243 CLR 253
Chapmans Ltd v Australian Stock Exchange Ltd [1996] FCA 474
67 FCR 402
Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101
Commissioner of Taxation v Bamford [2010] HCA 10
240 CLR 481
El Sayed v El Hawach [2015] NSWCA 26
317 ALR 771
Federal Commissioner of Taxation v Cornell [1946] HCA 32
Source
Original judgment source is linked above.
Catchwords
243 CLR 253
Chapmans Ltd v Australian Stock Exchange Ltd [1996] FCA 47467 FCR 402
Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101
Commissioner of Taxation v Bamford [2010] HCA 10240 CLR 481
El Sayed v El Hawach [2015] NSWCA 26317 ALR 771
Federal Commissioner of Taxation v Cornell [1946] HCA 32118 CLR 628
Halford v Price [1960] HCA 38218 CLR 216
Leerac Pty Ltd v Garrick E Fay [2008] NSWSC 1082
Leon Fink Holdings Pty Ltd v Australian Film Commission [1979] HCA 26181 CLR 404
Perpetual Custodians Ltd (as custodian for Tamoran Pty Ltd (as trustee for Michael Crivelli)) v IOOF Investment Management LtdMurray v Perennial Investment Partners Ltd [2013] NSWCA 231304 ALR 406
Rankine v Rankine [1998] QSC 48
Re Manisty's Settlement [1974] Ch 17
Re SimersallBackwell v Bray (1992) 35 FCR 584
Russell v Scott [1936] HCA 3455 CLR 440
SAS Trustee Corporation v Cox [2011] NSWCA 408285 ALR 623
Sayden Pty Ltd v Chief Commissioner of State Revenue (NSW) [2013] NSWCA 11183 NSWLR 700
Sigiriya Capital Pty Ltd v Scanlon [2013] NSWCA 401140 CLR 503
Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15
212 CLR 484
YZ Finance Co Pty Ltd v Cummings [1964] HCA 12
109 CLR 395
Zhu v Treasurer of the State of New South Wales [2004] HCA 56
Judgment (32 paragraphs)
[1]
; 97 ACSR 183
Streller v Albury City Council [2013] NSWCA 348
Sydney Futures Exchange Ltd v Australian Stock Exchange Ltd (1995) 56 FCR 236
Vegners v Federal Commissioner of Taxation [1991] ATC 4,213
Wacal Developments Pty Ltd v Realty Developments Pty Ltd [1978] HCA 30; 140 CLR 503
Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; 212 CLR 484
YZ Finance Co Pty Ltd v Cummings [1964] HCA 12; 109 CLR 395
Zhu v Treasurer of the State of New South Wales [2004] HCA 56; 218 CLR 530
Texts Cited: D Hayton, P Matthews and C Mitchell, Underhill and Hayton Law of Trusts and Trustees, (18th ed 2010, LexisNexis)
D Ong, Trust Law in Australia, (4th ed 2012, Federation Press)
H A J Ford and W A Lee, Thompson, Principles of the Law of Trusts, vol 1 (at Release 97)
J C Campbell "Should the 'Rule in Hastings-Bass' Be Followed in Australia? - Trustees' Duties to Enquire and Trustees' Mistakes" (2011) 34 Australian Bar Review 259
J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia, (7th ed 2006, LexisNexis Butterworths)
K Lewison and D Hughes, The Interpretation of Contracts in Australia, (2012, Lawbook Co)
L Tucker et al, Lewin on Trusts, (19th ed 2015, Sweet & Maxwell)
Category: Principal judgment
Parties: Dana Segelov (Appellant)
Ernst & Young Services Pty Ltd (Respondent)
Representation: Counsel:
M K Meek SC with D Barlin (Appellant)
I M Jackman SC with D F C Thomas (Respondent)
[2]
Solicitors:
Turner Freeman (Appellant)
King & Wood Mallesons (Respondent)
File Number(s): 2014/113067
Decision under appeal Court or tribunal: Supreme Court of New South Wales
Jurisdiction: Equity
Citation: [2014] NSWSC 283
Date of Decision: 21 March 2014
Before: Nicholas AJ
File Number(s): 2012/346052
[3]
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[4]
HEADNOTE
[This headnote is not to be read as part of the judgment]
The respondent, Ernst & Young Services Pty Ltd (EYS), is the trustee of the Ernst & Young Services Trust (the Trust), a service trust associated with the well-known firm of accountants, Ernst & Young (E&Y). The Trust provided services to E&Y in return for payment. The Trust was a discretionary trust, with broad powers conferred on EYS as trustee. The potential objects of a favourable exercise of discretion by the trustee, whom the trust deed described as "beneficiaries", included spouses of, and persons nominated by, partners of E&Y. Towards the end of June each year during the relevant period, the directors of EYS resolved to make distributions of income to certain discretionary objects. Prior to 30 June each year EYS made interim distributions to certain discretionary objects.
The appellant, Ms Segelov, was nominated as a "beneficiary" of the Trust shortly before her husband, Mr Joseph, became a partner of E&Y in July 2006. In the financial year that followed, distributions totalling around $51,000 were paid into a St George bank account in the joint names of Ms Segelov and Mr Joseph. In July 2007, Mr Joseph directed EYS to pay further distributions into a different account held with Westpac in the joint names of Ms Segelov and Mr Joseph. Thereafter around $410,000 was paid into the Westpac account until March 2012.
Ms Segelov was at all times unaware of her entitlement under the Trust and of the periodic payments into either account. She became aware of her entitlement and the payments only after she and Mr Joseph separated in November 2011.
Clause 2.1(a) of the trust deed empowered EYS as trustee to apply prior to 30 June each financial year so much of the income arising from the trust fund as it thought fit, including by making payment into a bank account jointly held by a beneficiary and that payment in such manner would operate as a full and final discharge of the trustee's obligations, with or without the execution of a receipt by the beneficiary. The trust deed was amended on 30 April 1998 by inserting a new clause 6.26 which, without limiting the power to make distributions under clause 2.1, expressly empowered the trustee to make interim distributions of income.
The expressions 'Income' and 'Income of the Trust Fund' at the relevant times were defined as the accounting income as set out in the annual accounts of the trust fund. The trust deed also contained a clause exempting the trustee from liability for loss, neglect or breach of trust unless the liability arose from the trustee's own wilful neglect or dishonesty.
Ms Segelov brought proceedings in the Equity Division seeking equitable compensation in the amount of $468,995.39 alleging, amongst other things, breach of trust by EYS on the grounds that the trust deed did not authorise interim distributions of 'income' and that EYS had failed to perform its duty to inform beneficiaries of the Trust of their entitlement once determined by EYS. Nicholas AJ rejected her claim.
Ms Segelov appealed the primary judge's decision. The main issues on appeal were whether:
[5]
Judgment
MEAGHER JA: I agree with Gleeson JA.
GLEESON JA: The Ernst & Young Services Trust (Trust), as its name implies, is a service trust. It provides staff and certain assets to Ernst & Young (E&Y), a well-known accounting firm, in return for payment from E&Y. The respondent (EYS) is the trustee of the Trust which is in the familiar form of a "discretionary trust", with broad powers conferred on the trustee. [1] As is common, the trust deed described the potential objects of a favourable exercise of discretion by the trustee as "beneficiaries". The beneficiaries include spouses, widows, children and other descendants of the partners of Ernst & Whinney (which includes E&Y as a successor in business), as well as persons nominated by partners of E&Y with the consent of EYS. At the relevant time, E&Y had over 400 partners.
The appellant (Ms Segelov) was nominated as a beneficiary of the Trust by her husband Mr Joseph, shortly prior to him becoming a partner of E&Y on 1 July 2006. Thereafter EYS, in the exercise of its discretion as trustee, made distributions of over $460,000 over a six year period, which were paid into accounts in the joint names of Ms Segelov and her husband. In November 2011, Ms Segelov and Mr Joseph separated.
Ms Segelov's complaint can be shortly stated. At all relevant times she was ignorant that she was a beneficiary of the Trust and ignorant of the distributions from the Trust to her which had been paid into bank accounts in the joint names of herself and her husband. She claimed that she derived no use or benefit from such payments.
The primary way in which Ms Segelov framed her claim against EYS, as trustee, was that EYS owed her a duty to inform her upon becoming entitled to a distribution that she was a beneficiary under the Trust. She also alleged that EYS owed her a duty to ensure that she received the benefit of any distribution to her. She claimed that EYS had breached these duties by failing to notify her of her entitlements under the Trust when determined by EYS in late June each year. Ms Segelov claimed equitable compensation which at trial was quantified in an amount of $468,995.39.
Ms Segelov also claimed that the payments which had been made into the joint bank accounts prior to 30 June each year were not payments of "income" of the "Trust Fund" (as those terms are defined in the trust deed) and accordingly EYS was not entitled to the benefit of the discharge provided by the receipts clause in the trust deed (cl 2.1(a)). She characterised these payments as "advances" of expected income, but not income. She claimed that she received no benefit from any of the payments into the joint bank accounts because her former husband had used them for his own expenditure.
[6]
Relevant terms of the Trust
The Trust is constituted by a deed of settlement dated 20 May 1988 and was originally known as "the Second Meritable Trust". The settlor, Mr Sicree, was a chartered accountant and the trustee was EYS, then known as E and W Secretariat Pty Ltd.
Amongst the recitals to the trust deed it was stated that: the settlor desired to create a settlement for the benefit of certain persons being members of the families of partners of the firm Ernst & Whinney (Recital A); the settled property was the sum of $100 transferred to the trustee on execution of the trust deed (Recital B); and the settlor desired the trustee to have the most absolute discretion possible in relation to the administration of the Trust Fund and in the distribution of the capital and income of the Trust Fund (Recital E).
The term "Ernst & Whinney" is defined in cl 1.4 to mean the partnership of Chartered Accountants known by that name and including every firm or corporation by whatever name which is the successor in business to that firm. It is common ground that E&Y is the successor in business of Ernst & Whinney.
The trust deed has been amended by further deeds on a number of occasions. It is unnecessary to refer to the detail of these amendments except in three respects: the first concerns the amendment to the name of the Trust to "Ernst & Young Services Trust" by an amending deed dated 19 May 2004; the second concerns an amendment to the definition of "Income" or "Income of the Trust Fund" in cl 1.6 (see [19] below); and the third concerns the addition of cl 6.26 conferring power on the trustee to make interim distributions (see [24] below).
The discretionary objects of the Trust (which, as already mentioned, the trust deed describes as "Beneficiaries") are defined in cl 1.1 in wide terms as follows:
(a) the spouses for the time being of the partners of Ernst & Whinney or a widow of any such partner,
(b) the children or other descendants for the time being of an Ernst & Whinney partner,
(c) the trustee (in its his or her capacity as trustee) of any trust or settlement or will of which any one or more of the persons mentioned in paragraph (a) and (b) is or are named as a beneficiary or beneficiaries or a person or persons in whose favour a discretion vested in such trustee may be exercised and the corpus of which shall not vest outside the Perpetuity Period,
(d) any corporation of which any of the persons referred to in paragraphs (a) and (b) are members, other than the Trustee,
(e) any institution, body or organisation from time to time established in Australia and whose objects are charitable at law,
(f) any object or purpose in Australia which is charitable at law,
(g) any institution or body whose income is exempt from taxation by virtue of the provisions of the Income Tax Assessment Act 1936 or any amendment thereof from time to time in force,
(h) any other person, corporation, trust or object from time to time nominated by a partner of Ernst & Whinney with the consent of the Trustee.
[7]
The relevant facts
The parties helpfully provided the primary judge with an agreed factual narrative, which his Honour adopted. [3] It is sufficient to refer to the following relevant facts which are taken from the agreed narrative.
[8]
Nomination form
In the form entitled "Nomination of Beneficiary - The Ernst & Young Services Trust" dated 8 June 2006 (nomination form), Mr Joseph listed Ms Segelov's name, date of birth and tax file number beneath the words "Pursuant to the Trust Deed, I wish to nominate the following beneficiaries". The nomination form included a declaration (to be signed by the nominating partner): "I hereby declare that I hold the authority of the beneficiary to the above TFN". It was common ground that this declaration appeared to have been signed by Mr Joseph. The next section of the nomination form is headed "Recommendation of % of EYST allocation to be advanced". No percentage was specified. This was followed by a space for the inclusion of payment details, being a bank account number and BSB code, as well as the corresponding bank account names. These details had been completed by Mr Joseph, who identified a joint bank account in the name of Ms Segelov and Mr Joseph held with St George Bank (St George account). The nomination form concluded with the statement that: "This recommendation is to remain in place until revoked in writing".
It was common ground that Ms Segelov jointly opened the St George account and was legally entitled to operate that account at all relevant times.
From 11 July 2006 to 8 June 2007, EYS made seventeen payments totalling $51,625 into the St George account.
On 9 July 2007 Mr Joseph sent an email to an employee of EYS stating:
Starting this month and going forward can you pls (sic) pay my services trust distribution to the following account.
The email contained the BSB code, account number and name of an account in the joint names of Ms Segelov and Mr Joseph held with Westpac Bank (Westpac account).
Ms Segelov was unaware of the request by her husband to change the bank account where payments from the Trust were to be made. The Westpac account was also an account held jointly in the name of Ms Segelov and Mr Joseph.
Between 26 July 2007 and 12 March 2012, EYS made payments totalling $417,370.39 into the Westpac account. This figure seems to have been taken from MFI 1 (being a schedule of 94 payments provided by counsel for Ms Segelov in his opening at the trial). On appeal, counsel for Ms Segelov provided the Court with a schedule of 92 payments into the Westpac account which totalled $411,241.84. The reason for the differences between this figure (and the slightly lesser number of payments) and the figure referred to by the primary judge, [4] was left unexplained. However nothing presently turns on this difference.
[9]
The manner in which EYS distributed income
It is common ground that the functions of EYS as trustee of the Trust are formally carried out by the board of directors of EYS. Each year, shortly before 30 June (2007 to 2012), the board of directors of EYS resolved to make distributions to certain discretionary objects, including Ms Segelov.
Taking the financial year ending 30 June 2007 by way of example, the minutes of meeting of directors of EYS held on 22 June 2007 recorded that the directors resolved that the net income of the Trust for the year end 30 June 2007 be distributed: (a) first, to certain beneficiaries in the amounts listed next to their names in Schedule A as attached to the minutes; and (b) to the beneficiaries listed in Schedule B - with each to receive an amount determined in accordance with a specified formula "A x (B-C)". The integers of the formula recorded in the resolution were described as follows:
A is the percentage shown on Schedule B next to the beneficiary's name,
B is the accounting profit of the trust in relation to the 2007 year. The accounting profit is to be determined in accordance with the accounting practices adopted by the trust in preparing the 2007 accounts,
C is the total amount distributed under part a) of this resolution.
Ms Segelov's name appeared in Schedule B attached to the minutes, together with the specified percentage referred to as "A" in the formula, and a dollar amount of the distribution to her.
The resolutions of the directors of EYS in respect of the subsequent years were in similar terms, except for the financial year ending 30 June 2012. For the 2012 financial year, the formula by which the amount of distributions was determined was changed to one based on a particular number of units allocated to each beneficiary as listed in Schedule B to the minutes of resolution. Nothing material turns on this difference. The other relevant change was that the directors expressly resolved that in accordance with cl 1.6 of the trust deed, the income of the Trust Fund for the 2012 year means that accounting income as set out in the annual accounts of the Trust Fund for the financial year ending 30 June 2012. Again, nothing material is said to turn on this additional resolution.
After each financial year, EYS and E&Y prepared and provided to each partner of E&Y a document which set out financial information concerning payments made to that partner in connection with their role as a partner and which was required for the purpose of completing income tax returns for the corresponding financial year. These documents included a separate section setting out the payments made by EYS to beneficiaries of the Trust associated with the partner. It was the expectation of EYS and E&Y that the partner would provide the relevant portions of the documents to the partner's spouse where appropriate. Statements in this form were provided to Mr Joseph for each of the relevant financial years ending 30 June 2007 to 30 June 2012.
[10]
The amounts referred to above with respect to Ms Segelov are contained in a document which is the subject of a confidentiality order made by the primary judge. Nonetheless, the amounts themselves are not confidential. They were referred to in open court by counsel on the hearing of the appeal. The amount referred to in column 3 is the amount paid by EYS into the St George account in the period 11 July 2006 to 8 June 2007: see [29] above. The amount referred to in column 4 was paid by EYS after 30 June 2007 by instalments on 26 July 2007, 14 November 2007 and on 2 January 2008, as recorded in MFI 1. Counsel for Ms Segelov acknowledged that these instalments were paid into the Westpac account. [5] Counsel for EYS described these payments in oral argument as "top up" payments.
EYS issued similar statements to Mr Joseph in relation to the subsequent financial years ending 30 June 2008, 2009, 2010, 2011 and 2012. Again distributions were paid by EYS prior to 30 June each year with further payments to be paid by EYS after 30 June in each year, except 2012. For the year ended 30 June 2012 there was no "top up" payment. The last interim distribution was paid into the Westpac account on 12 March 2012.
[11]
Clause 6.26 and clause 2.1(a) of the trust deed
The primary judge first dealt with a construction argument raised by Ms Segelov that the power contained in cl 6.26 (to make interim distributions) was subsequently deleted by an amending deed dated 27 April 2006 which was expressed to vary cl 6 of the trust deed by inserting a new cl 6.26. This "new" cl 6.26 conferred the power to enter into and perform any derivative transactions. His Honour rejected this construction of the later amending deed, [6] and there is no appeal from this finding.
The primary judge next dealt with the contention of Ms Segelov that, having regard to the defined term "income" (which is set out at [19] above), until the annual accounts of the Trust Fund had been finalised, the payments made prior to 30 June each year might be described as "expected income", but not as income. [7] It was said in oral argument before the primary judge that the consequence of this contention was that the discharge to the trustee afforded under cl 2.1(a) did not apply to such interim payments.
The primary judge briefly recorded the parties' submissions before giving two reasons for rejecting this contention. The first was that, as his Honour had already found, cl 6.26 of the amending deed of 30 April 1998 was not replaced by the "new" clause (also numbered cl 6.26) under the amending deed of 27 April 2006. The second reason was that on proper construction of cls 2.1 and 6.26, having regard to the definition of "income", the distributions to the joint bank accounts prior to 30 June of each year were payments of income which attracted the benefit of the discharge in cl 2.1(a). [8] It seems that in reaching this conclusion, his Honour accepted the submission of EYS that the definition of "income" is to be understood as identifying the maximum amount available for distribution, that is, the accounting income as set out in the annual accounts of the Trust Fund. [9]
[12]
The asserted duty to inform
The "duty" case advanced by Ms Segelov was recorded by the primary judge in these terms [10] - that there is a positive duty requiring the trustee to inform a beneficiary of his or her entitlement to a distribution under the Trust; and the duty to inform arises on an occasion-by-occasion basis once it has been determined by the trustee to make a distribution to that person. His Honour also noted an additional argument advanced by Ms Segelov, either as an extension of this duty, or as a separate duty, that the trustee was required to ensure that the beneficiary received the moneys paid by way of distribution for his or her use and benefit.
The primary judge considered that the existence of the suggested duties must be resolved by reference to the obligations imposed upon EYS as trustee by the terms of the trust deed. His Honour reasoned that this followed from the most important duty of the trustee to obey the terms of the Trust so as to carry out the wishes of the settlor. [11]
The primary judge referred to the manner in which EYS carried out its task under cl 2.1(a) and cl 6.26, which has been summarised above at [39]-[46]. He found that by making the payments into the St George account, and subsequently into the Westpac account, EYS fulfilled its obligations under cl 2.1(a) of the trust deed. [12] His Honour reasoned that the rights in respect of each payment immediately vested jointly in Ms Segelov and Mr Joseph as joint holders of the accounts, referring to the effect of a deposit into a joint account as described by the High Court in Russell v Scott. [13]
The primary judge noted that in Hartigan Nominees Pty Ltd v Rydge [14] Mahoney JA expressed the view that, in general, a trustee is not obliged to volunteer documents or information to beneficiaries or possible beneficiaries. [15] Reference was also made to SAS Trustee Corporation v Cox [16] where Campbell JA said:
[148] As I have endeavoured to explain elsewhere, the duty of any particular trustee depends on what is involved in faithfully carrying out the office of being trustee of that particular trust: J C Campbell, "Should the 'Rule in Hastings-Bass' Be Followed in Australia? - Trustees' Duties to Enquire and Trustees' Mistakes" (2011) 34 ABR 259, pp 270-7. There may be a core of duties that would always, or nearly always, be involved in faithfully carrying out a trust, regardless of its individual peculiarities. Beyond that, any additional duties of a particular trustee come to be understood through considering the practical exigencies of the types of decision that that particular trustee has to make, in the particular social or business environment in which that trustee is operating. To those factual matters one applies the standards of faithful performance of those duties that are laid down in the trust instrument, and of faithfully attempting to achieve the objectives articulated in the trust instrument. Because that is the way in which trustees' duties arise, one cannot say that trustees always are, or always are not, under a duty to inform a potential beneficiary of his or her entitlements under the trust.
[149] … There was no positive duty to provide information in the trust instrument. Absent such a positive duty, I cannot see how a trustee is in breach of a duty it owes to a beneficiary by failing to give the beneficiary information that the trustee has no reason to believe will be of the slightest practical use to the beneficiary.
[13]
Hawkesley v May
Having reached this conclusion by reference to the terms of the Trust, the primary judge addressed Ms Segelov's contention that the decision of Havers J in Hawkesley v May [21] (Hawkesley) supported the existence of a duty to inform. His Honour noted [22] that in Hawkesley, Havers J held that the trustees under a deed of settlement had a duty to inform a beneficiary, on his attaining 21, that he had an interest in the capital and income of the funds of the trust.
The primary judge observed that Hawkesley had been the subject of comment in a number of Australian decisions: SAS Trustee Corporation v Cox; [23] Hawkins v Clayton; [24] and Hartigan Nominees Pty Ltd v Rydge, [25] but he was unaware of any authority which had accepted that Hawkesley stated a principle of general application - namely, that a trustee has an obligation to explain to a beneficiary what his rights are, and that such duty arises irrespective of the terms of the trust in a particular case. His Honour considered that the operation of cl 2.1(a) negated such a duty, [26] reasoning:
In the present case a possible beneficiary has no entitlement until a determination to make a payment to him has been made. Once determined, EYS is required to make the payment to the beneficiary or to a bank account in his name, the effect of which is to transfer the property in it to him. Without more, I think that payment to an account in the name of a beneficiary would be a reasonable ground for the trustees' assumption that the beneficiary became aware of the payments. Unlike the situation in Hawkesley, EYS does not continue to hold the property of the beneficiary after entitlement has been determined. It then has a positive duty to hand it over to the beneficiary. In the circumstances it is difficult to see the basis of a duty to inform of the kind identified in Hawkesley. I also fail to see that a failure to inform a beneficiary that a payment under clause 2.1(a) has been made infringes any right the beneficiary has.
His Honour also rejected Ms Segelov's separate contention that making payments into the joint bank accounts involved a breach of the asserted duty to ensure that she received the benefit of any distribution to her. His Honour found that it was within the trustee's discretion to act upon the information provided by Mr Joseph and noted that as he was a partner, and the husband of a possible beneficiary, it would be curious had the trustee not done so. [27] There is no challenge to this finding.
[14]
Issues on appeal
The issues on appeal, including those raised by EYS' notice of contention, may be grouped as follows:
1. The duty issues: whether EYS owed a duty to Ms Segelov to inform her that she had been determined to be a beneficiary of the Trust (appeal grounds 1 - 3).
2. The breach issues:
1. whether the distributions paid into the joint bank accounts prior to 30 June each year were payments of "income" of the Trust Fund which attracted the benefit of the discharge contained in cl 2.1(a) of the trust deed (appeal grounds 4 - 6);
2. whether the exemption from liability conferred by cl 7.1 of the trust deed was applicable, or alternatively would EYS be excused from liability pursuant to s 85 of the Trustee Act (appeal grounds 7 - 9; notice of contention, grounds 1(a) and (b)).
1. The quantification issue: whether Ms Segelov failed to demonstrate that she suffered loss or damage in the amount claimed or any lesser amount, by reason of any breach by EYS (notice of contention, ground 2).
Ms Segelov did not press grounds 1(b) and (c) of her notice of appeal. These grounds concerned the alleged duties of EYS to refuse to take instructions from her husband as to the account where payments were to be made, and to ensure that trust distributions which were deposited in a joint bank account of Ms Segelov and her husband were received by her. It follows that the related grounds 4(c) and (d) were not pressed by Ms Segelov.
Nor did Ms Segelov make any written or oral submissions in support of ground 4(a). This concerned EYS' alleged failure to act in the best interests of the beneficiaries of the Trust. This ground may also be put aside.
[15]
Consideration
It is convenient to address the contentions of Ms Segelov in the order in which they were argued on appeal. The first issue was the construction question raised by cls 2.1(a) and 6.26 of the trust deed, namely whether the distributions paid into the joint bank accounts of Ms Segelov and Mr Joseph prior to 30 June each year were payments of "income" of the Trust Fund.
Although counsel for Ms Segelov framed this issue as going to the question of breach, logically this was the first question which arose on the appeal. This is because irrespective of the trustee's alleged duty of notification to a beneficiary, if the distributions prior to 30 June each year were not payments of "income" of the Trust Fund, then, on Ms Segelov's case, EYS committed a breach of trust by failing to pay the full amount of the distributions as determined by EYS in June each year to be applied in favour of Ms Segelov.
A number of preliminary observations should be made. The first is that counsel for Ms Segelov acknowledged that the asserted duty to inform did not relate to the payments made prior to the trustee's determination in June each year. This was consistent with counsel's characterisation of the payments prior to 30 June each year as mere "advances". The duty to inform was said to arise only on Ms Segelov becoming entitled to a distribution following the trustee's determination the subject of the June resolutions each year. [28]
The second matter is that Ms Segelov's contention that cl 2.1(a) was ineffective to give a valid discharge in respect of moneys paid into the joint bank accounts, was limited to the payments made prior to the trustee's determination in June each year. [29]
The third matter is related to the second. Subject to the effect of the alleged duty to inform, it was not contended by Ms Segelov that the discharge afforded by cl 2.1(a) was ineffective in relation to the so-called "top up" payments paid into the joint bank accounts after 30 June each year. That is, it was not contended by Ms Segelov that the full and final discharge to the trustee under cl 2.1(a) was limited to "such payment[s]" as were made in each relevant year.
[16]
Whether the payments prior to 30 June were mere "advances" or distributions of "income" of the Trust Fund
According to Ms Segelov's written submissions, the steps in her construction argument were as follows:
first, cl 2.1(a) provides a discharge to the trustee in relation to the application of income;
secondly, "income" is determined by reference to the Trust instrument: Commissioner of Taxation v Bamford [2010] HCA 10; 240 CLR 481. Here the term "income" for the purposes of cl 2.1(a) is defined in cl 1.6 of the trust deed to mean accounting income as set out in the annual accounts of the Trust Fund;
thirdly, the "net income" of a trust estate cannot be properly ascertained until 30 June in any given year;
fourthly, the payments made by EYS to any beneficiary during an income tax year may be the distribution of the "assessable income" of the Trust, but they are not the "net income" of the Trust; and
fifthly, cl 6.26 of the trust deed which permitted EYS to make interim distributions of income did not avail EYS, because "income", as defined by the trust deed to be "net income", is not determined until just before or after the end of the financial year.
One matter should be immediately noted. The references in Ms Segelov's written submissions to the "net income" of a trust estate and the "assessable income" of the Trust for income tax purposes, and the contrast between these expressions and the "net income" of the Trust, may be ignored. These submissions were erroneously based on the definition of "income" as originally appearing in cl 1.6 of the trust deed. The written submissions overlooked the amendment to that definition brought about by the Amending Deed dated 1 March 2005, the terms of which are set out at [19] above. So much was acknowledged by counsel for Ms Segelov. [30]
As refined in oral argument, Ms Segelov advanced the following construction of cls 2.1 and 6.26: [31]
the word "prior" in cl 2.1(a) allows an application of "income" by the trustee when the trustee has determined, by resolution in late June each year (but prior to 30 June), to make a distribution in favour of beneficiaries;
the payments made by EYS to Ms Segelov prior to 30 June each year constituted "advances", not an application of "income" by the trustee (under cl 2.1(a)) or an interim distribution of "income" (under cl 6.26), because the payments were made prior to the determination by the trustee for each financial year of the accounting income as set out in the annual accounts of the Trust Fund;
[17]
Discussion
Clauses 2.1 and 2.2 of the trust deed confer powers on the trustee with respect to the income arising from the Trust Fund in each financial year. So much of the income, as the trustee thinks fit, may be either applied as between beneficiaries, or accumulated by the trustee. But in both cases the power must be exercised prior to 30 June in each financial year. As will be seen, this has significance for the meaning to be given to the term "income" in cls 2.1(a) and 6.26.
In the case of a determination by the trustee to accumulate income, the power is coupled with a duty in cl 2.2 to invest the income and the resulting income therefrom and to hold the accumulations as an accretion to the Trust Fund, subject to certain provisos in paras (a) to (d) of cl 2.2, which are not presently material.
In the case of an application of income by the trustee, the power may be exercised in one of four ways provided in cl 2.1, namely: by payment to the beneficiary in the manner provided for in para (a); by payment to a parent or guardian, or otherwise by application for the maintenance, education, advancement or benefit of the beneficiary in the manner provided for in para (b); by investment on behalf of any beneficiary in the manner provided for in para (c); or by a resolution of the kind referred to in para (d) to hold the income for any beneficiary.
In addition to the four ways of applying income provided in cl 2.1, the deeming provision in cl 1.17 has the effect that the power to apply income under cl 2.1 may be exercised by the trustee, being a corporation, by a resolution of the directors of EYS.
Clause 6.26 supplements the power to apply income under cl 2.1 of the trust deed. Clause 6.26 expressly permits the making of interim distributions of income at "any time determined by" the trustee. The subject matter of the interim distributions identified by cl 6.26 is "the income arising from the Trust Fund in the then current Financial Year". Such distributions may be made "in the same manner" and "to the same extent" as the income arising from the Trust Fund for the whole of that financial year may be either "paid" (under cl 2.1(a)), "paid" or "applied" (under cl 2.1(b), "invested" (under cl 2.1(c)) or "the subject of a resolution of the kind referred to in cl 2.1(d)".
It was not suggested by Ms Segelov that there is any implied restriction upon the general power to distribute income under cl 2.1, having regard to the specific power to make interim distributions under cl 6.26. The presence in cl 6.26 of the words "[w]ithout limiting its powers under cl 2.1" may be taken to evince an intention that the general power to make distributions under cl 2.1 should be given a construction that accords with the width of the language in that provision. The general power is not to be restricted by reference to the presence of the specific power to make interim distributions under cl 6.26. [36]
[18]
Meaning of "income" in cls 2.1(a) and 6.26
The first matter to note is that the rules for construction of contracts apply also to trusts. Accordingly, the search for "intention" is only a search for the intention as revealed in the words used by the parties, amplified by the facts known to the parties: Byrnes v Kendle. [37] In the present case the parties are the settlor and EYS as trustee.
The second matter to note is that the defined terms "Income" and "Income of the Trust Fund" use capitalised terms whereas the references to "income" in cls 2.1(a) and 6.26 are in lower case as they are elsewhere in the trust deed (for example, cls 2.1(b), (c) and (d), 2.2 and 6.23). However the trust deed is plainly not drafted with the degree of precision that would permit capitalisation to govern its construction.
The third matter to note is that the term "Income" is exhaustively defined in cl 1.6 by the use of the verb "means". An exhaustive definition "indicat[es] that its object is the whole of its subject": Sydney Futures Exchange Ltd v Australian Stock Exchange Ltd. [38]
The fourth matter to note is that the labels "Income" and "Income of the Trust Fund" are part of the context in which cls 2.1(a) and 6.26 are to be construed. As Lord Hoffmann explained in Chartbrook Ltd v Persimmon Homes Ltd (Chartbrook), [39] concerning definitional provisions in contracts, words used as labels are "usually chosen as a distillation of the meaning or purpose of a concept intended to be more precisely stated in the definition. In such cases the language of the defined expression may help elucidate ambiguities in the definition or other parts of the agreement". See also Streller v Albury City Council; [40] Horsell International Pty Ltd v Divetwo Pty Ltd; [41] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [42] and K Lewison and D Hughes, The Interpretation of Contracts in Australia. [43]
Against this, it must be recognised however, as Leeming JA observed in Barangaroo Delivery Authority v Lend Lease (Millers Point) Pty Ltd [44] that in the context of a statutory definition, there is a line of authority against using the defined word(s) to construe the words of a definition. [45] Leeming JA doubted that that could be universally true, noting a similar doubt shared by the Victorian Court of Appeal, even prior to Chartbrook, in Hardy Wine Company Ltd v Janevruss Pty Ltd. [46] I share that doubt with respect to contracts or other instruments. Nonetheless even if the correct approach be that it is necessary to put to one side the fact that the parties' chosen labels are "Income" and "Income of the Trust Fund", it remains necessary to consider the purpose, as well as the text, of the definition and the context in which it is used. The sense in which the defined term is used cannot be determined mechanically. As Kitto J stated in YZ Finance Co Pty Ltd v Cummings, [47] that must depend upon "the true construction of the entire provision in which the word appears".
[19]
Clause 2.1(a)
Dealing first with cl 2.1(a). The starting point is that in order to construe the power contained in cl 2.1(a) the words of the definition of "income" have to be read into the operative text. [48] However when this is done it is readily apparent that there is a tension between the temporal condition affecting the exercise of the trustee's power contained in cl 2.1 - namely, the application of income must occur "prior" to 30 June, and the definition of the subject matter of the power - being the accounting income as set out in the annual accounts of the Trust Fund. The latter must necessarily be drawn up after 30 June each year.
If effect is given to the ordinary grammatical or literal meaning, then the power contained in cl 2.1 to pay or apply income could never be effectively exercised "prior" to 30 June, because annual accounts are not drawn up until after that date. Ms Segelov did not ultimately contend for such an extreme construction. Her construction argument recognised that operative effect must be given to the word "prior" in cl 2.1, but sought to limit the exercise of the power to pay income under cl 2.1(a) as being conditional upon the trustee having first made a determination about the "income" of the Trust Fund for that financial year. This argument should be rejected.
The power contained in cl 2.1(a) is not expressed to be conditional on the prior determination by the trustee of the amount of the "income" for the relevant financial year. The power is given with respect to a particular subject matter, namely, "so much of the income arising from the Trust Fund in that Financial Year". The words "so much" reinforce that the trustee has a discretion as to how much income (if any) may be applied by the trustee under cl 2.1 in each financial year, up to the maximum set by the accounting income recorded in the annual accounts of the Trust Fund. The word "arising" emphasises that the income from the Trust Fund arises during the course of each financial year.
It should be accepted, as EYS emphasised in oral argument, that income arises from the Trust Fund, in the sense that it is generated by or from the activities of the trust, week by week and month by month during the financial year as services are provided and payments in respect thereof are received by EYS. The purpose or object of the definition of "income" may be seen as setting the maximum amount of income that may be applied by the trustee under cl 2.1 in any financial year. The annual accounts record, as a historical fact, the "amount" of income which has arisen from the Trust Fund in each financial year. However, the finalisation of the annual accounts after 30 June, does not affect the character of what is otherwise income arising from the Trust Fund during the financial year.
[20]
Clause 6.26
Reliance by EYS on the power contained in cl 6.26 only becomes necessary if (contrary to my conclusion above) the power contained in cl 2.1(a) does not permit the distributions which were made by EYS prior to the June resolutions each year. Accordingly, I will express my views briefly.
In cl 6.26 the defined term "income" is first used with reference to the power to make interim distributions of "the income arising from the Trust Fund in the then current Financial Year". Notably this power may be exercised "at any time" determined by the trustee and "in the same manner" and "to the same extent" as "…the income arising from the Trust Fund for the whole of that Financial Year" may be dealt with in the four ways provided under cl 2.1.
The argument of Ms Segelov involves the proposition that the express power to make interim distributions contained in cl 6.26 can have no operation. It is said, reading the words of the definition of "income" into the operative text of cl 6.26, that because income does not exist until the annual accounts have been prepared there is no power to make interim distributions. However that approach fails to take account of the following matters.
First, "[a] court will strain against interpreting a contract so that a particular clause in it is nugatory or ineffective, particularly if a meaning can be given to it consonant with other provisions in a contract": Chapmans Ltd v Australian Stock Exchange Ltd. [50]
Secondly, as Fullagar J stated in Halford v Price, [51] there is no rule of law or of construction in the case of a statute, nor in the case of a contract or any other instrument, which requires a court to apply a definition where to do so would be at variance with a context or with a general intent to be gathered from the whole of the instrument. Similarly, it is not the rule that "defined terms inevitably bear every aspect of their defined meaning": Perpetual Custodians Ltd (as custodian for Tamoran Pty Ltd (as trustee for Michael Crivelli)) v IOOF Investment Management Ltd; Murray v Perennial Investment Partners Ltd. [52]
Thirdly, regard should be had to the circumstance that cl 6.26 was introduced into the trust deed by an amending deed dated 30 April 1998 executed by EYS exercising the trustee's power to amend the trust deed: cl 5.2. That power of amendment included, relevantly, the power to "add to" the provisions contained in cls 1, 2, 3 and 6 of the trust deed. As stated in recital C to the amending deed, the purpose of the amendment was to add to the trustee's powers contained in cl 6 of the trust deed. Undoubtedly the purpose was to permit interim distributions of income at any time during the financial year. Such a power would put beyond argument any suggestion (of the type advanced by Ms Segelov in this case), that the power contained in cl 2.1(a) was in some way insufficient to permit interim distributions throughout the financial year. It would be absurd, in my opinion, to read the term "income" in cl 6.26 in such a way as to defeat the very power to make interim distributions. It is necessary to construe cl 6.26 so as to avoid making commercial nonsense. [53]
[21]
Clause 6.26 affords the trustee a full and final discharge under cl 2.1(a)
The final issue of construction is whether the language of cl 6.26 is sufficient to pick up for the interim distributions, the full and final discharge afforded to the trustee by cl 2.1(a). Other than the argument that the interim distributions were "advances" not income (which has been rejected above), it was not suggested by Ms Segelov that the payment of interim distributions into the joint bank accounts in the name of Ms Segelov, was other than "in the same manner" and "to the same extent" as provided under cl 2.1(a) for the whole of the financial year.
It should be accepted, in my view, that on the proper construction of cl 6.26 the payment of interim distributions in the manner provided under cl 2.1(a) also afforded the trustee a full and final discharge under cl 2.1(a).
For these reasons, grounds 5 and 6 are not made out.
[22]
Asserted duty to inform a beneficiary of their entitlement to a distribution once determined
The asserted duty owed by EYS as trustee raises an anterior issue, being the source of a trustee's duty. In SAS Trustee Corporation v Cox, Campbell JA explained that to the extent that the duties of trustees are not expressly stated in the trust instrument, a trustee's duties are arrived at by a type of implication from the nature of his or her office. On this approach, the duty of any particular trustee depends on what is involved in faithfully carrying out the office of being trustee of that particular trust. Campbell JA had earlier explained in his article writing extrajudicially: [54]
Just what is involved in the trustee faithfully carrying out his office depends on the precise terms of the individual trust in question, the circumstances surrounding its setting up, and the nature of the property involved.
Counsel for Ms Segelov ultimately accepted in oral argument the correctness of this approach. [55] It is appropriate to proceed on this basis.
The question which should be posed is thus: why does the faithful carrying out of the office of trustee require EYS to inform the "beneficiary" that it has exercised the power contained in cl 2.1(a), and accordingly the beneficiary has become entitled to a distribution under the Trust? The answer given by counsel for Ms Segelov at trial was that the trustee's duty is not exhausted upon payment in the manner provided under cl 2.1(a). It was said that the payment by the trustee under cl 2.1(a) needs to be effectual, and this means the trustee must ensure that the beneficiary is aware of the payment. The primary judge rejected this contention. In challenging his Honour's decision, Ms Segelov repeats her arguments put below.
First it is said that the primary judge erred in relying upon provisions of the trust deed as being inconsistent with the asserted duty to inform. Next it is said that the primary judge erred in taking into account the legal effect of payment into a bank account. It is then said that the decision in Hawkesley provides an adequate basis for finding a duty owed by EYS to Ms Segelov in the circumstances of this case. Finally it is said that the primary judge erred in finding that the practical exigencies of notification of entitlement firmly told against a duty of notification.
[23]
(a) Terms of the trust deed
Dealing first with the terms of the trust deed. The starting point is the primary judge's conclusion that no duty of notification of the kind asserted is expressed or implied by the terms of the trust deed. Ms Segelov did not directly challenge this finding. In my view, his Honour was correct to observe that the asserted duty involved EYS undertaking an additional duty not required under the trust deed.
Nor did his Honour err in placing reliance upon the so-called "receipts clause" in cl 2.1(a) as excluding the asserted duty. Counsel for Ms Segelov argued that the receipts clause dealt with the question of discharge of duty, not the existence of the trustee's duties. This involves an overly narrow view of cl 2.1(a). The payment obligation under cl 2.1(a) is expressed in terms that no receipt by or on behalf of any beneficiary is required where payment is made in the manner provided under cl 2.1(a). The fact that it is not necessary for EYS to seek or obtain any acknowledgement of payment is inconsistent with Ms Segelov's contention that for the payment to be effectual, the beneficiary needs to be aware that he or she or it has an entitlement under the trust.
Ms Segelov also challenges the reliance placed by the primary judge upon the discharge from liability afforded to the trustee by cl 2.1(a), where payment is made in the manner provided under that clause. But no error is disclosed. Once payment has been made by EYS into the joint bank accounts, Ms Segelov is taken to have received the distributions for the purposes of the trust deed, and EYS' duties are thereby discharged.
In my view, the primary judge did not err in his analysis of the terms of the trust deed or his conclusion that its provisions were inconsistent with the asserted duty of notification.
[24]
(b) Effect of payment into a bank account
It is to be observed that the foundation for imposing on EYS a duty to inform essentially rests on events and circumstances occurring after the payment into the joint bank accounts. Counsel for Ms Segelov contended that for the payments to be effectual, direct notification to the beneficiary is required. It is said that without such notification, the beneficiary may not obtain the "practical" benefit of the distribution. This is to be understood, in the present case, as a reference to Mr Joseph having expended at least some of the payments for his personal use without Ms Segelov's knowledge. In my view, this argument is misdirected. Reference to Ms Segelov not obtaining the "practical" benefit of the distributions is not to the point.
The effect of a deposit into a joint bank account is described by the High Court in Russell v Scott. [56] It was not disputed that the vesting of the right and title in the holders of the account takes place when the deposit is made, irrespective of knowledge that it has been made. [57] Nor was it disputed that an entitlement under a trust is valid notwithstanding that the beneficiary has no knowledge of it. [58] The primary judge did not err in taking these matters into account in rejecting the asserted duty of notification. The use to which moneys in the joint bank accounts were in fact put after payment of the distributions, does not inform, let alone provide a foundation for the asserted duty of notification at an earlier point in time.
[25]
(c) Hawkesley
The primary judge concluded that Hawkesley did not establish a principle of general application. Ms Segelov challenges this conclusion, principally by reference to the views of a number of text writers on trust law who have cited Hawkesley for various propositions. Before examining those views, it is necessary to consider a little more closely the facts and reasoning in Hawkesley.
In Hawkesley, the trustees of a deed of settlement held the trust fund for an identified brother and sister who on attaining the age of 21 became absolutely entitled as joint tenants. The brother turned 21 but the trustees, acting on legal advice (that it was their duty to retain the capital and reinvest the income until both the brother and sister turned 21 or until severance), failed to transfer to the brother his share of the capital or to pay him the income therefrom. After the sister turned 21 she severed the joint tenancy and her share of the capital was transferred to her, but the trustees continued to hold the brother's share of the capital and to accumulate income for a further year, acting on instructions of the brother's father who had intercepted communications between the trustees and the brother. Ultimately the trustees transferred the accumulated income and capital to which the brother was entitled, to the trustees of a voluntary settlement entered into by the brother. The brother brought an action against the trustees and their solicitor for conspiracy and against the trustees for breach of trust.
The conspiracy claim failed. As to the trust claim, Havers J held that it was the duty of the trustees to pay the income of his share of the fund to the brother when he turned 21, without any demand by him; and also to pay the capital to the brother and his sister as joint tenants upon the sister attaining 21, without any demand by them, or after severance of their respective shares to each of them, without any demand. [59] However, the brother's claim in respect of breaches of trust failed because the claim was barred under the applicable statute of limitations. In addition, Havers J also found that the trustees acted reasonably and honestly and ought fairly to be excused from liability under the statute.
Ms Segelov relies upon Hawkesley for the statements which Havers J made concerning the trustees duty of notification to the brother. This had two aspects. First, Havers J held that the trustees were under a duty to inform the brother that he had an interest in the capital and income of the trust funds when he turned 21 and his interests under the trust accrued. In reaching this conclusion, Havers J declined to apply to trustees under an express trust, the authorities which held that there is no legal duty on an executor to give notice of the terms of a legacy to the legatee. He reasoned that there was a distinction between the interest taken under a public document ("a will … is a public document in the sense that anybody can go to Somerset House and see it") [60] and a private document (a trust deed to which the beneficiary has "no access"). His Lordship's distinction is difficult to apply in the not uncommon case of a trust established by a will. As will be seen, the premise of this distinction so far as it concerns access to the trust deed is ambiguous.
[26]
(d) Practical exigencies
Ms Segelov's final complaint is that the primary judge erred in finding that the practical exigencies of notification of entitlement firmly told against a duty of notification. Counsel for Ms Segelov argued that all that would be required of EYS was a single notification direct to each beneficiary each year following the June resolutions. It was accepted that this would have involved notification to at least 400 beneficiaries, since there were in excess of 400 partners of E&Y at the relevant time. This analysis is too simplistic.
The difficulty with Ms Segelov's approach is that it views 'practical exigencies' as a separate inquiry and not part of the broader question of whether a duty of notification should be implied with respect to this trust. The approach suggested by Campbell JA in SAS Trustee Corporation v Cox is not to be applied as if it contained separate limbs. Rather, the inquiry is what is required of the trustee in the faithful performance of its duties according to the trust deed having regard to the relevant social or business context and the practical exigencies of the types of decision that the trustee has to make.
If the 'practical exigencies' are considered as a stand-alone question, then the mere mechanical requirement of informing in excess of 400 beneficiaries of their entitlement on each occasion would not be sufficient, in my view, to negate the existence of a duty to notify.
However, matters are not so simple. In this case, EYS was not in possession of contact details of the nominated beneficiaries. It had only a bank account (or as in this case, a joint bank account) for the beneficiary. The primary judge considered, correctly in my view, that the duty of notification raised many questions as to the scope and content of the asserted obligation. These included how such information would be communicated to the beneficiaries, for whom the only contact details held by the trustee was a bank account. Whether the trustee should be required to maintain some form of up to date register of beneficiary contact detail, and how often it would be required to actively seek out information was left unanswered by counsel for Ms Segelov. It is these types of practical considerations which reinforce that the terms of the trust deed in the present case are inconsistent with the asserted duty of notification to the beneficiary.
[27]
Other matters
In view of the above conclusions it is unnecessary to determine the remaining issues relating to exemption from liability under the trust deed, or relief under the Trustee Act 1925 (NSW), and the quantification of loss. Nonetheless I will briefly express my views on the exemption clause. It is appropriate to also note one concession made by Ms Segelov with respect to quantification.
[28]
(1) Exemption from liability - cl 7.1
The terms of cl 7.1 of the trust deed are set out above at [25]. An exemption from liability is provided to EYS for any loss, neglect, default or breach of trust unless the same is attributable to its own wilful neglect or dishonesty. Counsel for Ms Segelov disavowed any suggestion of dishonesty against the trustee, [78] and this may be taken to include any suggestions of lack of bona fides.
Ms Segelov advanced two arguments why the trustee exemption clause was not engaged. The first was that the exemption clause could not validly exclude liability for breach of the supposed duty to inform. Reference was made to Armitage v Nurse [79] where Millett LJ considered the permitted scope of trustee exemption clauses. His Lordship accepted that there is a irreducible core of obligations owed by trustees to beneficiaries and enforceable by them which is fundamental to the concept of a trust. A trustee exemption clause cannot validly exclude liability for breach of these core obligations. However, Millett LJ rejected the submission advanced in that case that the core obligations included the duties of skill and care, prudence and diligence. His Lordship continued: [80]
The duty of the trustees to perform the trust honestly and in good faith for the benefit of the beneficiaries is the minimum necessary to give substance to the trusts, but in my opinion it is sufficient.
See also Leerac Pty Ltd v Garrick E Fay; [81] and Rankine v Rankine. [82]
Counsel for Ms Segelov did not argue against the proposition that a clause in the trust deed may validly exempt the trustee from obligations and liabilities other than those contained in that irreducible core of a trustee's obligation - namely, to act honestly and in good faith. Nor was it disputed that it is not contrary to public policy to exclude a trustee's liability even for gross negligence, but it is to exclude liability for dishonesty or bad faith.
As already mentioned, dishonesty or lack of bona fides was not raised here. Nonetheless, Ms Segelov contended that the asserted duty to inform is a minimum duty which cannot be excluded by a trustee exemption clause. This contention, for which no authority was cited, must be rejected.
It is sufficient to observe that, even if there was a free-standing duty to inform, this duty would not form part of the core obligations to perform the trusts honestly and in good faith for the beneficiaries. Counsel for Ms Segelov did not point to any reason why it would be repugnant to the trust concept if there was no duty to inform. Such a duty is not required to create the fundamental trust obligation.
[29]
(2) Quantification of loss
One final matter should be mentioned. Counsel for Ms Segelov did not ultimately press any submission that Ms Segelov had not received a benefit of at least $51,625 out of the St George account. [86] That concession was properly made.
[30]
Conclusion and orders
The appeal has failed on the primary issues which have been argued concerning the alleged duty of notification owed by EYS to Ms Segelov and the alleged breaches of trust by EYS. I propose the following orders.
1. Appeal dismissed.
2. Appellant to pay the respondent's costs.
LEEMING JA: I agree with Gleeson JA.
[31]
Endnotes
See generally El Sayed v El Hawach [2015] NSWCA 26; 317 ALR 771 at [13]-[14].
Segelov v Ernst & Young Services Pty Ltd [2014] NSWSC 283 (Judgment), [72]-[73].
Judgment at [2].
Judgment at [19].
AT 23/04/15, 7 at lines 32-39.
Judgment at [35].
Judgment at [39].
Judgment at [41].
Judgment at [40].
Judgment at [42].
Judgment at [43]; Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; 212 CLR 484 at [32]; J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia, (7th ed 2006, LexisNexis Butterworths) at [1704].
Judgment at [58].
[1936] HCA 34; 55 CLR 440 at 448 (Starke J) and at 450-451 (Dixon and Evatt JJ).
(1992) 29 NSWLR 405 at 431.
At 431.
[2011] NSWCA 408; 285 ALR 623 at [148]-[149].
Judgment at [63].
Judgment at [65].
Judgment at [64].
Judgment at [67].
[1956] 1 QB 304.
Judgment at [69].
At [98]-[99] (McColl JA).
[1988] HCA 15; 164 CLR 539 at 553-554 (Brennan J).
At 432 (Mahoney JA).
At [70].
At [71].
AT 23/3/15, 19 at lines 20-25.
AT 23/3/15, 5 at lines 31-36.
AT 23/3/15, 8 at lines 19-35.
AT 23/3/15, 5 at line 31 - 6 at line 22.
AT 23/3/15, 26 at lines 47-49.
AT 23/3/15, 26 at lines 16-21.
[1989] ATC 5,274 at 5,278.
[1991] ATC 4,213 at 4,215.
See the analogous principle in the context of statutory interpretation: Leon Fink Holdings Pty Ltd v Australian Film Commission [1979] HCA 26; 141 CLR 672 at 679 (Mason J).
[2011] HCA 26; 243 CLR 253 at [102]-[105] (Heydon and Crennan JJ). See also Sayden Pty Ltd v Chief Commissioner of State Revenue (NSW) [2013] NSWCA 111; 83 NSWLR 700 at [39] (Gzell J; Meagher JA and Tobias AJA agreeing).
(1995) 56 FCR 236 at 266-267 (Gummow J).
[32]
Amendments
09 June 2015 - Complete judgment
10 June 2015 - corrected import error in paragraphs [109] and [110]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 10 June 2015
the primary judge erred in finding that the trust deed permitted distributions of income prior to 30 June in each year;
the primary judge erred in finding that EYS did not owe a duty to inform the discretionary objects of the Trust of their entitlement; and
the Trustee was afforded protection by the exemption clause in the trust deed.
Held per Gleeson JA (Meagher and Leeming JJA agreeing), dismissing the appeal:
The rules for construing contracts apply to the construction of trusts. The labels 'Income' and 'Income of the Trust Fund' used in the definitions section of the deed are part of the context in which cls 2.1(a) and 6.26 are to be construed: [83]-[87].
Applied: Byrnes v Kendle [2011] HCA 26; 243 CLR 253; Sydney Futures Exchange Ltd v Australian Stock Exchange Ltd (1995) 56 FCR 236; Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101.
Considered: Owners of the Ship "Shin Kobe Maru" v Empire Shipping Co Inc [1994] HCA 5; 181 CLR 404; Wacal Developments Pty Ltd v Realty Developments Pty Ltd [1978] HCA 30; 140 CLR 503; Barangaroo Delivery Authority v Lend Lease (Millers Point) Pty Ltd [2014] NSWCA 279; Hardy Wine Company Ltd v Janevruss Pty Ltd [2006] VSCA 28; YZ Finance Co Pty Ltd v Cummings [1964] HCA 12; 109 CLR 395.
The defined term 'Income' when read into the operative provisions of the trust deed sets the accounting income of the trust fund for the financial year as the maximum amount that may be distributed, not a temporal restriction requiring that income may only be distributed under cl 2.1(a) once the Trustee makes a determination of the income at the end of the financial year. The annual accounts record as a historical fact the amount of income which has arisen from the trust fund in each financial year. The finalisation of the annual accounts does not affect the character of what is otherwise income arising from the trust fund in the sense that it is generated by or from the activities of the trust during the financial year: [88]-[92].
Applied: Halford v Price [1960] HCA 38; 105 CLR 23; Gibb v Commissioner of Taxation (Cth) [1966] HCA 74; 118 CLR 628; Kelly v The Queen [2004] HCA 12; 218 CLR 216.
Clause 2.1(a) permits interim distributions of 'income'. Each interim payment into the joint account was a dispositive act and the June resolutions passed by the directors of EYS at the end of each financial year were confirmatory rather than dispositive of the interim payments preceding the date of the resolutions: [93]-[96].
Applied: Federal Commissioner of Taxation v Vegners [1989] ATC 5,274; Vegners v Federal Commissioner of Taxation [1991] ATC 4,213.
In construing cl 6.26, it would be absurd to read the term 'income' in such a way as to defeat the express provision to make interim distributions. As in cl 2.1, the term 'income' imposes a quantitative as opposed to temporal restriction on the trustee's power to make interim distributions. Clause 6.26 also picks up the full and final discharge afforded by cl 2.1(a): [97]-[108].
Applied: Chapmans Ltd v Australian Stock Exchange Ltd [1996] FCA 474; 67 FCR 402; Halford v Price [1960] HCA 38; 105 CLR 23; Perpetual Custodians Ltd (as custodian for Tamoran Pty Ltd (as trustee for Michael Crivelli)) v IOOF Investment Management Ltd; Murray v Perennial Investment Partners Ltd [2013] NSWCA 231; 304 ALR 436; Zhu v Treasurer of the State of New South Wales [2004] HCA 56; 218 CLR 530.
The trust deed did not expressly or impliedly provide for a duty to notify discretionary objects of their entitlement. The primary judge did not err in relying on cl 2.1(a) as excluding any such duty by reason of its terms which provided that payment of income into a joint bank account, without the need for an acknowledgement of receipt of payment by or on behalf of the beneficiary, afforded the trustee a full and final discharge of its obligations: [113]-[116].
The manner in which moneys in the joint bank account were subsequently used by one of the joint account holders does not inform or provide a foundation for a duty of notification arising at an earlier point in time. The primary judge did not err in taking into account that the legal effect of payment into a joint bank account is the vesting of the right and title in the holders when the deposit is made: [117]-[118].
Applied: Russell v Scott [1936] HCA 34; 55 CLR 440; Federal Commissioner of Taxation v Cornell [1946] HCA 32; 73 CLR 394; Vegners v Federal Commissioner of Taxation [1991] ATC 4,213.
The primary judge did not err in finding that EYS did not owe a duty to notify a beneficiary of their entitlement. To impose such a duty of notification in all cases would be to impose a duty without regard to the nature and the terms of the relevant trust and the social or business environment which the trust operates: [119]-[136].
Applied: Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405.
Distinguished: Hawkesley v May [1956] 1 QB 304.
The suggested duty to inform beneficiaries of their entitlement did not form part of the irreducible core of trustee's duties such that it may not be excluded under the terms of the trust deed: [144]-[148].
Applied: Armitage v Nurse [1998] Ch 241.
Assuming (contrary to the above) any breach of duty by EYS as trustee, EYS was not guilty of 'wilful neglect'. EYS expected that partners of E&Y would pass on the annual information from EYS concerning distributions to the relevant beneficiary and there were no matters or circumstances known to EYS from which EYS would have reason to doubt that Mr Joseph would not pass on the information to Ms Segelov.
Applied: Armitage v Nurse [1998] Ch 241; In Re Vickery [1931] 1 Ch 572.
The primary judge (Nicholas AJ) rejected Ms Segelov's claim that EYS owed her duties in the terms alleged. His Honour held that the distributions paid into the joint bank accounts prior to 30 June each year were payments of "income" of the Trust Fund which attracted the benefit of the discharge under the trust deed. Accordingly the primary judge dismissed Ms Segelov's claim with costs. [2]
Ms Segelov has appealed. Her principal contention is that the primary judge erred in holding that EYS, as trustee, did not owe her the asserted duty to inform (also referred to as a duty of notification). She also contends that the primary judge erred in finding that cl 2.1(a) of the trust deed was effective to give EYS a valid discharge in respect of the payments into the joint bank accounts prior to 30 June each year.
For the reasons which follow, I have concluded that there was no error in the primary judge's rejection of the asserted duty to inform. Nor was there any error in his conclusion that the payments made into the joint bank accounts were payments of income of the Trust Fund, which attracted the benefit of the discharge under cl 2.1(a) of the trust deed. This is sufficient to dispose of the appeal, which should be dismissed.
The entitlement to income is dealt with by cl 2 of the trust deed. Broadly speaking the trustee is given power to either apply as between the beneficiaries or accumulate so much of the income arising from the Trust Fund in each financial year as the trustee thinks fit. Clause 2.1(a), which is central to the issues raised on appeal, provides:
Subject to sub-clauses 5.1 and 5.2 the Trustee shall during the Income Period hold the Trust Fund upon trust as follows:
2.1 To apply in any Financial Year, prior to the 30th day of June in that Financial Year, so much of the income arising from the Trust Fund in that Financial Year, between the Beneficiaries in all respects as the Trustee thinks fit as follows:
(a) by paying so much of the income as the Trustee thinks fit to any Beneficiary or to a bank account in the name of any Beneficiary (whether solely or jointly with that of any other person including the Trustee) or in the name of a parent or guardian as trustee for any Beneficiary and any such payment shall with or without the execution of a receipt by such Beneficiary or any person on his behalf constitute a full and final discharge therefor to the Trustee in relation to the trusts of this Deed.
Paragraphs (b), (c) and (d) of cl 2.1 provide three other ways in which income may be applied by the trustee. Under para (b) of cl 2.1 income may be paid to the parent or guardian of any beneficiary to be applied for the maintenance, education, advancement or benefit in any way of that beneficiary or by otherwise paying or using the same for or towards the maintenance, education, advancement or benefit in any way whatsoever of any beneficiary. Income applied in this manner, with or without the execution of any receipt shall constitute a full and final discharge to the trustee.
Under para (c) of cl 2.1 income may be invested by the trustee on behalf of any beneficiary whether or not the beneficiary is an infant and whether in the name of the beneficiary or in any person in trust for the beneficiary in any manner in which the trustee is authorised by the trust deed to invest moneys. Such investments and the income arising shall be the absolute property of the beneficiary and the investment of any such income shall without more constitute a full and final discharge to the trustee.
Under para (d) of cl 2.1 income may be applied by the trustee resolving to hold income for any beneficiary. Such a resolution without anything more shall be an application of that income for the benefit of that beneficiary.
As amended, the trust deed defines certain capitalised words or phrases in cl 2.1(a), relevantly as follows:
1.5 "Financial Year" means any period of twelve (12) months which commences on the 1st day of July in any year and ends on the next succeeding 30th day of June … ;
1.6 "Income" or "Income of the Trust Fund" means accounting income as set out in the annual accounts of the Trust Fund (as amended by an amending deed dated 1 March 2005).
1.7 "Income Period" means the period from the execution hereof until the Day of Distribution or the first earlier day upon which the Trustee has in fact distributed the whole of the Trust Fund in accordance with this Deed whichever shall first occur;
1.16 "Trust Fund" means the settled property and any additional property real or personal which may hereafter be vested in the Trustee upon the trusts of this Deed and all investments and property into which such property may be converted or which by the exercise of any of the powers contained in this Deed may accrue to or otherwise become subject to the trusts of this Deed: clause;
As will become apparent later in these reasons, it is necessary to also refer to the definition of "Income" prior to its amendment by an amending deed dated 1 March 2005. Originally "Income" or "Income of the Trust Fund" was defined in the trust deed to mean:
… that amount which is the net income for the purposes of the Income Tax Assessment Act 1936 as amended from time to time including any gains included in that amount by virtue of Part IIIA of that Act.
In addition to the power to apply income as between beneficiaries, the trust deed provides the trustee with power to accumulate income (cl 2.2); power to distribute capital to any beneficiary (cl 4); powers of appointment in respect of income and capital (cl 5.1); and power to vary certain provisions of the Trust (cl 5.2).
The power of appointment in respect of income and capital, in lieu of the trusts declared by cls 2 and 3, is subject to certain qualifications. Such power shall not be exercised so that: (a) the appointment affects any interest in corpus already vested; and (b) the appointment affects the right of any beneficiary to income once applied to his benefit pursuant to cl 2.
Clause 1.17 addresses the manner of exercise of discretions conferred on the trustee. It provides:
Wherever by this Deed a discretion is conferred upon the Trustee that discretion in addition to any other mode of exercise thereof (and without limiting the generality of sub-clause 2.1) shall be deemed to have been exercised when -
(a) if the Trustee is a corporation a resolution of the directors of that corporation exercising that discretion has been made, or
(b) if the Trustee is or includes one or more natural persons when a resolution of the Trustee exercising that discretion has been made,
and any minutes recording such resolutions entered in the Minute Book of the Trustee shall be prima facie evidence of the nature date and content of such resolutions.
Clause 6 confers a number of "absolute powers and discretions" on the trustee. One such power (added by an amending deed dated 30 April 1998) is the power contained in cl 6.26 to make interim distributions of income. It provides:
Without limiting its powers under clause 2.1, to make interim distributions of the income arising from the Trust Fund in the then current Financial Year, at any time determined by the Trustee, in the same manner and to the same extent as the income arising from the Trust Fund for the whole of that Financial Year may be paid, applied or invested or may be the subject of a resolution of the kind referred to in paragraph 2.1(d).
Clause 7.1 provides EYS with an exemption from liability in the following terms:
WHILE acting or purporting to act in the execution of the trusts or to exercise any of the powers in this Deed hereof a Trustee shall not be liable for any loss neglect default or breach of trust unless the same is attributable to its his or her own wilful neglect or dishonesty it being the intention of the Settlor that the Trustee shall have the widest possible powers and discretions in the administration investment and management of the Trust Fund and the execution of the trusts contained in this Deed without being liable for the consequences of exercising those powers and discretions or executing or administering any of those trusts.
Ms Segelov and Mr Joseph separated on 25 November 2011 when he left their marital home.
It was not in dispute that Ms Segelov had access to and transacted upon the St George account. In response to a notice to admit facts, Ms Segelov admitted that a number of transactions recorded on the statements for that account over a 14 month period, totalling approximately $2,500, were referable to transactions by her. She also admitted that moneys credited to the St George account were: (a) used to reduce indebtedness in her name; (b) employed at her direction; (c) applied to her living expenses; (d) applied to support her dependent children; and (e) employed for personal expenditure.
Ms Segelov did not transact on the Westpac account during the relevant period in which distributions were paid by EYS into this account. She was not aware at that time that the account was still open. She believed it was closed in around 2003 when she and her husband sold a property that they jointly owned in Woollahra, NSW, or at least by the time her husband became a partner of E&Y.
Ms Segelov's evidence, which was not challenged, was that she did not know that she was a beneficiary of the Trust until late January 2012, when her new accountant obtained copies of her tax returns from her previous accountant. Ms Segelov said that she had not seen or signed her tax returns prepared by her previous accountant. Those returns included as part of her income each year, an amount in respect of distributions received from trusts. Ms Segelov denied giving any instructions for the preparation or lodgement of those returns.
Ms Segelov also gave evidence that she did not receive any communication or correspondence from EYS with respect to the Trust, including any distributions from the Trust. Nor did she give any instructions to EYS as to where any distributions from the Trust to her should be paid. She also said that she did not authorise her husband to give any directions to EYS on her behalf.
Ms Segelov said that she first became aware in March 2012 that EYS had made distributions to her from the Trust into either the St George account or the Westpac account. As already mentioned, although she was aware of the existence of the St George account, she did not know that the Westpac account was still open when EYS paid amounts into it.
Again taking the financial year ending 30 June 2007 by way of example, the financial documents provided to Mr Joseph included a statement from EYS entitled "Trust Beneficiary Entitlement Balance as at 30 June 2007". That document contained the following information:
1 2 3 4
Beneficiary Accounting net income allocation for year ended 30 June 2007 Cash advances for year ended 30 June 2007 Balance at 30 June 2007 to be distributed
$ $ $
Dana Segelov 76,272.48 51,625.00 24,647.48
The primary judge found that no duty of the kind asserted by Ms Segelov was expressed or implied by the terms of the trust deed. [17] In reaching this conclusion his Honour considered the fact that cl 2.1(a) did not require any receipt (of payment) by or on behalf of the beneficiary, to be an indication that it was not necessary for EYS to seek or obtain some acknowledgement of payment and that this also told against a duty to inform. [18]
Addressing the practical considerations referred to by Campbell JA in SAS Trustee Corporation v Cox, his Honour further found that the practical exigencies of the types of decision which EYS had to make in the particular social or business environment in which it was operating told firmly against a duty to inform. [19]
His Honour concluded:
Clause 2.1(a) imposes a duty to pay, as EYS thinks fit, any beneficiary or into a bank account in the beneficiary's name. When payment is made into the bank account the rights in respect of it vest in the beneficiary. There was nothing more to be done by EYS to ensure that Segelov received her entitlement. EYS was not to be accountable in respect of the payment thereafter. Upon making the payment EYS was discharged from liability in relation to the trusts. [20]
Although it was unnecessary to determine the other issues which had been raised, his Honour indicated his preliminary view was that the evidence fell short of establishing wilful neglect on the part of EYS with the result that it would be entitled to the exemption from liability under cl 7.1 of the trust deed or alternatively, it would be excused pursuant to s 85 of the Trustee Act 1925 (NSW).
cl 2.1(a) is ineffective to give a valid discharge to the trustee in respect of moneys paid into the joint bank accounts before the trustee made a determination at the end of the financial year to apply the "income" of the Trust Fund for that year.
Counsel for EYS contended that nothing in cl 2.1(a) would prevent interim distributions of income from time to time. Counsel also placed reliance on cl 6.26, which it was said expressly empowered the trustee to make interim distributions of income in the then current financial year. Counsel contended that one does not need to see the final accounts of the Trust to see that there has been income in the trustee's hands at the earlier time of making the interim distributions.
Counsel for EYS acknowledged that the interim payments by EYS during each year were not preceded by a formal resolution of directors of EYS, [32] but contended that no formal resolution was necessary. The application of income by EYS, it was said, is by the fact of payment in the manner provided under cl 2.1(a). Hence there were said to be a number of dispositive acts by the trustee throughout each financial year with respect to the interim payments. [33]
Counsel for EYS characterised the EYS directors' resolution in June each year as confirmatory for the past, that is, for the interim payments that had been made prior to the resolution, and dispositive as to the final "top up" payment the subject of the resolution, being a deemed exercise of discretion by the trustee pursuant to the power contained in cl 1.17. Reference was made to the observations of Gummow J in Federal Commissioner of Taxation v Vegners (Vegners), [34] and the dismissal of the appeal in Vegners v Federal Commissioner of Taxation. [35] Counsel submitted that although the Full Federal Court did not clearly distinguish between annual resolutions which were confirmatory rather than dispositive, nothing in the Full Federal Court's reasons was inconsistent with the observations of Gummow J. It was also said that it did not matter that the amount of the "top up" distribution was paid before or after 30 June, because the resolution itself was effective as an application of income under cl 2.1(a).
Counsel for EYS further contended that cl 6.26 picked up, in relation to interim distributions which were paid into the joint bank accounts, the full and final discharge afforded to the trustee by cl 2.1(a). Counsel for Ms Segelov contended in reply that this construction was not obvious, but did not point to any textual or other arguments as to why this was not so.
Two issues of construction arise with respect to cls 2.1(a) and 6.26. The first is what is meant by the reference to "income" in those provisions having regard to the defined term "Income". The second is whether cl 6.26 picks up the full and final discharge afforded to the trustee by cl 2.1(a). The competing submissions have been outlined above.
The primary judge seems to have accepted that the defined term "income" sets the maximum amount of income that may be applied by the trustee under cl 2.1 in any financial year. He was correct to adopt that construction. The defined term "income" when read into cl 2.1(a) should be seen as addressing the maximum amount for distribution, not imposing a temporal condition prohibiting distribution of income prior to the completion of the annual accounts.
One further matter needs to be mentioned. This concerns whether cl 2.1(a) permits more than one distribution each year. Counsel for Ms Segelov contended before the primary judge that the trustee could only make one payment of income each year under the power contained in cl 2.1(a). It was said that the power contained in cl 2.1(a) did not permit interim distributions prior to the June resolutions each year. But there is nothing in the language of cl 2.1 which purports to limit the exercise of the power to a single payment or application of income each financial year. Two other matters lend support to this view.
First, cl 2.1(a) does not require the trustee to hold all of the income arising from the Trust Fund until the end of the financial year, before exercising the power to make a payment of income.
Secondly, the nature of the power contained in cl 2.1(b), (c) and (d) (to either pay or apply income for the maintenance, education, advancement or benefit of a beneficiary; to invest income; or to resolve to hold income on trust for a beneficiary) is inconsistent with a limitation being placed on the exercise of such power to only one occasion each financial year. There is no reason for thinking that the power contained in cl 2.1(a) is in any narrower terms.
It remains to be noted that, in the present case, nothing more was required for the exercise of the power contained in cl 2.1(a), than the fact of payment into the joint bank accounts. This was the dispositive act which constituted an application of income under cl 2.1(a). It is for this reason that the effect of the June resolutions passed at the end of each financial year should be taken as being confirmatory rather than dispositive of the interim payments which preceded the date of the resolutions. [49]
In my view, the power contained in cl 6.26 is to be understood as subject to the same constraint that the defined term "income" sets in relation to the power contained in cl 2.1(a) to apply income for the whole of the financial year. That is, the defined term "income" sets the maximum amount of interim distributions that may be made during the financial year as the income recorded in the annual accounts of the Trust Fund.
As already mentioned, no formal resolution of the directors of EYS was required to pay interim distributions of income under cl 6.26. The application of income is by the fact of payment in the "same manner" as provided under cl 2.1(a). Here the dispositive act is the fact of the interim payments by EYS into the joint bank accounts of Ms Segelov and Mr Joseph.
One consequence of this quantitative as opposed to temporal limitation on the trustee's power to make interim distributions, is that the trustee needs to be careful not to distribute an amount in excess of the income ultimately recorded in the annual accounts. To do so would be a breach of trust. However, the existence of this possibility is not a reason for giving no operation to cl 6.26. It remains only to be observed that EYS acted in a prudent manner in the present case, by only paying interim distributions which in total were well less than the income which was recorded in the annual accounts each financial year.
Secondly, Havers J found that there was no duty on the trustees to give the brother legal advice or to inform him of his right to sever the joint tenancy when he turned 21, although they would be bound to disclose on demand any documents relating to the trust. [61]
It should be immediately observed that the duty of notification added nothing to the other breaches of trust found by Havers J in Hawkesley - namely, the trustees had failed to pay the income of his share of the trust fund to the brother when he turned 21, and also failed to pay the capital to the brother and sister as joint tenants upon the sister turning 21.
Hawkesley was referred to by Brennan J in Hawkins v Clayton [62] as supporting a duty of notification in a different context, being the duty of a fiduciary to make disclosures. His Honour concluded that the custodian of a will, after the death of the testator, owed a duty of care in tort to disclose the existence of the will to the nominated executor and beneficiary including taking steps to locate that person or persons if necessary to discharge that duty. Nonetheless Brennan J observed that the ground of distinction by Havers J between public and private documents "may seem tenuous". [63] His Honour proffered another ground of distinction between the position of executors and trustees. He said this "may be that an executor's duty is to distribute to legatees who are entitled rather than to assist them to satisfy conditions of entitlement". [64]
The description by Havers J in Hawkesley of the trust deed as a private document to which the beneficiary has "no access" is ambiguous. His Honour did not make clear whether he meant "no access" as a matter of "right", or as a matter of fact. If Havers J intended to convey that a beneficiary is not entitled to inspect the trust deed, then the premise of the distinction between public and private documents is wrong. As Havers J later recognised in his reasons, [65] the trustees in that case were under a duty to disclose to the brother on demand any document relating to the trust. It is uncontroversial that a beneficiary of a trust such as that in Hawkesley, has the right to seek and obtain from the trustee information concerning the trustee's management of the trust fund including inspection of trust documents. [66]
On the other hand, if Havers J intended to convey that a beneficiary has "no access" to the trust deed as a matter of fact because he or she is unaware of a private document, then the reasoning in Hawkesley becomes a little clearer.
Hawkesley was considered by Mahoney JA in Hartigan Nominees Pty Ltd v Rydge. There, this Court considered the "right" of the "beneficiary" of a discretionary trust to inspect a memorandum of wishes provided by the instigator of the trust. Mahoney JA observed that although Havers J "suggested" that a trustee has an obligation to explain to a beneficiary what his rights are, the extent of that obligation remains in doubt. His Honour expressed doubt whether it is the "duty of a trustee to inform all persons who may possibly take under a discretionary power of the nature and extent of that possibility". [67]
Mahoney JA added that it may be that Havers J "was referring to the right of a beneficiary who is entitled to inspect trust documents to have his rights explained to him". [68] If this be the foundation for the source of the duty of notification in Hawkesley, it is explicable on the facts of that case. The brother having turned 21 was unaware that he was entitled to his interest under the trust fund, which the trustees had failed to transfer to him.
It is however, a much larger step to suggest that in all trusts a beneficiary's right to inspect the trust documents, including the trust deed, gives rise to a corresponding duty of disclosure owed by the trustee to the beneficiary to have his or her rights explained to them, including in the case of potential objects of a discretionary trust their entitlement to an interest in the trust fund once determined by the trustee. Implicit in Ms Segelov's reliance on Hawkesley was that it established a principle of general application. This contention should be rejected. To accept such a proposition would be to impose a duty on trustees without regard to the nature and the terms of the relevant trust and the social or business environment in which the trust operates, contrary to the approach explained in SAS Trustee Corporation v Cox.
In the present case, the nature of the Trust is a service trust established as part of the partnership arrangements entered into by E&Y which permitted E&Y to derive tax benefits in the form of deductions in respect of amounts paid to EYS for the hire of assets and staff. In turn, the Trust enabled the distribution of income it received to partners of E&Y or persons nominated by them: see Federal Commissioner of Taxation v Phillips. [69] This was part of the remuneration arrangements provided by E&Y to its partners. It is also necessary to have regard to the essential nature of such discretionary trusts as explained by Mahoney JA in Hartigan Nominees Pty Ltd v Rydge. [70] Here the distributions of income in favour of Ms Segelov as a potential object of the Trust, were paid into the joint bank accounts in her name and that of her husband. Unlike the brother in Hawkesley, Ms Segelov received her interest upon payment by EYS in the manner provided for under cl 2.1(a) of the trust deed, and that provision afforded EYS a full and final discharge as trustee upon making payment in that manner. These particular features of the trust deed and the effect of payment into the joint bank accounts are inconsistent with there being a duty of notification in the present case.
I turn briefly to the views of text writers relied upon by counsel for Ms Segelov. Jacobs' Law of Trust in Australia [71] states that "there is no general duty on trustees to volunteer documents or information to beneficiaries or possible beneficiaries". However it also states that "[a] trustee is bound to inform a beneficiary, who on attaining majority is entitled to share in a trust fund, of that interest" citing, amongst other cases, Hawkesley as supporting that proposition but noting doubts expressed in Hartigan Nominees Pty Ltd v Rydge [72] and Re Manisty's Settlement. [73]
Ford and Lee [74] cite Hawkesley as authority for the proposition that "[i]n the case of beneficiaries of strict trusts the trustee has a duty to inform all beneficiaries of full age and capacity of their rights".
Reference was also made by counsel for Ms Segelov to the views expressed in Lewin on Trusts [75] at [23-08] in relation to the trustee's duty to notify beneficiaries of their interests, in the case of adult beneficiaries with future interests; and at [23-09] in the case of discretionary beneficiaries; Trust Law in Australia [76] at 261-262; and Underhill and Hayton Law of Trusts and Trustees [77] at [50.2].
On a close reading, nothing in the generalised statements in the identified passages in those texts, specifically addresses the foundation for the asserted duty of notification in the present, that is having regard to the terms of the particular trust here under consideration. I do not consider that assistance is to be gained from these sources.
In summary, the faithful performance of EYS' duties as trustee did not require EYS to take the additional step of notifying Ms Segelov of its decision to make a distribution in her favour, in circumstances where the terms of the trust deed afforded EYS a full and final discharge upon payment of the distributions to a joint bank account in the name of the beneficiary (as occurred here), without the necessity of any receipt executed by or on behalf of the beneficiary.
Grounds 1(a) and 2 are not made out.
Ground 3 is not made out.
Ms Segelov's second argument was that EYS was guilty of "wilful neglect" and accordingly the exemption clause was not engaged. Counsel for Ms Segelov submitted that EYS was aware of the risk that loss will result if its annual communication with Mr Joseph was not provided by him to Ms Segelov and that EYS was recklessly indifferent to the risk whether she was notified or not (by Mr Joseph) of her entitlement to distributions from the Trust.
It was common ground that the expression "wilful neglect" is analogous to the expression "wilful default". The latter requires nothing less than conscious and wilful misconduct on the part of the trustee: Armitage v Nurse. [83] Millett LJ continued, citing with approval the following statement of Maugham J In Re Vickery, [84] that the trustee must be:
conscious that, in doing the act which is complained of or in omitting to do the act which it said he ought to have done, he is committing a breach of his duty, or is recklessly careless whether it is a breach of his duty or not.
Counsel for Ms Segelov acknowledged that there was no cross-examination of Mr Dixon, a director of EYS, as to whether he had any reason to think that Mr Joseph would not provide to Ms Segelov the information which he received annually from EYS, being the trustee's annual statement of distributions in favour of Ms Segelov. [85]
In my view, the cross-examination of Mr Dixon of EYS did not establish that EYS was recklessly careless or indifferent to the trustee's supposed breach of duty to inform Ms Segelov of her entitlements under the Trust following the June resolutions. Mr Dixon was not challenged on his evidence that EYS expected that the partners of E&Y would pass on the annual information to the relevant beneficiary. The annual information was required by Ms Segelov to prepare her tax returns which, as a taxpayer, she was required to personally sign. The cross-examination of Mr Dixon did not identify any matters or circumstances known to EYS from which EYS should have had reason to doubt that Mr Joseph would pass on the annual information to Ms Segelov. The evidence did not demonstrate that in failing to directly notify Ms Segelov of such information, EYS was recklessly careless whether it was in breach of its supposed duty as trustee or not.
In these circumstances, no occasion arises for any wider review of the authorities referred to in the course of argument on the meaning of the expression "wilful neglect or default". Here, there is no reason for thinking that the trustee exemption clause would not have been engaged if the alleged breach of duty by EYS had been otherwise established.
[2009] 1 AC 1101 at [17].
[2013] NSWCA 348 at [43] (Meagher JA; Ward and Emmett JJA agreeing).
[2013] NSWCA 368 at [159] (McColl JA; Beazley P agreeing).
[2014] NSWCA 323 at [39] (Macfarlan JA; Barrett JA agreeing) and at [103] (Meagher JA) noting the High Court granted special leave on 15 May 2015.
(2012, Lawbook Co) at [5.11].
[2014] NSWCA 279 at [11] (Beazley P and Tobias AJA agreeing).
Owners of the Ship "Shin Kobe Maru" v Empire Shipping Co Inc [1994] HCA 5; 181 CLR 404 at 419. See also Wacal Developments Pty Ltd v Realty Developments Pty Ltd [1978] HCA 30; 140 CLR 503 at 507.
[2006] VSCA 28 at [5].
[1964] HCA 12; 109 CLR 395 at 402. See also Horsell International Pty Ltd v Divetwo Pty Ltd [2013] NSWCA 368 at [162] (McColl JA; Beazley P agreeing).
Halford v Price [1960] HCA 38; 105 CLR 23 at 26-27 (Dixon CJ); Gibb v Commissioner of Taxation (Cth) [1966] HCA 74; 118 CLR 628 at 635 (Barwick CJ, McTiernan and Taylor JJ); Kelly v The Queen [2004] HCA 12; 218 CLR 216 at [103] (McHugh J).
Vegners at 5,279 (Gummow J); appeal dismissed Vegners v Federal Commissioner of Taxation [1991] ATC 4,213.
[1996] FCA 474; 67 FCR 402 at 411 (Lockhart and Hill JJ); and see Sigiriya Capital Pty Ltd v Scanlon [2013] NSWCA 401; 97 ACSR 183 at [30].
[1960] HCA 38; 105 CLR 23 at 33.
[2013] NSWCA 231; 304 ALR 436 at [86] (Leeming JA; McColl and Gleeson JJA agreeing).
Zhu v Treasurer of the State of New South Wales [2004] HCA 56; 218 CLR 530 at [82].
J C Campbell "Should the 'Rule in Hastings-Bass' Be Followed in Australia? - Trustees' Duties to Enquire and Trustees' Mistakes" (2011) 34 Australian Bar Review 259 at 270.
AT 23/3/15, 18 at line 17.
[1936] HCA 34; 55 CLR 440 at 448 (Starke J) and 450 (Dixon and Evatt JJ).
Federal Commissioner of Taxation v Cornell [1946] HCA 32; 73 CLR 394 at 402 (Latham CJ).
Vegners v Federal Commissioner of Taxation [1991] ATC 4,213 at 4,215.
Hawkesley at 325.
Hawkesley at 322.
Hawkesley at 323.
At 553-554.
At 553.
At 554.
Hawkesley at 323.
See Re Simersall; Backwell v Bray (1992) 35 FCR 584 at 588-590 (Gummow J).
(1992) 29 NSWLR 405 at 432.
(1992) 29 NSWLR 405 at 432.
(1978) 20 ALR 607.
At 436.
(7th ed 2006, LexisNexis Butterworths) at [1715].
(1992) 11 NSWLR 405.
[1974] Ch 17.
H A J Ford and W A Lee, Thompson, Principles of the Law of Trusts, vol 1 (at Release 97) at [9.4610].
L Tucker et al, Lewin on Trusts, (19th ed 2015, Sweet & Maxwell).
D Ong, Trust Law in Australia, (4th ed 2012, Federation Press).
D Hayton, P Matthews and C Mitchell, Underhill and Hayton Law of Trusts and Trustees, (18th ed 2010, LexisNexis).