to counsel an opportunity to speak to the minutes.

1. See judgment No [2000] SASC 85.

3. See Faye and Ors v Faye and Ors [1973] WAR 66 and the discussion by King CJ In re Webb (1992) 57 SASR 193 at 196. See also In re Paget's Settlement (1965) 1 WLR 1046.

4. [1954] UKHL 1; [1954] AC 429 per Lord Simonds at 443 and 445, per Lord Morton at 457 and 465. See also Re Lord Hylton's Settlement: Barclays Bank Ltd v Jolliffe [1954] 2 All ER 647 at 649, Brooke v Lord Mostyn [1864] EngR 780; (1864) 2 De G J & S 373; 46 ER 419; per Turner LJ 2 De G J & S at 415, 46 ER at 435-436 and In re Frame (1984) 116 LSJS 222.

5. Chapman v Chapman [1954] UKHL 1; [1954] AC 429 per Lord Simons at 446, per Lord Morton at 461, per Lord Asquith at 469, 470, and Re Hoobin [1957] VicRp 49; [1957] VR 341.

6. See Mason v Farbrother [1983] 2 All ER 1078 at 1085.

See judgment No [2000] SASC 85.

[3] See Faye and Ors v Faye and Ors [1973] WAR 66 and the discussion by King CJ In re Webb (1992) 57 SASR 193 at 196. See also In re Paget's Settlement (1965) 1 WLR 1046.

[4] [1954] UKHL 1; [1954] AC 429 per Lord Simonds at 443 and 445, per Lord Morton at 457 and 465. See also Re Lord Hylton's Settlement: Barclays Bank Ltd v Jolliffe [1954] 2 All ER 647 at 649, Brooke v Lord Mostyn [1864] EngR 780; (1864) 2 De G J & S 373; 46 ER 419; per Turner LJ 2 De G J & S at 415, 46 ER at 435-436 and In re Frame (1984) 116 LSJS 222.

[5] Chapman v Chapman [1954] UKHL 1; [1954] AC 429 per Lord Simons at 446, per Lord Morton at 461, per Lord Asquith at 469, 470, and Re Hoobin [1957] VicRp 49; [1957] VR 341.

[6] See Mason v Farbrother [1983] 2 All ER 1078 at 1085.

Law of Property Act 1936s 62(2)

Variation of Trusts Act 1958

Law of Property Act 1936s 62(2)

Variation of Trusts Act 1958

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