Saul & Ors v Lin

1 By a Deed Poll dated 3 March 1997 the Defendant declared that he held certain shares which he owned in a company called Wakalla Holdings Pty Ltd upon the following trusts: "1. As to his 2 A class shares, for himself during his lifetime and on his death for his daughter Jennifer Saul

2. As to his 2 B class shares, for himself during his lifetime, he to receive the income therefrom, and on his death as to one share for his daughter Jennifer Saul and as to one share for his grandchildren Alexander Saul and Hannah Saul as tenants in common in equal shares

3. In the event that any further B class shares are issued by the company, such shares shall be held on trust for himself for his lifetime, he to receive the income therefrom and on his death as to one half of all B shares for his daughter Jennifer Saul and one half of all B shares for his grandchildren Alexander Saul and Hannah Saul to be divided equally between them" 2 The recitals to the Deed Poll stated that the Deed was made in contemplation of the Defendant's marriage and that the Defendant wished to make provision for the Plaintiffs, who are his daughter and her two children, although such provision was not to vest until after the death of the Defendant. 3 The evidence discloses that Wakalla Holdings Pty Ltd holds very substantial assets. The shares, the subject of the Deed Poll, are therefore of considerable value. 4 On 8 September 2003, Windeyer J made a declaration under s.13(1) of the Protected Estates Act 1983 (NSW) that the Defendant was incapable of managing his affairs. His Honour made an order that the estate of the Defendant be subject to management under the Act by the Protective Commissioner. 5 The Protective Commissioner denies that the Deed Poll is effective to create any trust at all. 6 The Plaintiffs, by their Summons filed on 5 April 2004, seek a declaration that the Deed Poll creates a valid trust according to its terms. Further, they seek orders that the Defendant be removed as trustee and that two named persons, Ms Helen Lui and Mr Lou Lin, be pointed trustees in the Defendant's place. The Defendant appears by his tutor, the Protective Commissioner. 7 Mr M. Ashhurst of Counsel, who appears for the Defendant, submits that the Deed Poll is ineffective to create a trust because, as a matter of law, a person cannot, by declaration of trust, constitute himself trustee of his own property if the beneficiaries of the trust include himself. The only way, he says, in which a person can become trustee of a property for himself and others is if a third party conveys property to the trustee upon trust for that trustee and the other beneficiaries. 8 With respect, these propositions are fundamentally unsound. I need do no more than quote the following passage from Scott & Fratcher The Law of Trusts , 4th Ed., s99.3: " Where one of several beneficiaries is the sole trustee.

A trust may be created in which the sole trustee is A and the beneficiaries are A and B (Federal: Smither v United States, 108 F Supp 772 (S.D. Tex. 1952); United Pac Ins Co v First Natl Bank, 206 F Supp 94 (D Or 1962). The beneficial interests of A and B may be simultaneous or successive. Thus the purpose of the trust may be to divide the income and principal in equal shares or in unequal shares between A and B ; or the purpose may be to pay the income to A for life and on his death to pay the principal to B . In either case the fact that A is originally named or subsequently becomes sole trustee is not fatal to the existence and continuance of the trust. Certainly there will not be a complete merger extinguishing the beneficial interest of B with the result that A holds the entire property free of trust. It is somewhat surprising, indeed, that counsel should seriously urge on the court a view producing so unjust a result. There can be no doubt that where A is trustee for himself and B , B has an enforceable equitable interest." 9 To the same effect is Jacobs Law of Trusts in Australia , 6th Ed., s107: "The trustee may be one of the beneficiaries but cannot be the sole beneficiary."

See also Lewin on Trusts , 17th Ed., s1-09. 10 In the present case the Deed Poll was clearly intended to create a life interest in the shares for the Defendant with the remainder to his daughter and her children. Mr Ashhurst says that, whereas such a position could validly have been brought about if the shares had been transferred to the Defendant as trustee upon these express trusts, it cannot be brought about if the Defendant, first being the absolute owner of the shares, then declares himself by Deed Poll to hold them upon these express trusts. 11 The only authority which Mr Ashhurst cites in support of that proposition is Morsman v Commissioner of Internal Revenue 113 American Law Reports 441. That case is cited by Scott & Fratcher as authority for the following proposition: "Where the owner of property declares himself trustee of it and he himself is the sole beneficiary of the trust, no trust is created since he has the entire legal and beneficial interest in the property." 12 That proposition, which is undoubtedly correct, is not the proposition propounded by Mr Ashhurst. Indeed, the case is authority directly contrary to Mr Ashhurst's proposition. At p.445, the United States Circuit Court of Appeals, 8th Circuit, said: "It is true that a trust may exist where the owner declares that he holds the property as trustee for another designated person or persons, even including himself , and it matters not in such a case that the declarant does not part with possession of the property or the instrument creating the trust or that the beneficiary has no notice of the trust and has not accepted it." (Emphasis added.)

Ample United States authority for that proposition is cited, including the Restatement of the Law of Trusts. 13 In my opinion it is clear that the Deed Poll was effective to create a valid trust according to its terms. 14 There is no issue that the Defendant is presently incapable of managing his own, or indeed anyone else's, affairs. However, he presently remains as trustee of the trust created by the Deed Poll. The Plaintiffs seek the appointment, by the Court, of new trustees under s.70(2) of the Trustee Act 1925 (NSW), which gives the Court power to appoint new trustees whenever it is expedient to do so and the appointment will be difficult or impractical without the Court's assistance. 15 In the present case the trust instrument makes no provision for the appointment of new trustees. The Defendant himself cannot exercise the power of appointment conferred by s.6(4) of the Trustee Act as he is an incapable person. The Commissioner could seek to exercise that power, either by making the appropriate application for an order under s.71(1) of the Protected Estates Act , or for an order under s.71(2). However, the Commissioner opposes the removal of the Defendant as trustee on the ground that the trust is appropriately administered by the Commissioner himself, as the Defendant's manager under the Protected Estates Act . 16 An application under s.71(1) of the Protected Estates Act for an order that the Commissioner exercise the power under s.6(4) of the Trustee Act could also be made by the Plaintiffs as persons interested in the exercise of the power. In short, if the Defendant is to be removed as trustee and new trustees appointed, an application by the Plaintiffs or by the Commissioner in that regard will have to be made, either under s.71(1) or (2) of the Protected Estates Act or under s.70(2) of the Trustee Act . In those circumstances, I think that the jurisdiction of the Court under s.70(2) of the Trustee Act is engaged. 17 It is well established that the Court has jurisdiction under s.70(2) of the Trustee Act to appoint a new trustee in place of a trustee who is incapable of acting by reason of age or infirmity: see, for example, In Re Lemann's Trusts (1883) 22 Ch D 633, at 634. 18 In the present case, however, Mr Ashhurst says that although the Defendant himself is incapable of administering the trust, the trust will be effectively and efficiently administered by the Commissioner as his manager. He points out that it is appropriate to retain the Commissioner as, in effect, de facto trustee because the Commissioner will be better able to protect the interests of the Defendant as life tenant under the trust. No reason has been shown therefore, he submits, for the Defendant's removal. 19 Miss Needham of Counsel, who appears for the Plaintiffs, relies on the fact that the trustee is still, as a matter of law, the Defendant and that the Defendant is an incapable person. She points out that the trustee must act not only, or even principally, in the interests of the life tenant but, rather, the trustee must act impartially in the interests of all beneficiaries, having regard to their respective interests in the trust property. 20 Further, and most significantly, Miss Needham says that every time the Defendant, as trustee, must exercise a power or discretion in respect of the trust property, such as where the right to vote attached to the A Class shares in Wakalla is to be exercised, it is inexpedient for an application to the court to be made under s.71(1) of the Protected Estates Act as to the exercise of the voting right, either by the Commissioner or by other beneficiaries to the trust, with the resultant costs, inconvenience and delay. 21 In my opinion, Miss Needham's submissions are correct and I accept them. I am of the view that it is expedient to remove the Defendant as trustee of the trust on the ground of his incapacity and to appoint new trustees in his place. 22 I come now to the question of who should be appointed as new trustees. The Plaintiffs put forward Miss Lui and Mr Lin. They have consented to be appointed and affidavits as to their fitness have been filed. Miss Lui is the cousin once removed of the First Plaintiff. She lived in the Defendant's household for many years and she was a business partner of his during the 1950s and 1960s. Mr Lin is the Defendant's nephew and he has remained close to the Defendant all his life. 23 There is no evidence to suggest that Miss Lui and Mr Lin would act partially towards any of the beneficiaries under the trust. However, as a general rule a court will not, in the exercise of its power under s.70(2) of the Trustee Act , appoint a near relative of a beneficiary to be a new trustee, since the Court acts on the principle that trustees should be independent persons, uninfluenced by close family ties and loyalties: see, e.g., Wilding v Boulder (1855) 21 Beav 222, 52 ER 845; Re Knowles Settled Estates (1884) 27 Ch D 707; Re Norris; Allen v. Norris (1884) 27 Ch D, 333 and Jacobs Law of Trusts in Australia , 6th Ed., paras. 1559 and 1560. There are special circumstances in which near relatives will be appointed, such as, for example, where no other person can be found to take on the trusteeship. 24 In present case the two proposed trustees can be said to have close family ties to all the beneficiaries. In accordance with the general practice of the court I would be reluctant to appoint either of them as new trustees. However, as this aspect of the matter has not yet received particular consideration, either by the Plaintiffs or by the Commissioner, I will allow the parties some little time to put on evidence, if they wish, either as to special circumstances warranting the appointment of Miss Lui and Mr Lin as new trustees, or else proposing other and independent trustees. 25 Accordingly, I will stand the matter over for a short time to permit the parties to consider their position. When the matter is returned I will make a declaration in terms of paragraph 1 of the Summons. I will make an order in terms of paragraph 2, if suitable new trustees are proposed. I will then hear argument as to costs. 26 I stand the matter over before me at 10:00am on 21 April for further submissions and for orders. - oOo -

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