Dig it up** - Lost trust deeds & another case to remember

Last week's post considered arguably the leading case in relation to lost trust deeds.

The case of Re Porlock Pty Ltd [2015] NSWSC 1243 provides further insight into the issues a court will consider where a trust deed has been lost.

In this case, the plaintiff was the trustee of the JBD Carr Trust No 2 which was established in 1957 and by the time of the court application had substantial assets. The trustee applied to court seeking advice pursuant to the powers under the relevant Trusts Act confirming how it held the property.

As part of the search for the deed, a letter was produced by the accountant of the trust which outlined how the income and capital of the trust was to be distributed. The trustee produced a supporting affidavit from the accountant indicating the letter was likely to be an accurate summary of the deed as he recalled quoting the trust deed itself when drafting the letter.

In making an order, the court concluded that the trustee would be justified acting in accordance with the letter as this was the ‘best evidence’ of the trust’s terms.

Importantly, the court confirmed that if the trust deed were to be found and a claim brought against the trustee by other parties who may be entitled under the deed, the trustee would not be personally liable for any breach of trust so long as they followed the advice of the court.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Hoodoo Gurus song 'Dig it up'.

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Lost (in infinity**) and lost trust deeds - the leading case

In the lead up to another 30 June, it is timely to consider one of the most important issues leading to potentially seeing trust distributions fail, that is the trustee having custody of the original trust deed.

Arguably the leading case in relation to when a court will allow a trustee to rely on secondary evidence where a trust deed has been lost is Maks v Maks (1986) 6 NSWLR 34.

In this case, both parties lived in a number of homes purchased by the defendant in his own name.

The plaintiff sought a declaration that the defendant in fact held a half share of the relevant property 'on trust'.

The plaintiff argued that a document had been signed by both parties which amounted to a declaration of trust. The alleged document was never produced at trial. On balance, the court considered a document did exist, however the judge was not prepared to make a finding as to the terms of the document.

It seems apparent from the decision, there was no argument put forward as to the nature of the terms of the missing document.

The court concluded that where secondary evidence is being relied upon to prove the existence of a trust, there must be clear and convincing evidence not only of the existence, but also the terms of the trust.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the World Party song 'Lost in infinity'.

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Rooms for the memory** - she said v he said evidence in court proceedings

Last week's post explored the case of Callus v KB Investments - [2020] VCC 135.

The decision also provides a useful summary of the approach a court must take when considering the evidence from opposing litigants.

In summary it was stated:

1. Human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the process of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience (see: Watson v Foxman (1995) 49 NSWLR 315 at 319).
2. The best approach for a judge to adopt in the trial of a commercial case is to place little if any reliance on witnesses’ recollection of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts (see: Blue v Ashley (No 2) [2017] EWHC 1928).
3. Where there is conflicting evidence, the court will place ‘primary emphasis on the objective factual surrounding material and the inherent commercial probabilities’ together with documentation tendered in evidence' (see: Bullhead Pty Ltd v Brickmakers Place & Ors [2017] VSC 206).

As usual, please contact me if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Michael Hutchence/Ollie Olsen song 'Rooms for the Memory’.

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Do beneficiaries need to believe in love** when concerned about trustee distributions?

Many previous posts have considered the overriding duty of trustees of trusts - and the fact that a trustee must exercise its discretion in good faith, upon real and genuine consideration and for a proper purpose.

Again with 30 June rapidly approaching, the decision in Callus v KB Investments - [2020] VCC 135 provides a useful example of the approach the courts will take in this area.

Relevantly the factual matrix involved:

1. A family trust set up by the parents of the family (on apparently standard terms);
2. Over time, all adult children benefited in various ways from the assets of the trust;
3. Some years after the trust was established, a new trustee company was appointed, with one of the adult sons the sole director of the company;
4. Around 3 years later the trust distributed one of the properties of the trust to the sole director in his personal name;
5. On discovering the transfer some years later, a sister brought proceedings to unwind the transaction and have the trustee replaced.

In letting the transfer stand, however also removing the trustee, the court confirmed:

1. While the trustee did not give any reasons for its decision to transfer the asset, it was not required to under the trust deed.
2. In any event, no record was provided of the decision – and even if there had been a document disclosing the reasons produced, the trust deed provided that the trustee was not bound to disclose any document setting out any reasons for any particular exercise of the trustee’s power.
3. The trustee was entitled to transfer the property to the son under the terms of the trust deed, which provided that the trustee may in its absolute discretion transfer any property ‘to any beneficiary for his own use and benefit in such manner as it shall think fit’ - with specific provision also confirming the trustee did not have any obligation ‘to consider competing claims of beneficiaries’.
4. The trustee also had no obligation to tell other potential beneficiaries of the trust of the transfer.
5. In contrast, due to the clear hostility between the son and one of his sisters (their relationship had deteriorated significantly following the transfer) the court was of the view that the trustee should be replaced, applying the rules explored in many previous posts centred on the test that 'the only guide is the welfare of the beneficiaries, and a trustee may be removed if the court is satisfied that its continuance in office would be detrimental to their interests'.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Human League song 'Love Action (I believe in love)'.

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The Mirror (man)** test - trustee powers of investment

Previous posts have considered various aspects of a trustee's powers.

Given another 30 June is on the horizon, it is timely to remember that the scope of a trustee's powers is often limited when relying on the provisions of the state based legislation in the area - reinforcing the preference to have comprehensive powers set out under the trust deed wherever possible.

The decision in G v G (No. 2) - [2020] NSWSC 818 is a useful point of reference in this regard.

The case involved the powers of a trustee of a protected estate (where the underlying sole beneficiary had lost capacity to manage their own affairs). As there was no trust deed regulating the trust, the relevant trusts act applied.

The key question in contention was whether the trustee had the power to invest assets of the trust in a retail superannuation fund (as opposed to a self managed superannuation fund).

The reason for the proceedings being the view that a payment by a trustee (which it was argued that by analogy, included a protected estate manager) into a superannuation fund is not an 'investment' of trust property by the trustee.

This was said to be because, by the payment into the fund, the trustee divests itself of trust property, loses control of that property and puts the property beyond the protective control of the court, albeit that, as a member of the fund, but without a property interest in the fund, the beneficiary (not the trustee) obtains a right to future benefits.

Furthermore, the trustee had arranged a binding death benefit nomination in favour of the legal personal representative of the estate of the beneficiary.

The court confirmed:

1. The trustee had the power under the relevant legislation to invest, or to authorise a private manager to invest, a protected estate into membership of a Regulated Superannuation Fund (although perhaps not a self managed superannuation fund, without deciding that issue).
2. This was at least in part because a protected estate manager stands in the shoes of the protected person and is the substitute decision maker. A protected estate manager does not hold property for the benefit of the protected person. Rather the protected estate manager controls the property which always remains in the name of the protected person.
3. There was however no power under the legislation for the making of a binding, or indeed any other form of nomination, for the payment of a death benefit payable by the trustee of a superannuation fund.
4. This was despite the fact that the court acknowledged that the prevailing view in Australia is that a binding death benefit nomination is not a testamentary act either because it is merely the exercise of a contractual right or the rules of the fund pursuant to which the nomination is given to the trustee confer a discretion on the trustee as to the identity of the person, or persons, to whom the benefit is to be paid.
5. Rather it was held that the management of an estate terminates on the death of the protected person and therefore the manager's power to make a decision about what happens to the protected person's funds after their death cannot be valid.
6. Thus, here, the proper course of action in relation to the nomination was there to be a separate court application authorising the effective making of a gift out of the estate of a protected person, and (perhaps) also an application for a statutory will (another topic considered regularly in View posts).

As usual, please contact me if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Human League song 'Mirror Man'.

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Sometimes** Trust to trust distributions are not all good

With only one more sleep until another 30 June is upon us, it seemed timely to remember that all Australian jurisdictions except for South Australia have a statutory perpetuity period of 80 years. In Victoria, Tasmania, Western Australia and the Northern Territory, the common law perpetuity period may also be adopted, that is ‘a life in being plus 21 years’. 

Despite South Australia essentially abolishing the rule against perpetuities, section 62 of the Law of Property Act 1936 (SA) allows the court to dispose of any remaining unvested interests after 80 years on the application of a beneficiary. 

Generally, when trust to trust distributions are made, the vesting date of both trusts should be considered. Where a recipient trust has a vesting date which is later than the distributing trust, the risk that the rule against perpetuities is breached is a particularly relevant issue. 

Historically, many advisers believed that if the vesting date of the recipient trust was later than the distributing trust, then this automatically caused a breach of the rule against perpetuities, making the purported distribution void. 

However, the case of Nemesis Australia Pty Ltd v Commissioner of Taxation [2005] FCA 1273 confirmed that the ‘wait and see rule’ in each jurisdiction can be relied on in a situation where a trust distributes to another trust with a later perpetuity date. 

The ‘wait and see’ rule means the initial distribution will not be void when made, and will not become void until such time as there is a failure to distribute out of the recipient trust before the vesting date of the original distributing trust. 

As usual, please contact me if you would like access to any of the content mentioned in this post. 

** for the trainspotters, ‘Sometimes’ is a song by the Carpenters. View hear (sic):