Teterin v Linrod Pty Ltd [2024] NSWSC 1635 | Case summary

Supreme Court of NSW|2024-11-28|Before: Pike J

n Pty Ltd (1985) 157 CLR 1 Texts Cited: Heydon and Leeming, Jacobs' Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworths) Lynton Tucker et al, Lewin on Trusts (Sweet & Maxwell, 20th ed, 2020) Category: Principal judgment Parties: David John Teterin (Plaintiff) Linrod Pty Ltd (First Defendant) Peter James Evans (Second Defendant) Norman Teterin (Third Defendant) Stephanie Helen Teterin (Fourth Defendant) Representation: Counsel: A Harding SC with N Condylis (Plaintiff) T O'Brien with F G Di Lizia (First and Fourth Defendants) S Clemmett (Second Defendant) N Simpson (Third Defendant)

Solicitors: Adrian Holmes Lawyer (Plaintiff) CDG Law (First and Fourth Defendants) Gilchrist Connell (Second Defendant) Sarah Young Solicitor (Third Defendant) File Number(s): 2021/00256010 Publication restriction: Nil

The facts

Most of the relevant facts were not in dispute. I set out below the relevant facts, resolving any material dispute where there was one.
The Trust was settled by a trust deed on 14 December 1977 (the Trust Deed). The principal asset of the Trust is a 108-acre farm located at 202 Melville Ford Road, Melville, NSW (the Trust Property). The original trustee of the Trust was Teterin Turbocharging Pty Ltd. The Trust Property was originally purchased in 1966 by a company called Teterin Bros Pty Ltd, which was an engineering business conducted by Norman with his brother, Alan Teterin.
The Trust Property was brought into the Trust in 1981 as part of Norman and Alan separating their business interests. Linrod was incorporated in 1981 with Norman and his wife as directors. On 30 August 1981, Linrod replaced Teterin Turbocharging Pty Ltd as the new trustee, and on 31 August 1981, Teterin Bros Pty Ltd transferred the Trust Property to Linrod.
The Trust Deed was apparently drafted by the second defendant (Mr Peter Evans), Norman's long-time solicitor. Pursuant to the terms of the Trust Deed, Norman was named as appointor. The vesting date, unless the trustee of the Trust determines an earlier date, is likely to be 14 December 2037.
The beneficiaries are defined in clause 1(d) of the Trust Deed as: "the Beneficiaries" means: (i) the Principal Beneficiaries; (ii) the persons referred to in the Sixth Schedule; and (iii) the incorporated charity specified in the Seventh Schedule.
The Sixth Schedule defined the class of "Beneficiaries" as: The persons referred to in Clause 1 (d) (ii) are:- 1. the children, grandchildren, great grandchildren and brothers and sisters present and future of the Principal Beneficiary or any of them. 2. any person who shall at any time be or have been the spouse of the Principal Beneficiary of any of them. 3. any person who shall at any time be or have been the spouse of any child, grandchild, great grandchild, brothers and sisters present or future of the Principal Beneficiary of any of them. 4. the nieces and nephews of the Principal Beneficiary and the husbands or wives of the nieces and nephews of the Principal Beneficiary of any of them. 5. any company or body corporate in which the Principal Beneficiary is for the time being a shareholder.
Norman was named as the Principal Beneficiary - see the Fifth Schedule.
Norman was born on 26 October 1931. The plaintiff (David) was a child of Norman's first marriage to Eleanor McLean. He had two other children of that marriage - Stephen (now deceased) and Howard. Norman and Eleanor also adopted Joanne Teterin (now deceased). In 1975, Norman married Kay and they had two children, Bruce and the fourth defendant (Stephanie). Kay had two children from a previous marriage, who Norman has since adopted.
The Trust Deed contained provisions permitting the trustee to apply income on an annual basis for the benefit of all or such one or more of the Beneficiaries as the trustee may, in his absolute discretion, determine (clause 2(a)). The default position under clause 2(b) was that the trustee was to apply the income for the benefit of the Principal Beneficiaries and if there were no Principal Beneficiaries, then for the persons in paragraph [1] of the Sixth Schedule (set out above).
Similar provisions existed conferring a broad discretion on the trustee with respect to the capital of the Trust.
The Trust Deed provided in clause 7 for the trustee to have broad powers, including the power to enter into transactions with any person who is, for the time being, beneficially entitled to any interest, whether vested, contingent, presumptive, expectant or prospective, in the Trust fund (clause 7(e)).
Under clause 7(f), the trustee may, if it thinks fit, purchase any dwelling for use by a Principal Beneficiary as that Principal Beneficiary's home and the trustee may, from time to time, effect repairs, renovations, alterations or extensions to any such dwelling.
From about 1983, the Trust Property was the family home, occupied by Norman, Kay, John, Howard, Bruce and Stephanie. Two houses are located on the Trust Property. Norman has lived in one of those houses since 1983, save for a brief period in early 2020. The evidence does not make clear when John, Howard and Bruce left the Trust Property.
Since 1998, Stephanie appears to have resided in the other house on the Trust Property, save for between 2004 and 2006, and at all times since at least 1998 has managed the farming operations on it.
In 2002, a number of documents were executed. These documents appear to be linked to a desire by Norman to fully retire and a desire by him to receive a full aged pension. Norman received accounting and legal advice at the time.
By letter dated 27 February 2002, Heufel Partners, Norman's accountants, sent a letter to him in the following terms: Dear Norman Further to our meeting yesterday we can confirm that we have consulted with Mr Anthony Foate who is an expert in the field of trust deeds. We advised Mr Foate that you wish to cease as the principle [sic] beneficiary and was desirous of handing the roll [sic] of principle [sic] beneficiary to your daughter Stephanie Teterin. We note that earlier you had sort [sic] legal advice that in effect advised you that there would be a resettlement of the Trust should this be effected. We are pleased to advise that Mr Foate is of the opinion that the change of principle [sic] beneficiary can be effected without either the resettlement of the Trust occurring nor a capital gains tax event occurring. Mr Foate has advised that the powers of the principle [sic] beneficiary, which will now be Stephanie, are quite extensive and includes the unfettered power to change the trustee of the Trust. We note that you and your wife Kay will step down from the board of directors of the Trustee company and Stephanie will take your place but it must be emphasised that Stephanie after all of this has been effected will be in a position to determine how the Trust runs and where the profit may be distributed virtually in her own right. We note that you have advised us that you have three other children and you have concerns at the moment about the possible inheritance problems that may arise with Stephanie taking virtually sole control over the farm. We can advise that the costs for Mr Foate to attend to the change in the Trust Deed and for ourselves to effect the change in the corporate structure as mentioned above will be approximately $1,000.00. We await your further instructions. Yours faithfully, Heufel Partners
It is not in dispute that on 25 March 2002, Linrod executed a "Variation of Trust Deed" (the Variation Deed), purporting to act under the power to amend in clause 13 of the Trust Deed and to insert new paragraphs 2 to 5 of the Trust Deed in place of the existing provisions.
As to income, the primary position in paragraph [2] was stated as: 1. Discretionary income The Trustee holds the income of a financial year which is available for distribution upon trust to pay, apply or set aside the income, or any part of the income, to or for the benefit of the Principal Beneficiaries or any one or more of them exclusive of the other or others who are living or which are in existence at the time payment, application or setting aside of such income is made in such shares or proportions and from such category of income as the Trustee in its absolute discretion determine.
The default clause in sub-paragraph [3] was to the effect that the Sixth Schedule beneficiaries would take in default "starting from class 1 and moving to class 5" with that movement "only to occur to the next class in the event there is no takers in the previous class".
The new clause 3 dealt with Capital and provided in sub-clause 1 that until the Trust is wound up, the trustee holds capital for the Beneficiaries as follows: a. on or prior the termination date the whole or any part of the capital, or of any category of capital, is held for such one or more of the beneficiaries to the exclusion of the others as are then living or in existence and if more than one in such shares or proportions as the Trustee in its absolute discretion may at any time or times determine in the manner provided in this clause; and b. on termination of the Trust, the capital available for distribution which has not been the subject of an effective determination of the Trustee pursuant to clause 3.1(a) must be held for the default beneficiaries as listed in the SEVENTH SCHEDULE.
The default beneficiary in the Seventh Schedule is the Children's Leukemia Fund of Australia.
The Variation Deed also made amendments to permit Norman to relinquish the role of appointor. If he relinquished the power but did not appoint a new appointor in his place, the residual power of appointment vested in the trustee.
Notwithstanding the terms of the letter from Heufel Partners dated 27 February 2002 (set out above) the Variation Deed did not amend the definition of Principal Beneficiary. Norman appears to have remained, at all times, the Principal Beneficiary. This has some significance on the issue of whether Norman relinquished his interest in the Trust.
On 25 March 2002, Norman issued a letter to Linrod as trustee by which he resigned as appointor. He did not appoint anyone in his place. The effect of the Variation Deed is that Linrod, as trustee, became the appointor.
On 26 March 2002, Norman and Kay resigned as directors of Linrod and transferred their shares in Linrod to Stephanie, who was appointed as sole director of Linrod.
On 19 April 2002, Mr Heufel wrote to Norman in the following terms: Dear Norman We note that a letter was sent to you from Centrelink dated 18 April 2002. We understand that Centrelink require the following: 1. A letter from you declaring that you and Kay will not exert any control over or benefit in any way from the Trust or the Company. 2. Copies of the share transfers evidencing the transfer of the share from yourselves to Stephanie. 3. Copies of the documentation evidencing your resignation as Directors and Secretaries of the Trustee company. 4. Copies of your letter of resignation as appointor of the Trust. 5. Copy of the amended Trust Deed. 6. A letter from Anthony Foate stating that the amended Trust Deed does not need stamping. 7. We have written to Mr Foate requesting that he forward such a letter to yourself and we are pleased to advise that we have enclosed all of the other requirements for Centrelink. We suggest that you wait until Mr Foate has written you the letter confirming the non-requirement for stamping and then take all of the documents to the Centrelink office. Should you require any further assistance or clarification please do not hesitate to contact this office. Yours faithfully HEUFEL PARTNERS
A further letter from Mr Heufel to Norman was in the following terms: Dear Norman RE: AMENDMENT TO THE NORMAN TETERIN FAMILY TRUST As you would be aware, we prepared a deed of amendment to the above trust to enable you to be removed from the position of appointor. This was necessary, as there [sic] the original deed did not provide for an appointor to resign their commission. Accordingly, we deleted the relevant clause and replace [sic] it with a new clause enabling the appointor to simply resign by letter to the trustee. The above amendments will not result in there being a resettlement for stamp duty purposes, further, we have been advised by the Office of State Revenue that it is not necessary to have the deed of amendment stamped. Should you have any queries in relation to any of the above, please do not hesitate to contact me.
The letter from Centrelink dated 18 April 2002 was not in evidence. An unsigned form of the letter from Norman to Centrelink was in evidence. It is dated 19 April 2002 and is in the following terms: We note the contents of your letter dated 18 April 2002. We have enclosed a copy of the letter sent to us from our accountant Mr Vincent Heufel. We have enclosed all of the documentation that you have required. We make the declaration that neither of us (that is myself Norman Teterin and my wife Kay Teterin) will not [sic] exert any control over or benefit in any way from the Trust or the Trustee company. We believe that this satisfies all your requirements however should you require any further information please do not hesitate to contact us.
Initially, there was a dispute on the evidence as to whether Norman ever signed and sent the letter to Centrelink or indeed to Linrod. Counsel for Norman accepted in closing address that he did not dispute that the letter was signed and sent to Centrelink and was also provided to Linrod as trustee. It was also an agreed fact that since 2002, Norman has received the aged pension.
During the period after Stephanie was appointed sole director and shareholder of Linrod, she continued to operate the farming activities on the Trust Property. The manner in which those activities were carried out changed in about 2017-2018 in a manner that now forms a central part of the plaintiff's case for the removal of Linrod. I describe the change below.
From at least 1998 up to the end of the 2017 financial year, the farming operations were carried on by the Trust. Stephanie carried out the work, without pay. Income from the sale of cattle was applied towards the expenses of the Trust Property. Stephanie estimates that at all times since 1998, she has applied and continues to apply a minimum of 10 hours per week in labour to the upkeep of the Trust Property. In addition, she applies almost all of her nine weeks' annual leave from her usual employment to working on the Trust Property.
Stephanie has also ensured rates, insurances, and other expenses for the Trust are paid when due out of her own monies. She has never documented a loan etc to show the expenses which she has paid on behalf of the Trust. She has simply kept a record of the big-ticket expenses she has paid. The schedule in evidence containing these big-ticket items also included details of work performed by Stephanie on the Trust Property over the years and sought to attribute a value to that work. The dollar value of the expenses paid or work performed exceeds $500,000. It is of some significance that these arrangements of Stephanie paying for the farm expenses to keep it going commenced prior to when she obtained control of Linrod in 2002.
I turn now to deal with the changes that were implemented in the 2018 financial year - described as the New Operational Arrangements, or NOA. According to Stephanie's affidavit evidence, as corrected slightly in evidence-in-chief, in around August 2018, having previously apparently been told by work colleagues in 2017 about running a farming business as a primary producer in her personal capacity, Stephanie sought the advice of an accountant and was advised to run the farming business conducted on the Trust Property in her personal capacity, leasing the Trust Property from the Trust. She was told by the accountant she may not need a formal lease agreement and she may want to follow up with a solicitor as to whether this is necessary. There is no evidence she did so. The accountant apparently later advised her it was not necessary for a written lease. Stephanie then arranged to obtain an ABN for the partnership between her and her then partner, Lee Grace (Lee).
In cross-examination, it emerged that Stephanie had obtained an ABN with Lee as her partner in July 2017, i.e. prior to the advice from the accountant. Stephanie and Lee then appear to have conducted themselves on the basis that the new arrangements would be implemented for the 2018 financial year but it was not until Stephanie saw her accountant in about August 2018 and received the advice that she says she received, that it was finally determined that the new arrangements would be implemented and the 2018 financial statements and tax returns were then finalised - I infer for both Stephanie and the Trust.
After Lee and Stephanie separated in October 2018, she arranged to get an ABN in her own name and the arrangements continued with Stephanie operating the farm as a sole trader.
Stephanie apparently had a discussion with Norman at the time (but after she had the go-ahead from her accountant), telling him that for tax reasons, on paper she would be leasing the farm from Linrod, which would allow her to offset the farm expenses against her non-farm income. Norman agreed. She also apparently spoke to her brother, John, and sister, Leanne, and they agreed the arrangement would be a good idea.
The practice that thereafter developed was that whenever an expense arose for Linrod, regarding the farm or the Trust Property, Stephanie (or Stephanie and Lee) transferred funds into Linrod's bank account for the purpose of putting Linrod in funds so it could pay the expenses (save for 2017-2018 where payment was made directly by Stephanie and Lee). All expenses in the name of Linrod were generally paid from Linrod's bank account. All other expenses relating to the day-to-day running of the Trust Property were paid directly by Stephanie (or Stephanie and Lee).
When payments were made by Stephanie (or Stephanie and Lee), these were apparently recorded as lease payments to Linrod being income in Linrod's accounts. Personal payments were not recorded.
Stephanie understood that this arrangement would lead to a situation in which there would be no income for distribution to beneficiaries. She also understood that the arrangement would not give her a significant unfair advantage from the Trust because she was still effectively taking financial responsibility for the loss associated with the running of the farm.
At the end of each financial year from 2017-2018, Stephanie would prepare two kinds of spreadsheets for the accountant: 1. one relating to her own financial affairs; and 2. a spreadsheet relating to the financial affairs of Linrod.
The accountant then used the spreadsheets to prepare annual financial statements and tax returns.
Under the arrangements, cattle were treated as owned by Stephanie (or Stephanie and Lee) and income from the sale of cattle on the farm was treated as income of Stephanie (or Stephanie and Lee) personally.
Stephanie put into evidence corrected versions of the spreadsheets, so as to be more specific in relation to what each payment was for and where it came from, and consolidating groups of expenses.
The corrected spreadsheets showed that for each of the financial years 2017-2018 to 2020-2021, farm expenses exceeded farm income. The same was true for later years.
Stephanie was cross-examined on a number of matters concerning the NOA, including her initial discussions with her accountant, whether she paid all of the expenses in relation to the running of the farm or whether some were paid by her parents, and some discrepancies between Stephanie's description of the NOA and what was recorded in Stephanie's tax return and the financial statements for the Trust.
Apart from suggesting that Stephanie's recollection of her initial discussions with the accountant is a little unreliable, I do not need to resolve any of the issues explored in cross-examination, including the terms of the discussion between Stephanie and her accountant. I do not regard them as bearing adversely on Stephanie's credit. There is no issue on the pleadings in relation to them. The plaintiff accepts the NOA as pleaded by Linrod and Stephanie in their defence and contends that the NOA as pleaded amount to breaches of fiduciary duty justifying Linrod's removal.
An issue that arose on the evidence was whether, as contended for by the plaintiff, Stephanie sought, in 2019, to have the Trust dissolved and the Trust Property transferred into her name. A related issue was whether she sought to mortgage the Trust Property. Stephanie denied both propositions.
Determining what occurred involves a consideration of Stephanie's evidence, the brief evidence of Mr Evans, and the documents.
The starting point is Stephanie's affidavit evidence. She gave evidence that she met with Mr Evans in November 2018 to receive personal legal advice and to discuss issues arising from her recent separation from her long-term partner, Lee. Her parents were present with her at the meeting.
An aspect for which she sought advice was to ensure that any settlement with Lee did not impact the Trust Property. Mr Evans prepared a new will for Stephanie.
She apparently later spoke to Mr Evans about wanting to buy a block in her own name and Mr Evans apparently told her to contact him when she was serious about it.
A file note, dictated by Mr Evans dated 19 February 2019 with the "Matter" heading as "Linrod Pty Ltd transfer to" stated: We have to ascertain a way in which we get the title in the daughter's name which we can do by intergenerational transfer, however my concern is if she marries. What we probably need to do is guarantee the parents of life interest and make sure the daughter can't mortgage the property. Maybe the life interest will do that.
A file note, prepared by Robyn White, a conveyancing clerk in Mr Evans' employ at the time, dated 9 April 2019 in the "Matter" of "Linrod Pty Ltd transfer to Stephanie Teterin" stated: Telephone attendance on Stephanie today advising that LRS sent her the original CT for the above. She checked her records and said that she had found it. She wants to dissolve the trust without stamp duty and any other issues and transfer the property to Steph's name. She will drop into the office after Easter to discuss the way forward and bring in the original CT.
There was then an email from Robyn White to Stephanie, copying Mr Evans, dated 29 April 2019, which stated: Dear Stephanie, We refer to our recent telephone discussions with you and your advice that you hold the original Certificate of Title for the above property. We note that you wish to transfer the property into your name solely and that you will attend at our office in person with the original Certificate of Title. I have advised Mr Evans of our office of your intentions and he has asked that you please telephone him prior to coming in so that we can make a convenient time for both of you to meet. The office telephone number is below and the mobile number 0418493864. Regards, Robyn White
On the file note is some handwriting of Mr Evans, which he said recorded a discussion with Stephanie, likely in the presence of her parents. The effect of that discussion was that the Trust Property would be left in the discretionary trust until Stephanie's former de facto is unable to claim. The file note also states that Stephanie's "parents would like Stephanie to use the Melville Property to buy 100 acres". The file note in this respect includes "at" and then ends. Mr Evans was not able to recall the detail of any property that may have been mentioned. The handwriting on the file note then records "Linrod took title free CGT".
Mr Evans swore an affidavit in his own case but this was obviously not relied on given the claim against Mr Evans was discontinued at the commencement of the hearing. The plaintiff then called Mr Evans on subpoena to give evidence. In evidence-in-chief, Mr Evans confirmed that at paragraph [50] of his defence filed in the proceedings, he admitted Stephanie purported to instruct him in his capacity as solicitor to dissolve the Trust and transfer the Trust Property to Stephanie in her personal capacity. Mr Evans could not recall, in the witness box, what steps were taken to satisfy himself of this admission - "I suspect there was a file note of a phone call".
In relation to the 19 February 2019 file note (extracted above), Mr Evans said that it probably followed a suggestion that the title should be put in Stephanie's name. He was not sure who made the suggestion, Stephanie or her parents. In cross-examination, he said he recalled a meeting around this time with Norman and Stephanie. Mr Evans said he expressed concern regarding the rights of the parents to live in the Trust Property if something went wrong and Stephanie gave assurances that the parents would be protected.
Mr Evans also gave evidence in cross-examination that he recalled discussing with Norman or Stephanie the idea that the Trust Property could be transferred into Stephanie's name; his advice was against doing that, which advice was followed. Norman was the "prime client" and before taking any steps to transfer the Trust Property, he would have spoken to Norman about it.
In relation to the handwriting on the 29 April 2019 email, Mr Evans said he spoke to Stephanie and advised her it was a bad idea to transfer the Trust Property into her name, which advice was followed. Mr Evans said that Norman and Kay "would have" been present with Stephanie on this occasion, as they said to him they wanted Stephanie to use the Melville property to buy a 100-acre farm.
In cross-examination, Stephanie: 1. said that there was only one occasion when she met with Mr Evans and her parents, which was the first occasion; 2. said she was not sure how long it was between the first meeting with Mr Evans and her second. She may have had a brief phone conversation with Mr Evans; 3. said that in the first meeting with Mr Evans, Norman mentioned the possibility of transferring the Trust Property into Stephanie's name. Mr Evans advised against it; 4. denied that she told Robyn White that she wanted to dissolve the Trust. The conversation was only about Stephanie dropping the Certificate of Title in; and 5. said that later in April 2019 she had a discussion with Mr Evans in his office. She denied that she conveyed to Mr Evans that her parents would like her to use the Melville property to buy 100 acres. It was, however, agreed at that meeting that the Trust Property should be left in the discretionary trust until her former partner, Mr Grace, was unable to make a claim - that was the whole purpose of visiting Mr Evans.
It is quite apparent that there are differing accounts based on the oral evidence of Mr Evans and Stephanie. The contemporaneous documents paint the most reliable picture. Having regard to the documents, I find: 1. Someone, either Stephanie or her parents, raised the prospect of transferring the Trust Property to Stephanie at the initial meeting. Mr Evans advised against this; 2. The issue of transfer was also addressed a few months later between at least Stephanie and Mr Evans and he against advised against it and advised that the Trust Property be left in the discretionary trust until her former de facto was no longer able to make a claim; and 3. Norman and Kay raised the issue of borrowing against the Trust Property to enable Stephanie to buy a place of her own, but the issue went nowhere.
It follows that I do not accept Stephanie's denials about what was discussed with Mr Evans in late April 2019. I do not regard this as telling too heavily against Stephanie's credit or raising much of a concern about having Linrod as the trustee with Stephanie as its sole director. Stephanie's recollection of these events is unreliable.
The prospect of transferring the Trust Property to Stephanie was considered in early 2019 and did not proceed. There would have been nothing per se wrong with transferring the Trust Property if that had occurred.
On or around 23 March 2020, it appears that there was a physical altercation between Bruce and Paul Geddes (Stephanie's current partner).
It was not in dispute that this incident caused considerable animosity and fighting within the family. Norman left the Trust Property (including his wife Kay) from March 2020 to July 2020. During this period, he lived with Bruce and, for a short period, David.
Some evidence was also given as to what occurred when David visited the Trust Property with Norman on 26 March 2020. This was the first occasion on which Stephanie had met David. It seems common ground that Stephanie filmed David on this occasion and David photographed Stephanie filming him. The plaintiff contended that what occurred on this occasion suggested that Stephanie bore ill will and animosity towards David which would cause the Court to conclude that Stephanie, as sole director of Linrod, would not approach the trustee role in an impartial manner going forward and as such Linrod should be removed as trustee. Stephanie denied any ill will in an affidavit made during the hearing in response to a late affidavit from the plaintiff.
I do not regard this issue as that significant in the scheme of things. There is an issue about whether, on the pleadings, it is open to the plaintiff to run a case of a lack of independence and impartiality in a general sense, which I address below. Even if it is open, I do not regard what occurred on one day in March 2020, in what was obviously a difficult time, as bearing on independence and impartiality now.
During this period of absence from the Trust Property, Norman (together with Bruce and David) attended a meeting with Mr Evans. On 26 March 2020, Norman and Mr Evans executed a deed, purporting to remove Linrod as trustee and appoint Mr Evans as trustee. On the same date, Norman signed a new will, leaving his entire estate to Bruce and David, and also signed an Enduring Guardian and Power of Attorney documents, appointing Bruce and David.
In about August/September 2020, Norman, Kay, Stephanie and Linrod executed a document entitled "Deed Confirming Appointor". It is clear from the terms of the document that Norman was back on good terms with Kay and Stephanie by this time. By its operative terms, this deed purports to confirm the terms of the Variation Deed and to acknowledge and accept that the document dated 26 March 2020, purporting to appoint Mr Evans as the new trustee, is void and of no effect.
During this period, there was correspondence between solicitors for the various interested parties as to who was the trustee of the Trust. By letter dated 1 March 2021, Mr Evans contended that his appointment as trustee on 26 March 2020 was intended by Norman as an interim measure, but his instructions were withdrawn a short time thereafter. Mr Evans indicated he would accept any resolution reached by agreement between the main protagonists - Norman, Linrod and Stephanie - or as may be imposed by the Supreme Court. By letter dated 20 July 2021, Mr Evans confirmed that because neither Stephanie nor Norman now accept that Mr Evans is the trustee, no trust records have ever been transferred to him and as such, he has no trust records.
In February 2021, Stephanie submitted an application to Maitland City Council in relation to a business which she was commencing based around improving motorbike riding skills. A Statement of Environmental Effects was lodged with the application. Stephanie was cross-examined on the Statement of Environmental Effects as to whether the proposed business was to be conducted on the Trust Property. As I understand the criticism of Stephanie's evidence by the plaintiff, it was that Stephanie was either not prepared to admit that the business was to be conducted on the Trust Property or understated the extent to which it would be. I do not accept this criticism of Stephanie's evidence. Stephanie regarded the principal aspects of the business as being conducted offsite which is not falsified by the document. In any event, the point does not bear adversely on Stephanie's credit or suggest a lack of impartiality or independence on her part.
The proceedings were commenced by David by summons on 7 September 2021. Mr Evans filed a submitting appearance.
Orders were subsequently made that the matter proceed by way of pleadings. A statement of claim was filed on 15 March 2023, making allegations of breach of trust against Mr Evans. Mr Evans withdrew his submitting appearance and filed a substantive defence on 25 July 2023. Norman filed a cross-claim against Mr Evans on 22 March 2023 for breach of retainer. That cross-claim was subsequently dismissed with costs.
In late November 2023, there was a mediation in the matter, which failed. Shortly thereafter, Norman filed a motion seeking leave to withdraw a paragraph in his defence in which he admitted the plaintiff had standing to bring the proceedings as a beneficiary and brought an application for the plaintiff to undergo a paternity test. Apparently, Stephanie had suggested the idea to Norman, saying to Norman "Are you sure David's your son, he's nothing like us". A paternity test was taken which concluded there was a high probability that the plaintiff was Norman's son, and the motion was dismissed.
By letter dated 29 April 2024 from Norman's solicitor to the plaintiff's solicitor, a settlement offer was made purportedly on behalf of Norman, Stephanie and Linrod which included a payment of $50,000 to the plaintiff in return for various releases from the plaintiff. Needless to say, the offer was not accepted. Its relevance for present purposes concerns the fact that in cross-examination, Stephanie denied any knowledge of the offer having been made on behalf of her and Linrod. The plaintiff contended that this denial, in circumstances where there was nothing at the time from Stephanie/Linrod's solicitors asserting that they had not approved the offer, bore adversely on Stephanie's credit and suggested she lacked independence and impartiality such that Linrod should be removed.
I do not accept the denial as bearing adversely on Stephanie's credit. She struck me as a witness seeking to do her best to assist the Court. As her counsel submitted in closing submissions, Stephanie is not a "lawyer or a lady of letters". At its highest, the denial bears on Stephanie's reliability as a witness but not her integrity and honesty.
To complete the factual picture, on 30 October 2024, Norman, Kay, Stephanie and Linrod executed a "Deed of Removal of Appointment" (Removal Deed). By its operative provisions, Norman, in the event he remains the appointor of the Trust and Mr Evans was validly appointed as the trustee, removed Mr Evans as the trustee and appointed Linrod as trustee.
A copy of the Removal Deed was sent to the solicitors for Mr Evans on 11 November 2024 and on 12 November 2024, the solicitors for Mr Evans sent an open offer to the other parties to the proceedings, inviting the plaintiff to discontinue the proceedings against Mr Evans. The parties agreed that Mr Evans no longer needed to be a party to the proceedings but were unable to agree as to costs.
At the commencement of the hearing on 25 November 2024, I gave leave to the plaintiff to discontinue the proceedings against Mr Evans and ordered the plaintiff to pay Mr Evans' costs of the proceedings since 19 July 2023. I set out later in these reasons my reasons for making this costs order.
The current land value of the Trust Property for rating purposes as at 26 September 2023 has been assessed by the NSW Valuer General as $2.29 million. Two historical land valuations were also in evidence: $290,000 in 2002 and $1.13 million in 2019.
The plaintiff contended that it was common ground between the parties that the Trust Property was to be sold. This contention appeared to be based on an offer made by Linrod and Stephanie to the plaintiff to settle the proceedings. It emerged during the hearing that Linrod and Stephanie had made no decision as to whether the Trust Property should be sold now and Norman indicated, through his counsel, he was opposed to selling it.

The issues

Against this factual background, it appeared to be common ground that Linrod was the current trustee of the Trust. All parties appeared to accept that the Variation Deed was effective to remove Norman as appointor and as such the documents executed in March 2020 were of no effect.
The principal issue is whether Linrod should be removed as the plaintiff contends.
The second issue is whether Norman has disclaimed any interest in or entitlement in or under the Trust.

Relevant principles

The starting point is an understanding of the nature of the Trust and an appreciation of the rights of potential beneficiaries of the Trust and the duties of trustees of discretionary trusts such as those involved in this case.
A "discretionary trust", such as the Trust, is a trust coupled with a special power of appointment: the beneficiaries are not determined at the moment of creation of the trust - either as to identity or quantum of interest - and the choice of beneficiary, or the determination of his or her interest, or both, is left to the trustee to decide: Heydon and Leeming, Jacobs' Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworths) (Jacobs) at [3-14].
A discretionary trust does not have beneficiaries in the traditional sense, whose interests together aggregate the beneficial ownership of the trust property. Instead, there is a class of persons, usually described in wide terms, who are the objects of a power to appoint either income or corpus or both to selected members of the class. The members of the class are objects of a power, rather than beneficiaries in the strict sense.
The members of the class have no beneficial interest in the trust property. At best, they are potential beneficiaries. No object of such a trust has any fixed or vested entitlement, and the trustee is not obliged to distribute to everyone; the default distribution gives the beneficiary no more than a contingent remainder.
An eligible object or potential beneficiary has a right in equity to due administration of the trust, and the trustee has a corresponding fiduciary obligation at least to consider whether, and in what way, to exercise their discretionary powers of appointment. The trustee must act in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred. The obligation to exercise a discretion on real and genuine consideration can also be expressed in terms of whether the trustee has acted irresponsibly, capriciously or wantonly. The test is not fairness or reasonableness.
The nature of the trust and the terms in which the power is expressed will be important in determining the matters to which the trustee must have regard in the exercise of a power. A trustee must be properly informed - this obligation is universal although the extent of the obligation will be dependent on the particular circumstances, including the nature of the trust.
A trustee may not divest itself of the continuing responsibility of consideration by adopting a universal rule or by acting under the dictates of another.
Trustees are not obliged to disclose to beneficiaries their reasons for exercising a discretionary power.
A trustee is the archetype of the fiduciary. A trustee owes a duty of absolute and undivided loyalty. This generally embodies two themes: the conflict rule and the profit rule. The conflict rule precludes any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: see, for example Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1 at [68] per Gageler J. The profit rule prevents a trustee from deriving a personal benefit from their position.
The nature and scope of the fiduciary duties of a trustee may be limited by the terms of the trust instrument. An allied proposition is that the duties may be modified by the position of the respective parties prior to the commencement of the role of trustee. As stated by the learned authors of Jacobs at [17-39], after referring to the conflict rule: There is an exception to the principle where a testator or settlor, with knowledge of the facts, imposes on a trustee a duty which is inconsistent with a pre-existing interest or duty which that trustee has in another capacity, the trustee is not debarred from accepting the trust or performing the 'duties' imposed under it.
As Jacobs J stated in Princess Ann of Hesse v Field [1963] NSWR 998 (Princess Ann of Hesse) at 1009: The trustees were placed in a situation of conflict not by any act of their own but by the act of the testator in appointing them trustees in the particular circumstances.
This principle is not peculiar to trustees but rather is a broader one pertaining to fiduciary duties more generally. The content of fiduciary duties is moulded to the character of the particular relationship: see, for example, United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 11. The subject matter over which fiduciary obligations extend can be ascertained from the course of dealing between the parties or the circumstances of the appointment of the fiduciary: Chan v Zacharia (1984) 154 CLR 178 at 196 and 204.
Whilst a trustee owes fiduciary duties, there is considerable authority to the effect that directors of a trustee company do not owe fiduciary duties to beneficiaries by reason of their position as directors: Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504 at 522 per Finn J. That is not to say that the conduct of a director of a trustee company cannot inform an assessment of the fitness of the trustee company to hold office, and its likely conduct in the future.
The principles relevant to whether a court should remove a trustee, whether in its inherent jurisdiction or pursuant to its power under s 70 of the Trustee Act 1925 (NSW) (Act), are well known.
In Miller v Cameron (1936) 54 CLR 572 at 580-581, Dixon J (with whom Evatt and McTiernan JJ agreed) stated: The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property, and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove a trustee the court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary. A trustee is not to be removed unless circumstances exist which afford sound ground upon which the jurisdiction may be exercised.
The dominant consideration is the interests of the beneficiaries and whether the efficient management and implementation of the trust will be facilitated and the trust property preserved: Kanjian Holdings No. 1 Pty Ltd v Kanjian; Kanjian v Kanjian (No. 3) [2021] NSWSC 839 (Kanjian) at [1038] per Henry J (NSW Supreme Court). It is not whether a trustee has committed a breach of trust. A trustee is not lightly to be removed. Not every mistake or neglect of duty will induce courts to replace a trustee. The acts or omissions must be such as to endanger the trust property or to show a want of honesty, a want of proper capacity to execute the duties, or a want of reasonable fidelity: Jacobs at [15-85]. As Brereton J observed in Fay v Moramba Services Pty Ltd [2009] NSWSC 1428 (Fay v Moramba) at [25]: [25]…Removal is not inevitable, just because some or even all of the beneficiaries wish it. The court will not remove a trustee for the mere caprice of a beneficiary or without reasonable cause. Friction or hostility between the trustee and the beneficiaries is not of itself a reason for the removal of the trustee, although where the hostility is grounded on the mode in which the trust has been administered, or has been caused wholly or partially by substantial overcharges against the trust estate, it is not to be disregarded. (Citations omitted)
In Kanjian at [1043], Henry J observed: [1043] Where past conduct of the trustee is relied upon as a ground for their removal, the Court must assess whether that conduct demonstrates the unsuitability of the trustee continuing in their role, having regard to the interests of the beneficiaries. Past failures do not necessarily justify a prediction that similar failures will occur in the future. All relevant circumstances must be examined before determining whether removal is warranted, such as the reasons for the earlier failures: Titterton v Oates (1998) 143 FLR 467 at 480-1.
A further relevant consideration in the exercise of the Court's discretion is whether the proposed replacement trustee will charge for performing their role (as here) when the existing trustee does not. As Henry J (Qld Supreme Court) observed in this context in JPD as Guardian v DMS as Trustee [2022] QSC 181 at [25]: [25]…the settlor's wishes as to who should be entrusted with the trustee role and the potential financial impost on trust funds occasioned by the court's interference are material considerations in weighing whether the court's interference is justified.

Determination

Against these legal principles and the factual narrative set out above, I now determine whether Linrod should be removed now as trustee of the Trust.
For the reasons set out below, I am not satisfied that Linrod should be removed.
Counsel for Linrod and Stephanie repeatedly stated during the hearing that the case was proceeding on the basis of the matters pleaded against Linrod in the statement of claim and the reply. A number of the matters raised by the plaintiff in opening written submissions were said to travel beyond the pleaded case.
I proceed on the basis of the pleaded allegations. During the hearing, senior counsel for the plaintiff contended, in reliance on the decision of Parker J in Gillespie v Gillespie Cranes Nominees Pty Ltd (2022) 405 ALR 680 (Gillespie) at [122] that it was permissible in cases such as this involving the removal of a trustee, to have regard to matters that have not been pleaded but are relevant to the Court's consideration of whether the trustee should be removed. I do not regard anything said by Parker J in Gillespie as permitting such an approach in the present case.
The pleaded allegations are set out in paragraphs [28] to [56] of the statement of claim. They may be summarised as follows: 1. for each of the financial years 2017-2018 to 2020-2021, it is contended that Linrod has failed to maintain any or any proper accounts for the Trust and has failed to account for all income of the Trust. This seems to be based on the contention that no income from the sale of cattle has been recovered as Trust income; 2. the failure to properly utilise the Trust Property for the benefit of the beneficiaries of the Trust - it is contended the Trust Property has a carrying capacity of 80 cows and 30 acres devoted to growing lucerne; 3. between February 2019 and April 2019, Linrod, by its sole director Stephanie, purported to instruct Mr Evans to dissolve the Trust and transfer the Trust Property to Stephanie in her personal capacity. On or about 9 April 2019, Stephanie instructed Mr Evans to defer a transfer of the Trust Property and leave it in the Trust until Stephanie's de facto partner was unable to make a property adjustment claim against Stephanie. By reason of these matters, Stephanie had determined to deal with the Trust Property for her sole personal benefit; 4. Linrod has not made any distributions of income of the Trust to any beneficiary in paragraph [1] of the Sixth Schedule of the Trust; and 5. Linrod failed to insure the Trust Property.
In his reply to the defence of Linrod and Stephanie, which pleaded the NOA in existence since the 2017-2018 financial year, the plaintiff alleged Linrod breached its fiduciary duty in several respects in giving effect to the NOA: 1. Linrod and Stephanie had a conflict between the duty owed to all beneficiaries of the Trust and Stephanie's personal interest and breached their fiduciary duties by giving effect to the NOA; and 2. Linrod placed the interest of third parties (the individuals who had an interest in the new operator) ahead of the interests of all beneficiaries of the Trust and/or was not impartial in its treatment of the interests of all beneficiaries and preferred the interests of third parties ahead of the interests of all beneficiaries of the Trust, including David.
The allegation of impartiality is a relatively narrow one concerning giving effect to the NOA.
It is further contended that Linrod did not obtain approval, release or ratification from any or all of the beneficiaries sanctioning the alleged breaches. Counsel for Stephanie and Linrod made it clear in closing address that no defence of informed consent was raised.
These grounds narrowed somewhat at the hearing.
As to (a) and (d), it was accepted that financial statements were kept but there was no income during the period, the income from cattle sales being received by Stephanie. Any issue in this regard thus concerns the NOA.
As to (b), no evidence was advanced in support of it.
As to (e), it was accepted that the Trust Property is insured.
This left, relevantly, two matters: 1. the NOA involving a breach of fiduciary duty - being breaches of the conflict rule and the profit rule and a lack of impartiality; 2. the alleged conduct in 2019 in seeking to collapse the Trust and transfer the Trust Property to Stephanie in her own right and the alleged attempt to mortgage the Trust Property for Stephanie's benefit.
I consider each of the two remaining bases.
I deal first with the 2019 arrangements. As set out above, I have found that there was discussion with Mr Evans in 2019 about transferring the Trust Property to Stephanie. Whilst it would appear that the idea probably came from Norman, in April 2019 it was something that Stephanie had requested of Mr Evans. He advised against this course and it went no further.
The idea of mortgaging the Trust Property to enable Stephanie to buy her own property was also raised in April 2019. On the evidence, it was likely raised by Norman and Kay and not Stephanie. There is nothing to suggest that it was her idea and she gave evidence that whilst she wanted her own property, she did not want this tied in any way to the Trust.
Again, however, the idea went nowhere.
Further, even if the transfer or mortgage did go ahead, there would have been nothing per se wrong in Linrod doing this. Clause 3.3 conferred an absolute discretion in this regard, although this must be understood in accordance with the authorities set out above.
Likewise, Linrod, as trustee, had power to mortgage the Trust Property to provide for beneficiaries (clauses 7(e), 7(k), 7(s), 7(z) and 7(aa)).
Any actual exercise of power by Linrod could only be objected to if it could be demonstrated that Linrod failed to consider the other beneficiaries or the decision was in bad faith, capricious, unreasonable or wantonly exercised etc.
It was not pleaded that the 2019 conduct - the attempted transfer or mortgage - suggested a lack of impartiality on the part of Linrod such that it should be removed as trustee now. Even if it was pleaded, I would not regard this conduct on the part of Stephanie as providing a basis to remove Linrod. It has not been demonstrated that the conduct would, had it been effected, have been a breach of duty.
At its highest, two ideas were floated and not pursued after advice was given. This was over five years ago. It was not put to Stephanie that she has some latent plan for Linrod to transfer the Trust Property to her once the proceedings are over.
I turn now to consider the NOA.
The essence of the case advanced in this regard by the plaintiff was summarised in the following way by senior counsel for the plaintiff in oral closing address: On the evidence the Court would be satisfied that there was a situation of conflict that arose by reason of Stephanie being on both sides of the transaction, and that constituted a breach of the conflict rule and the profit rule is also breached because, ultimately Stephanie did gain a benefit from being able to farm the land and set the terms on which that occurred.
The benefit was further said to be being able to conduct a business on the land potentially with a view to a profit, potentially for pleasure, with the ability to have the very flexible arrangements that she did where she could effectively set the terms, in terms of how much she would pay and not be subject to a binding lease.
Stephanie and Linrod contended that there was no breach for a variety of reasons, including: 1. such a dealing was expressly authorised by clause 7(e) of the Trust Deed - Stephanie was appointed as sole director of Linrod in full knowledge that she was such a beneficiary who may have an interest in such dealings; 2. there can be no complaint that Stephanie wore two hats - she was appointed the sole director of Linrod at a time when she was a beneficiary paying expenses of the Trust and the fiduciary duty must meld to the existing circumstances; 3. there was no real or substantial possibility of a conflict between the trustee's duties and their interest; 4. there can be no serious suggestion that Stephanie's interests in being offered the NOA were being preferred over other beneficiaries; 5. the NOA was obviously in the best interests of the Trust; and 6. even if the NOA constituted a breach of fiduciary duty it would be technical in nature, liable to be exonerated under s 85 of the Act. As a final fallback, Stephanie indicated she is willing to proffer an undertaking on behalf of Linrod, to cease giving effect to the NOA.
A further argument, that dealing with a beneficiary was expressly authorised by s 14DA of the Act was abandoned in oral closing address.
The starting point is to isolate the salient relevant facts, as set out in more detail above. Those salient relevant facts may be summarised as follows: 1. clause 7(e) of the Trust Deed gives the trustee power to enter into transactions with any prospective beneficiary; 2. at the time that Linrod became trustee in 1981, its officers were both beneficiaries of the Trust in the sense set out above and the trustee would need to consider making distributions to them or entering into arrangements with them under clause 7(e); 3. at all relevant times since 1998, being some years prior to being appointed director and shareholder of Linrod, Stephanie has worked on the farm including paying out of her own pocket, a number of expenses in relation to the operation of the farm, being expenses of the Trust; 4. Norman and Kay were aware of this. Stephanie gave unchallenged evidence of discussing with Norman, from time to time and typically around tax time that she would get back everything that she had put in; 5. at the time Stephanie was given ownership (as shareholder) of Linrod and control of it (as director), she was a beneficiary and had an arrangement to pay Trust expenses and also work the farm for free. The decision to give Stephanie control of Linrod was made by Norman when he was appointor of the Trust, albeit in the context of removing himself so as to get the aged pension; 6. at no relevant time - being the 2018 financial year onwards - has the Trust ever made a profit. To the extent earlier years are relevant, the evidence suggested that there were no significant profits; 7. throughout the period from the 2018 financial year onwards, Stephanie (either as sole trader or in partnership with Lee) has conducted a farming business on the Trust Property. She has paid farm expenses almost exclusively - the only exception apparently being some insurance, paid by her parents. In so doing, she has received a tax deduction for the losses incurred in operating the farming business which she has offset against her income from her day job. There is no formal lease in place and expenses paid by Stephanie on behalf of Linrod are recorded as income in Linrod's accounts; 8. at no stage has any family member (other than Stephanie) shown even the slightest interest in taking over, or even assisting Stephanie in the running of the farm and the payment of farm expenses. So much is readily understandable in circumstances where the Trust has never made a profit; 9. there has never been any suggestion, until these proceedings, that the Trust Property, not including the two dwellings in which Norman/Kay and Stephanie relevantly reside, could be put to some other - presumably more profitable - use. The suggestions in the present case were just that - suggestions. No probative material was put forward to suggest that there was an alternative use to which the Trust Property could be put. The suggestions were purely theoretical; and 10. the only person put forward as a potential replacement trustee will charge for performing their services at a rate of $440 per hour.
Against this background, I am not satisfied that there is any breach of fiduciary duty by Linrod.
The case advanced by the plaintiff was akin to suggesting that Linrod as trustee had a duty to, in effect, test the open market so as to maximise the return from the use of the Trust Property and that any failure to do so and to instead implement the NOA was a breach of fiduciary duty - both the conflict rule and the profit rule.
The essence of the arrangements - whereby Stephanie was working the farm and was paying Linrod's expenses - was already in place at the time that Stephanie was given control of Linrod as its sole director and shareholder. Stephanie was placed in the position of controlling Linrod by Norman in these circumstances and where she was also a beneficiary, she was placed in the position of controlling Linrod and at the same time determining whether to deal with herself in a personal capacity in relation to the arrangements on the Trust Property. The fiduciary duties to which Linrod is subject need to take account of these matters: see Princess Ann of Hesse and the discussion above. It would be quite artificial and wrong to ignore them.
As submitted by Linrod and Stephanie, such a finding would not permit Linrod to enter into whatever arrangements it wished with Stephanie. Linrod is still subject to a number of duties including to act in the best interests of the Trust. The relevant point is that there is no breach of fiduciary duty. No other case of breach of duty was advanced in this regard.
Further, clause 7(e) of the Trust Deed permits Linrod to enter into transactions of any kind with any person who is for the time being beneficially entitled to any interest whether vested, contingent, presumptive, expectant or prospective in the Trust Fund. Stephanie clearly falls within this class.
Senior counsel for the plaintiff contended that clause 7(e) does not sanction self-dealing and does not abrogate or abolish the conflict or profit rules to which every trustee is subject. It was contended that clauses such as clause 7(e) cannot, for public policy reasons, oust the right of beneficiaries to the due administration of the Trust. Reliance in this regard was placed on Rinehart v Welker (2012) 95 NSWLR 221 (Rinehart v Welker) at [139] and Leerac Pty Ltd v Fay [2008] NSWSC 1082 (Leerac) at [14].
I do not accept this contention. In Rinehart v Welker at [139], Bathurst CJ referred to the following passage by the learned authors of Jacobs in the 7th edition (2006) at [1620]: It has been held that there is an irreducible care of obligations owed by the trustees to the beneficiaries and enforceable by the beneficiaries which is fundamental to the concept of a trust. If these do not exist, or if the beneficiaries have no right to enforce them, there is no trust. The maximum duty is the duty to perform the trusts 'honestly and in good faith' for the benefit of the beneficiaries, it does not include the trustees' duty of skill, care and diligence.
The 8th edition of Jacobs maintains this statement.
The same point was being considered by Brereton J in Leerac.
On no view does clause 7(e) seek to do this. Linrod is still required to perform the trusts, honestly and in good faith for the benefit of the beneficiaries.
The clear effect of the plain words of clause 7(e) is to permit Linrod to deal with beneficiaries, including Stephanie.
There is also no real or substantial possibility of conflict between Linrod's duties and Stephanie's interest.
Ignoring for present purposes the fact that Stephanie is not the trustee, only its director, and looking at the substance of what is going on on the Trust Property, there was no suggestion that there was anyone else willing to pay for the use of the Trust Property on more favourable terms than the NOA. No other beneficiary has sought to use the land and been refused. This is not surprising in circumstances where Stephanie is meeting expenses that Linrod as trustee would otherwise be liable for and in so doing is obviously reducing the possibility of the Trust Property having to be sold and enabling Norman and Kay to continue to live on the land. This is in circumstances where the income is nowhere near enough to meet those expenses.
Relatedly, it cannot be said that Stephanie, as director of Linrod, is preferring her own personal interest as a beneficiary over that of other beneficiaries. The reality is that Stephanie continues to pay the expenses out of her own pocket in circumstances where no one else seems willing to do so.
I am thus not satisfied that the NOA involves any breach of fiduciary duty by Linrod.
The plaintiff also sought to advance a general contention that the Court should find that Linrod was not impartial and independent. It was contended that the Court would not feel comfortable, on the evidence, that Stephanie and Linrod will treat all beneficiaries, including David and Bruce, in an even handed and impartial way.
Reference was made to paragraph [13] of an affidavit made by Stephanie in response to an affidavit sworn by David on 25 November 2024 regarding an aspect of what occurred at the Trust Property on 26 March 2020. In paragraph [13] Stephanie said she held no ill feelings towards David and if the Trust had money to distribute, or if there was another way the Trust could provide for David, she would consider his circumstances and needs and consider making a distribution or other provision to him.
No similar statement had been made by Stephanie in either of her two earlier affidavits.
The plaintiff contended that this new evidence was nothing more than a self-serving attempt by Stephanie to back track from the open hostility with which she has treated David since first meeting him on 26 March 2020. This contention was said to be supported by the following objective matters: 1. Stephanie filming David when they met for the first time at the Trust Property on 26 March 2020 and refused to stop when requested; 2. Stephanie not wanting David or Bruce to enter the Trust Property; 3. Linrod and Stephanie not responding to the request on 13 July 2021 from David to provide various trust documents; 4. Stephanie saying to Norman in November 2023 after the failed mediation - "Are you sure David's your son; he's nothing like us" - leading to paternity tests being taken; 5. Stephanie never previously inquiring into David's personal circumstances; 6. the open offer by letter from Norman's solicitor dated 29 April 2024 offering to pay $50,000 to David which offer was made without inquiring into David's circumstances; and 7. the hostility and ill will evident in the proceedings.
Stephanie and Linrod objected to this case being run on the basis that it was not pleaded. Further, the facts did not make it out.
In my view, the case does stray beyond the pleadings. As set out above, the pleaded case of impartiality is a narrow one related to the NOA. The plaintiff should not be permitted to run this broad case.
In any event, the factual contentions do not lead me to question whether Stephanie and Linrod will treat all beneficiaries in an even handed and impartial way, let alone to such an extent that Linrod should be removed in all the circumstances.
I do not place much significance today on what occurred on 26 March 2020 - some four and half years ago. This was obviously a traumatic period in the Teterin family. There had been a physical altercation and Norman had left the property to live with Bruce, leaving Stephanie and, more importantly, his wife Kay. David then enters the picture with Norman. Stephanie had not met him before. Stephanie was no doubt legitimately concerned with what was happening at the time.
As for (b) above, the evidence was that Norman had promised Stephanie that he would not allow David to enter the Trust Property.
As for (c), Stephanie's refusal to provide the documents was based on legal advice and as such does not bespeak of ongoing hostility or ill will towards David.
As for (d), the statement was made after a failed mediation. A paternity test was taken and the issue has gone away.
As for (e), there has been no need for Stephanie to inquire into David's circumstances. There has been no income to distribute, only losses to defray by Stephanie paying expenses personally.
As for (f), the point ultimately went nowhere in circumstances where it was accepted that the offer was made after a mediation and what was discussed at the mediation obviously cannot be disclosed.
As for (g), I do not regard the evidence and conduct of the proceedings as demonstrating open hostility. Stephanie and Norman do not want Linrod removed as trustee and have defended the proceedings accordingly. In any event, friction or hostility is not of itself a reason for the removal of a trustee: Fay v Moramba at [25] per Brereton J.
The plaintiff also made a number of credit attacks on Stephanie. I have dealt with most of these attacks above. One I have not dealt with concerned when Stephanie last read the Trust Deed prior to meeting Mr Mersnich in August 2018. She initially said she could not remember and later said, in the context of a question focused on the time when she entered into the partnership with Lee, that she recalled reading the Trust Deed at that time. Again, I do not regard this evidence as bearing too heavily on Stephanie's credit. It is inherently plausible that Stephanie's memory was prompted by the later question being directed at the time Stephanie entered into the partnership with Lee.
For completeness, I do not regard any of the credit attacks as bearing adversely on Stephanie's independence or impartiality now to carry out her duties as sole director of Linrod.
The plaintiff placed some reliance on the decision of the Victorian Court of Appeal in Owies v JJE Nominees Pty Ltd (2022) 22 ASTLR 89. The case provides a useful discussion of relevant principles but its facts were quite different from the facts of the present case.

Residual discretion to remove Linrod

For the reasons set out above I am not satisfied that any of the alleged factual bases for the removal of Linrod have been made out.
Even if some wrongdoing by Linrod had been established, the Court still has a discretion as to whether to remove Linrod as trustee. Removal is not lightly to be ordered. Removal is not inevitable, just because some or even all of the beneficiaries wish it. Friction or hostility is also not enough.
In the present case, there has been no occasion for Linrod to exercise its powers in circumstances where there has been no income to distribute and, as clarified during the hearing, there is no immediate intention to sell the Trust Property. Norman, as original appointor and Principal Beneficiary, wishes for Linrod to remain as trustee and Stephanie to remain as sole director and shareholder of Linrod.
The only alternative candidate as trustee is a professional trustee who will understandably charge for his services. Linrod is not charging for its work - to the contrary, Stephanie is continuing to pay Trust expenses out of her own pocket. There is no money to pay a professional trustee and as such, if Linrod was to be replaced as trustee there is a real likelihood that the Trust Property would need to be sold to pay trustee fees thereby removing Norman and Kay from their home of many years.
Whilst it may be possible to raise monies to pay the incoming trustee's fees against security of the Trust Property this would unnecessarily reduce the value of the trust estate.
Far from jeopardising the Trust Property, Stephanie's conduct in continuing to pay Trust expenses out of her own pocket is continuing to maintain the Trust Property.
Even if misconduct by Linrod had been made out, I would not have removed Linrod as trustee in all the circumstances.

Did Norman disclaim any benefit under the Trust?

The claim that Norman disclaimed any interest, benefit or entitlement in or under the Trust centres on the sending of the letter to Centrelink on or around 19 April 2002.
Counsel for Norman originally contended that in considering whether the allegation is made out, I was only permitted to have regard to whether the letter was sent and not to any surrounding circumstances, such as the documents executed at or around the same time as the date of the 19 April 2002 letter, the advice allegedly received by Norman around this time together with the agreed fact that Norman had received the aged pension since April 2002. I do not accept this contention. The surrounding context is undoubtedly relevant to understand the alleged Centrelink letter and was addressed in Norman's affidavit evidence.
I have set out the relevant dealings above: 1. the letter dated 27 February 2002 from Heufel Partners to Norman; 2. the Variation of Trust Deed dated 25 March 2002; 3. Norman's letter of resignation dated 25 March 2002; 4. the share transfer documents whereby Norman and Kay transferred their shares in Linrod to Stephanie; 5. the letter dated 19 April 2002 from Heufel Partners to Norman; 6. Norman's letter to Centrelink dated 19 April 2002 which was also provided to the trustee; and 7. since 2002 Norman has received a government aged pension.
The plaintiff's case was quite straightforward in this regard - the language of the Centrelink letter, in the context of which it was written, had the effect of disclaiming Norman's interest as a beneficiary on and from the date on which the trustee had notice of the disclaimer (April 2002). It is not an onerous test to determine whether a beneficiary has disclaimed his or her interest as a discretionary object of a trust. Any evidence of actual dissent is sufficient: FCT v Cornell (1946) 73 CLR 394 at 401.
Norman contended that there was no effective disclaimer for three reasons: 1. the wording of the alleged disclaimer letter does not rise to any level of rejection or renunciation of Norman's status as a Principal Beneficiary or beneficiary; 2. as the Trust had not made any distributions of income capital and the trustee has not made any decision with respect to distributions, there is nothing for Norman to disclaim; and 3. the alleged disclaimer letter does not refer to Norman's interests under the Trust, let alone the release or extinguishment or disclaimer of such interest or interests as at April 2002.
An important plank in Norman's argument was a proper understanding of Norman's position at the time of the purported disclaimer - whether he remained the Principal Beneficiary under the Trust Deed (as varied) and the nature of the rights he possessed.
Under the terms of the Trust Deed prior to the Variation Deed in March 2002, Norman was the Appointor and Principal Beneficiary. As Principal Beneficiary, he was also a beneficiary. Under clause 2(b) the default position was for the trustee to apply the income for the benefit of the Principal Beneficiaries. A similar default position for capital was contained in clause 4(b).
Notwithstanding what appears from the letter from Heufel Partners to Norman dated 27 February 2002, to have been the intention at the time for Norman to cease as Principal Beneficiary and to hand that role to Stephanie, it is clear that the Variation Deed did not do this. Norman remained the Principal Beneficiary. The main relevant change was the deletion of clauses 2(b) and 4(b) setting out the default position in relation to income and capital. In this last respect, the status of the Principal Beneficiaries as a contingent remainder was excised.
Norman's contention was that had it been intended that Norman would cease to be a beneficiary under the Trust, one would have expected this to have been achieved by the Variation Deed simply removing Norman as a beneficiary. The Variation Deed did no such thing.
Norman remained the Principal Beneficiary and, as such, a beneficiary. Although described as a beneficiary, this is in the sense in which the term is used in a discretionary trust such as the Trust - the "Beneficiaries" are objects of a power rather than beneficiaries in the strict sense. As set out above, the Beneficiaries have no beneficial interest in the Trust Property - at best, they are potential beneficiaries with a right in equity to due administration of the Trust.
Norman contended that as no distributions of income had been made by Linrod as at 2002, there was nothing to disclaim. Reliance was placed on Commissioner of Taxation (Cth) v Ramsden [2005] FCAFC 39 at [34]-[36]. A disclaimer must bite on something that can be disclaimed: Re Smith [2001] 3 All ER 552 at [10].
The plaintiff relied on Re Gulbenkian's Settlements (No.2) Stephens & Anor v Maun & Ors [1970] Ch 408 (Gulbenkian (No. 2)) where Plowman J stated at 418 in considering in the context of a discretionary trust, whether a "beneficiary" - being the object of the power to consider whether or not to exercise their discretion in its favour - could release the trustee from that duty quoad hunc, whereupon the "beneficiary" would cease to be an object of the power: If a man cannot be compelled to accept a gift I see no reason why he should not be equally free to refuse to accept the exercise of a power which the donor has conferred on the trustees to make a gift in his favour.
In that case, the renouncement was contained in an agreement supported by consideration. Gulbenkian (No. 2) has been followed in Australia: see Chamberlin, Bennett (in their capacity as trustees of the estate of the late Spry) v Spry [2008] VSC 562 at [5] per Pagone J.
Gulbenkian (No. 2) is cited by the learned authors of Lewin on Trusts (Sweet & Maxwell, 20th ed, 2020) as authority for the proposition that (at [28-149]): One of the objects of a power of appointment may release the donee of the power from any duty to consider whether or not to exercise the power in his favour and if he does so he ceases to be an object of the power.
In Chief Commissioner of State Revenue v Smeaton Grange Holdings Pty Ltd (2017) 106 ATR 151; [2017] NSWCA 184, Leeming JA stated (obiter) at [18]-[19]: [18] I would reject the Chief Commissioner's submission that because disclaimer is a doctrine applicable to gifts of property, and because a discretionary object does not have property in the assets held on trust, a discretionary object cannot disclaim. The unstated premise is that disclaimer is only applicable to property, and that is the very issue which arises. The submission is falsified by the consideration that a residuary legatee may renounce his or her interest under a will - even if the estate has not been fully administered, and indeed even before a grant of probate has been made. See G Dal Pont and K Mackie, Law of Succession (LexisNexis 2013), [7.42]-[7.46]. Or consider Livingston v Commissioner of Stamp Duties (Qld) (1960) 107 CLR 411 and [1965] AC 694. Mrs Coulson had quite limited rights in respect of the unadministered estate of her deceased first husband, but I have no doubt that she would have been able to disclaim the entirety of those rights after his death. (The position as to whether the next of kin may disclaim in intestacy may be doubtful in some jurisdictions, as is suggested in a flurry of notes (1976) 40 Conv (NS) 292, (1977) 41 Conv (NS) 260 and (1978) Conv (NSW) 213, but is confirmed in this State by s 139(a) of the Succession Act 2006 (NSW).) [19] If a purported disclaimer takes place before the disclaiming party has any right or interest at all, then it could well be that the disclaimer cannot then and there be effective. A disclaimer of a mere expectancy under a will prior to the testator's death cannot be effective; as it is said, "a disclaimer bites on something that can be disclaimed": see Re Smith (Decd) [2001] 3 All ER 552 at [10]; cf N Crago, "Principles of Disclaimer of Gifts" (1999) 28 University of Western Australia Law Review 65 at 69. (There is no occasion to express a view on the effectiveness of a promise for valuable consideration to disclaim, as to which some North American authorities are discussed in Robinson v Morrell Estate [2009] NSCA 127.) Thus it has been said that it is not possible for a discretionary object to disclaim in relation to a particular trust asset before the trustee has made any determination in relation to that asset: Commissioner of Taxation v Ramsden [2005] FCAFC 39; [2005] ATC 4136 at [34]-[36]. But it does not follow that there can be no disclaimer of the discretionary object's presently existing choses in action prior to there being any exercise of discretion in favour of the discretionary object by the trustee in respect of a particular trust asset; cf J Gleeson, "Spry's case: Exploring the limits of discretionary trusts" (2010) 84 ALJ 177 at 187. (emphasis added)
Sackville AJA declined (at [153]) to consider whether Gulbenkian No. 2 was wrongly decided as it was unnecessary for the decision in that case.
In Smith v Mitchelmores Trust Corp Ltd [2021] EWHC 1425, it was held at [68]-[69] that even prior to any discretion being exercised in favour of an object of a discretionary trust, the object has an interest which can properly be the subject of a disclaimer or, in the case of a beneficiary who has once received income in right of his interest, can properly be released (but not disclaimed). A release is said to be a giving up of the interest which the beneficiary had, whereas a disclaimer is the avoidance of the interest in the first place.
Having regard to Gulbenkian (No. 2), I accept that the object of a discretionary trust can disclaim any interest or release the trustee from any duty to consider whether or not to exercise the power in the object's favour and if the object does this, the object ceases to be an object of the power.
The question is whether, in the circumstances of this case, this is what Norman has done.
Even accepting that it is not an onerous test to determine whether there is an effective disclaimer, I am not satisfied that there has been in the present case.
The context is important - namely dealings with Centrelink in relation to Norman receiving the aged pension where he was no doubt required to satisfy a means test. This is occurring at the same time as a variation of the Trust Deed. Had Norman intended to cease to be an object of the Trust, this could easily have been achieved by removing him as the Principal Beneficiary and a beneficiary. He clearly was not so removed. No other conclusion is open other than that Norman intended to remain the Principal Beneficiary.
The Trust Deed continued to contain a provision permitting the trustee to provide a dwelling for the Principal Beneficiary - being the Trust Property. There was no suggestion Norman was required to vacate the Trust Property.
The "disclaimer" is contained in a letter to Centrelink, not to the trustee. The words used are quite generic but understandable in the context of the dealings between Norman and Centrelink. In the circumstances, clearer words would have been required to bring about the result that Norman was forever relinquishing Linrod from any duty to consider him in any future exercise of Linrod's powers as trustee. In circumstances where Norman remains Principal Beneficiary under the recently amended trust documents, one would also have expected there to be a direct communication from Norman to Linrod in this regard, making it clear that Linrod was no longer required to consider Norman as an object, perhaps also by reference to the provisions of the varied Trust Deed.
No doubt if Norman was to receive any future distribution from the Trust, this would be a matter of which he would need to inform Centrelink. Counsel for Norman accepted this. Any impact on Norman's aged pension would obviously be a matter for Centrelink.

Costs of the claim against the second defendant

At the commencement of the hearing on 25 November 2024, senior counsel for the plaintiff sought leave to discontinue the proceedings against Mr Evans on the basis that costs either be reserved for later determination or otherwise, as between the plaintiff and Mr Evans, there be no order as to costs.
Mr Evans sought an order that the plaintiff pay his costs of the proceedings. It was subsequently clarified that the costs order was sought from 19 July 2023, being the date on which Mr Evans received an order for costs in his favour on dismissal of the cross-claim against him. As all the parties were in a position to argue the point, I determined to deal with it at the commencement of the hearing and I determined that the plaintiff should pay the costs of Mr Evans from 19 July 2023. These are my reasons.
I have set out above the factual chronology, the relevant correspondence between the parties leading up to the proceedings and then the acceptance by the parties that the proceedings should be discontinued against Mr Evans.
It is to be remembered that: 1. after Mr Evans was purportedly appointed trustee there was correspondence between the respective solicitors; 2. Mr Evans essentially took the position in that correspondence that although he thought that the documents appointing him were effective, this was only intended to be a short-term appointment with Norman subsequently not providing any further instructions and then taking the view that Mr Evans was not validly appointed. Mr Evans never really performed the role of trustee. Mr Evans would consent to any resolution to which the protagonists agreed or the Court imposed; 3. proceedings were then commenced by summons naming Mr Evans as a party. Mr Evans filed a submitting appearance; 4. the Court ordered the matter proceed by way of pleadings and a statement of claim was filed alleging various breaches of trust by Mr Evans in response to which he withdrew his submitting appearance and took an active part, filing a defence and evidence; and 5. when Mr Evans was advised on 11 November 2024 of the Removal Deed executed by Norman and others on 30 October 2024, confirming Linrod's appointment as trustee, Mr Evans invited the plaintiff to discontinue the proceedings and pay his costs. The parties agreed that the proceedings should be discontinued, but were not able to agree a position on costs.
Against this background, counsel for Mr Evans relied on r 42.19 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), contending that it was for the plaintiff, as the discontinuing party, to establish a proper basis for the departure from the rule that the discontinuing party should pay the defendant's costs.
The plaintiff accepted the prima facie application of the rule but said that there was a clear basis for departure. The plaintiff contended that this was a case for the application of the well understood principle in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at [624]-[625] to the effect that where a party abandons proceedings because of events which occur after the proceedings were commenced, and which make their further prosecution futile or unnecessary, the Court will not, on costs application, try the case for the purpose of determining who would have won, unless it can be clearly demonstrated that one side has capitulated.
The intervening event in the present case was said to be the Removal Deed, after which Mr Evans accepted he was not the trustee. Prior to then it was contended that Mr Evans was a necessary party (UCPR r 7.11(2)) and at any time prior to then he could have resigned as trustee.
Counsel for Mr Evans contended that it was not necessary for the plaintiff to make the allegations of breach of trust against Mr Evans and it was those allegations that caused Mr Evans to withdraw his submitting appearance and take an active role in the case. Mr Evans was otherwise content to let the other protagonists either agree an outcome or fight it out in Court. It was also contended that even if proceedings had been reasonably commenced and continued, this was not determinative on the question of costs. Reliance in this regard was placed on the decision of White J in Samowitz v Wilson [2013] NSWSC 1194 at [28]ff.
In the circumstances of the present case, I was not satisfied that the plaintiff had established a case to depart from the prima facie position under UCPR r 42.19. It was not necessary for the plaintiff to allege the matters it did against Mr Evans, causing him to take an active role in the proceedings. Prior to this time Mr Evans had been content to file a submitting appearance and let the main protagonists fight it out. It was the making of the allegations that caused the costs to be incurred.
Whilst the making of the Removal Deed meant that Mr Evans no longer needed to be a party, he would not have needed to be an active party but for the allegations of breach of trust.
If the plaintiff wishes to contend that the remaining defendants were somehow delinquent in making the Removal Deed when they did, and that this provides a basis for the plaintiff to pass on all or some of his costs liability to Mr Evans, then I reserve to the plaintiff liberty to apply for such an order.

Conclusion and orders

For the reasons set out above, I am not satisfied that Linrod should be removed as trustee of the Trust. I am also not satisfied that it should be declared that Norman is no longer a beneficiary.
I will give the parties an opportunity to agree orders including as to costs. Prima facie, it seems to me that the statement of claim should be dismissed and the plaintiff should pay the costs of the first, third and fourth defendants. Failing agreement, I will determine any remaining issues on the papers.
The orders of the Court are: 1. Direct the parties to confer and seek to agree final orders to give effect to these reasons, including as to costs. 2. Direct the parties to provide any agreed orders, or competing orders, to my Associate by no later than 5pm on 28 January 2025. 3. In the event there is no agreement, including as to costs, direct the parties to provide to my Associate by no later than 5pm on 28 January 2025 any submissions and supporting material, such submissions not to exceed 3 pages. 4. Direct the parties to provide to my Associate by no later than 5pm on 4 February 2025 any submissions and supporting material in reply, such submissions not to exceed 3 pages, whereupon the remaining issues will be determined on the papers.

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: 19 December 2024

Trustee Act 1925(NSW)ss 14DA

Teterin v Linrod Pty Ltd

At a glance

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Judgment (12 paragraphs)

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Cases Cited (19)

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